Minnesota’s $1.9 billion projected budget surplus should be spent mostly on programs that benefit kids and families, Gov. Mark Dayton said Tuesday, setting up a clash with Republican lawmakers who want to return most of it to taxpayers.

Dayton released a revised two-year, $42 billion state budget blueprint that incorporates a recent $832 million spike in projected tax collections. He is calling for an additional $865 million in spending, most of it aimed at schools and colleges. He wants to send $94 million in additional tax relief to middle- and lower-income families, on top of his existing proposal for $100 million in child care tax credits.

In all, Dayton’s proposals would divert about 80 percent of the surplus, or $1.5 billion, to what he described as “Minnesota children, students and their families.” His plan would make free prekindergarten available statewide, boost per-school state aid levels and freeze college tuition at state schools for two more years.

By calling for most of the surplus to be spent, the DFL governor is framing an inevitable fight with a House Republican majority that is expected to propose using a much greater portion of the surplus for tax relief, along with some targeted spending on road and bridge repairs and assistance to nursing homes.

Dayton repeatedly blasted Republican demands that he and the Legislature return all or most of the surplus to individual taxpayers. The state Republican Party has been airing a TV commercial calling for Dayton and lawmakers to “give it all back” — to the tune of $350 per Minnesotan.

“If we, quote, give it all back, unquote, there’s nothing left to invest in Minnesota,” Dayton said. “There’s no money to give our state’s 4-year-olds a quality education. There’s no money to continue the tuition freezes at our state colleges and universities. Three hundred and fifty dollars might make our lives a little better for a little while. I’d rather invest it to make our lives better for a long while.”

No plan in Legislature

With two months left in the session, no budget proposals have been released by either the House Republican majority or the Senate DFL majority. Initial frameworks, known as “budget targets,” are expected next week. Senate Majority Leader Tom Bakk of Cook released a statement Tuesday proclaiming that the Senate DFL “shares many of the priorities put forward by the governor today.”

But Speaker Kurt Daudt, R-Crown, reasserted Tuesday that the House GOP intends to cut taxes by at least more than half the surplus — and possibly more.

“It doesn’t necessarily surprise me that the governor wants to spend all of the surplus,” Daudt said.

If adopted, Dayton’s budget would represent about a 20 percent increase in state spending since he took office. His revised budget included a number of spending add-ons from a previous budget proposal he rolled out in January. That includes a $25 million increase aimed at increasing the pay of nursing home workers. That’s a top priority of House Republicans, and Daudt said the GOP would likely push to make that number higher.

Dayton also wants to give a $100-per-month boost in state assistance to very low-income families, by giving an additional $68 million for the Minnesota Family Investment Program. There has been no increase in monthly payments since 1986. Dayton’s proposal would cover an estimated 29,000 parents and 70,000 children.

Additionally, Dayton would earmark $50 million to implement recommendations of a child protection task force; $10.3 million for American Indian education on a per-pupil basis; $3.7 million for the Minneapolis Park and Recreation Board after it lifted opposition to the Southwest Corridor light-rail project; $2.3 million for a fugitive apprehension division at the Department of Corrections; and $500,000 for a task force to study the long-term viability of MNsure, the state’s health care exchange.

Dayton’s largest tax relief proposal came in January, when he called for an additional $100 million in child care credits. He sweetened the pot on Tuesday by asking for $94 million more for two other existing tax credits — a working family credit, and a K-12 credit used to offset the expense of school supplies.

Revenue Commissioner Cynthia Bauerly said adding $83 million to the working family credit would allow the state to increase the income range for eligibility, meaning some 30,000 families that make up to $55,000 a year would be newly eligible. Another 257 families already eligible would see their credit increase. Adding $11 million to the K-12 credit would help an additional 17,000 families achieve an average yearly savings of $300 on education expenses.

“These three tax credits combined will make our tax system even more fair in Minnesota,” Bauerly said.

GOP plan to come

So far, House Republicans have been elusive about how they want to accomplish tax relief. “We’re going to do a lot of tax relief for all Minnesotans,” Daudt said. “What exactly that looks like yet, I’m not certain.”

Under consideration are tax cuts for business owners and a possible exemption of Social Security income from taxes.

“We certainly want to encourage those folks as they’re retiring to stay in Minnesota,” Daudt said.

Dayton repeatedly suggested that major rounds of tax-cutting in 1999 and 2001, the last time the state enjoyed large surpluses, were largely responsible for an ensuing decade of staggering budget deficits. While his own budget calls for $200 million in tax relief, he suggested restraint is needed on that front.

Tax cuts as candy

“Tax cuts are very popular. It’s like M&Ms,” Dayton said. “You give them out, and everybody’s happy, and they taste good.”

Then, he said, the sugar rush fades.

“Having spent the last four years digging us out of a very deep hole, I would just really strongly encourage the Legislature not to engage in that practice again,” he said.