Minnesota schools and young families win big under the $42 billion budget proposed by Gov. Mark Dayton on Tuesday, with most new spending going to education.

The budget, which sets Dayton's main priorities for the next two years, would, if approved by the Legislature, amount to a nearly 20 percent increase in total state spending since he took office.

That spending increase, as well as some of Dayton's priorities, drew immediate criticism from some GOP legislators.

The plan uses most of a $1 billion projected budget surplus to extend preschool to more 4-year-olds, offer child care tax credits to families, and provide free breakfast for all students up to third grade. It would also terminate a series of corporate tax loopholes.

Not everyone comes out so well under Dayton's proposal. The governor publicly admonished the Minneapolis Park and Recreation Board for obstructing the Southwest light-rail project and recommended a cut in its funding. He said the Minnesota State Colleges and Universities (MnSCU) systems would get no new money until it resolved its internal squabbles between administration and faculty. He recommended no additional money for nursing homes, saying they'd gotten increases in previous years.

"Over half of this surplus goes into our future," Dayton said. "Young people will comprise the future of Minnesota, and that investment along with the transportation investments I proposed yesterday are placing my major priority on the future of Minnesota."

Republican legislative leaders gave a chilly response to Dayton's proposal, arguing that it spends too much and doesn't set the right priorities for the state. With a new majority in the House, the GOP will have greater influence over the final budget.

"He is spending every penny of this," House Speaker Kurt Daudt, R-Crown, said of the $1 billion surplus. "We are also a little disappointed in the lack of returning some of the money back to Minnesotans."

Senate Minority Leader David Hann, R-Eden Prairie, noted that the size of the two-year budget was $34 billion when Dayton took office. "That is a big increase in spending," Hann said.

Education a winner

Education was the largest recipient of new spending under Dayton's proposal, and would get a $373 million boost. He asked the Legislature to boost per-pupil funding, giving schools money to reduce class sizes, hire more counselors and invest in technology.

Dayton said much of the new education money is meant to close the state's long-documented gap between white and minority students in graduation rates and other performance measures.

He would wipe out a Head Start waiting list that now has 2,500 children on it and would make an additional 83,000 students statewide eligible for free breakfast.

Higher education also could see a $93 million increase in state funding. Part of that would go toward holding down tuition to curb the growth of student loan debt. A fact sheet distributed by the governor's office estimated that students would save between $600 and $700 yearly on tuition.

With his eye on boosting the national prominence of the University of Minnesota Medical School, Dayton's $93 million request includes $30 million to hire 50 research faculty members over the next eight years and attract high-caliber students.

Losers under Dayton's plan

Although higher education stands to see more state funding, the governor was not evenly generous. He recommended no new money for MnSCU, saying the colleges and universities system needed to settle a dispute between the administration and faculty.

In a joint statement, administrators and faculty said "we understand and share the governor's concerns and are taking positive steps and having substantive dialogue to resolve our disagreements."

The Minneapolis Park Board's gubernatorial spanking was surprising for its candor.

Budget documents explicitly said the reduction in state funding was "due to the Board's continuing efforts to obstruct progress" on the proposed Southwest light rail, which would run 16 miles from downtown Minneapolis to Eden Prairie.

The Coalition of Greater Minnesota Cities lamented that Dayton did not put more money into local government aid.

"Gov. Dayton's budget represents a missed opportunity to bring economic growth to Greater Minnesota," said Heidi Omerza, the coalition's president. "It's stunning that with a $1 billion surplus, the governor couldn't put one dime toward restoring the Local Government Aid program back to its 2002 level." The group said that Dayton's $30 million allocation for expanding broadband Internet access in rural areas falls far short of what the state needs.

Targeted tax relief

Dayton's budget proposal includes $100 million for child care and caregiver tax credits. Households earning up to $124,000 would be eligible for the credit, which would give direct tax relief averaging $481 per family to about 130,000 families statewide. The credit also would apply to dependent care for the disabled and elderly.

Dayton wants to close some tax exemptions that his revenue commissioner, Cynthia Bauerly, said have let mostly out-of-state companies skimp on Minnesota taxes. She said among the companies affected would be insurance companies that shelter income.

In late February, the Minnesota Management and Budget Office will release a new economic forecast. State lawmakers will use that projection to build their own budget framework, which should kick off intense budget negotiations between Dayton and state lawmakers.

Ricardo.Lopez@startribune.com 651-925-5044

Patrick.Condon@startribune.com 612-673-4393