Updated at 5:15 p.m.

By Rachel E. Stassen-Berger, Mike Kaszuba, Eric Roper and Baird Helgeson

DFL Gov. Mark Dayton and GOP legislative leaders announced Thursday evening they have reached a budget deal to end a two week government shutdown.

After a three-hour meeting with GOP leaders, Dayton said the shutdown will be done “very soon, within days.”

Dayton agreed to drop his insistence on a tax hike and accept the Republican offer to borrow money to balance the budget.

But the governor said the deal must include a $500 million bonding package for new building projects around the state, withdrawal of the divisive social issue proposals now threaded through Republican spending bills, and elimination of the GOP proposal to reduce the state workforce by 15 percent.

House Speaker Kurt Zellers, R-Maple Grove, said he will have the votes in the House to pass the agreement.

Senate Majority Leader Amy Koch, R-Buffalo, agreed. “We believe the caucus will ultimately support this.”

The GOP offer had two primary components. The state would drive down the deficit $700 million by increasing the amount of deferred school payments. It would then borrow from future tobacco settlement payments, which Dayton wrote in a letter Thursday would net $700 million.

"Despite my serious reservations about your plan, I have concluded that continuing the state government shutdown would be even more destructive for too many Minnesotans," Dayton wrote to legislative leaders. "Therefore I am willing to agree to something I do not agree with -- your proposal -- in order to spare our citizens and our state from further damage."

Dayton said if Republicans agree, commissioners and staff are prepared to meet "around the clock" to wrap up the budget. A special session could occur within three days, he wrote.

At a morning speech in Minneapolis, Dayton said he was "disappointed we can't do better."

During the speech and afterwards, the governor repeatedly said that Republicans could avoid the unpalatable tobacco bond revenue by offering up a more substantial form of revenue. Their leadership has not done so in the weeks of shutdown.

Even if House Speaker Kurt Zellers and Senate Majority Leader Amy Koch agree to the plan, they may still face hurdles wrangling the votes within their own caucus. Borrowing from tobacco bonds will likely mean the final deal is larger than the original $34.2 billion GOP budget, which some Republican members will not agree to.

Republican leaders plan to meet with Dayton at 2 p.m. Thursday to discuss the offer. For several hours after Dayton made the offer, both Zellers and Koch stayed silent.

"The clock is ticking for Republicans to accept their own offer," House Minority Leader Paul Thissen, DFL-Minneapolis said in a news release. "By offering the Republicans their budget, Governor Dayton is rising above politics, above partisanship, and making Minnesota his top priority.  It is now up to the Republicans to end this costly and destructive government shutdown by accepting and immediately passing this offer."

Sen. Michael Jungbauer, R-East Bethel, was one of the first Republicans to react to Dayton’s proposal.

“When he [says drop] all the policy positions, if that means that we don’t get any structural change to government, I guess I’m not really excited about that,” he said. “If we don’t have any structural change, we’re going to be in this position – we’ve been in this position the nine years I’ve been here” in the Senate.

“That would be a real non-starter for me, but I don’t want to see this shutdown,” Jungbauer added. “If he’s saying drop all structural changes, I don’t like that."

“I’m excited that we’re, you know, moving in the right direction. I’ll be excited to have this thing done,” he added. “[But] is it enough to just vote green?"

Sen. Dave Thompson, R-Lakeville, indicated via Twitter that the conditions may be problematic. "Let's be clear. Governor did NOT 'accept' the June 30 offer," Thompson tweeted. "He has simply attached new conditions to the June 30 framework."

Though some DFLers privately were critical Thursday of Dayton’s move, feeling he had gone too far in placating Republicans, Rep. Alice Hausman, DFL-St. Paul, said most people did not realize the position the DFL governor had been put in. “He’s going to get understanding from me, and not criticism,” she said.

But Hausman also said she thought the offer would not go very far – because the Republicans would reject it.

“I frankly assume they’re going to turn him down flat,” she said. Dayton’s new conditions for accepting the offer, she said, “are the stumbling blocks” for Republicans.

Although the deal has Dayton accepting an offer Republicans made some weeks ago, he insisted: "I don't think I'm caving," Dayton said.

He said the state will spend $35.5 or $35.6 billion over the next two years, saving crucial programs. Republicans' initial budget has spent $34 billion.

If the deal is sealed, Dayton will have failed in his campaign promises to "buy back" the existing school education shift, raise taxes on the rich and right the state's books. Asked if he would need a Democratic House and Senate to fulfill his campaign promises, he said, "it would help."

Sen. Carla Nelson, R-Rochester, one of the influential group of first-year Senate Republicans, said she would withhold comment on Dayton’s proposal to allow the governor and the Republican leaders to negotiate.  “There’s some things that I like, and there’s some things that I don’t like,” she said.
“I think it’s a great thing that he put forth a proposal,” said Nelson.  “I didn’t like seeing the silence, the days of silence.”
She said her constituents were sending hundreds of emails Thursday in response to Dayton’s offer, with a wide range of comments. “Some are saying, let’s get this done.  Some are saying, let’s not get this done [because], you know, it depends on the cost,” said Nelson.

GMD 7.14.11 Letter to Speaker and Majority Leader