Gov. Mark Dayton and legislative leaders are trying to find a way to allocate disaster aid without calling a potentially expensive and divisive special legislative session next month.

Dayton initially wanted a one-day session to deal with disaster relief and repeal a new tax on farm machinery repair, but he has clashed with Republicans pushing for deeper tax cuts that could blow a hole in the state's budget.

The two sides failed to reach an agreement after an hourlong meeting Friday, shifting the focus on whether they could use money left over from previous disasters to pay the state's $5 million share for disaster relief. The move would delay the tax fight until next year's legislative session and spare taxpayers tens of thousands of dollars to bring lawmakers back to the Capitol for a one-day session.

Residents in 18 southern Minnesota counties are awaiting relief after being battered by storms this summer.

"Primarily, we are trying to figure out how to do the disaster relief, and a special session is expensive," said Senate Majority Leader David Hann, R-Eden Prairie. "If there is a way to do it without a special session, we want to fully explore that."

The special session would be Sept. 9 if Dayton's budget officials are not able to shift the money.

Thissen

State law requires that any federal matching money be approved by the Legislature, even in a case when the amount could easily be covered in the state budget.

The chance for adding tax relief to a special session agenda dimmed Friday.

Republicans presented Dayton and Democratic leaders a letter demanding more than $300 million in tax breaks during the special session. They want to repeal three new sales taxes on business machinery repair, telecommunications equipment purchases and warehousing services.

Both sides agree on repealing the businesses taxes, but they differ on timing.

With about $46 million in unspent money in the bank, Dayton wants to repeal the new sales tax on machinery repair, which would cost about $28 million.

To offer deeper tax cuts, state leaders must tear open the budget and reignite a bruising battle over budget reductions or other tax increases.

Dayton has advocated repealing the warehousing tax next legislative session, once budget officials have a better look at the state's economy. The state could easily cover the $90 million cost of the warehousing tax repeal if other tax revenues come in stronger than projected.

The warehousing tax doesn't take effect until April, giving lawmakers time to scrub it from the books before it hits businesses and consumers.

Republicans have not offered a plan to pay for deeper tax cuts, House Speaker Paul Thissen said.

"One of the most important things is that whatever we do is paid for," Thissen said. "And no one has come up with a way to pay for any of this tax relief."

Baird Helgeson • 651-925-5044