Gov. Mark Dayton said he has given up hope of calling a special legislative session to pass tax breaks and millions of dollars in statewide construction projects after last-ditch negotiations with legislative leaders failed to break the deadlock.

"I am not going to call a special session," Dayton said Thursday after a brief, 30-minute meeting with legislative leaders.

Dayton and top legislators have met for three months after the spring session collapsed without agreement on millions of dollars in construction projects. Legislators were seeking a special session to pass the construction measure and to fix a tax package that included an error that would cost the state $100 million.

The breakdown in negotiations ends hope for $260 million in tax breaks for veterans, farmers and students with college debt, at least for this year. It also kills a property tax break and liquor license for a proposed professional soccer stadium in the Midway area of St. Paul.

The abrupt end to talks comes a month after Dayton and legislative leaders had signaled they were close to an agreement. The sticking point, however, continued to be a proposed light-rail extension from downtown Minneapolis to Eden Prairie.

Dayton and DFLers have pushed hard for a way to fund the Southwest light-rail line, which has strong support among business owners along the proposed route. But Republicans have been equally dug in against it, saying it is a waste of taxpayer dollars.

GOP House Speaker Kurt Daudt, of Crown, called it a "boondoggle project" and an "inefficient" way to move people. He said that the project remains controversial because of an outstanding lawsuit against it and that he has additional concerns about the project's operating costs.

Senate Majority Leader Tom Bakk, DFL-Cook, expressed concern for future traffic congestion as the Twin Cities metropolitan area continues to grow. "What are these metro highways going to look like unless we find some alternative to get people off them?" Bakk said.

Daudt and Senate Minority Leader David Hann of Eden Prairie said DFLers didn't want to negotiate other issues without rail-line funding, which is needed to unlock hundreds of millions dollars in federal money. The GOP leaders blamed "metro-area Democrats" for the impasse over a special-session agreement.

Dayton said he was unsure how a lack of local funding for the project would affect its eligibility for federal cash. He is set to meet with Metropolitan Council Chairman Adam Duininck on Friday afternoon to discuss the other options to fund the line.

Election-year politics

The battle over a special session was steeped in election-year politics from the start. With all 201 seats on the ballot, Daudt is trying to hold control of the House, while DFLers are trying to maintain leadership of the Senate. Daudt's team is counting on its opposition to light rail being popular in outstate Minnesota, where Republican support is strong.

"It's just all about the politics," Dayton said after the meeting, blaming Republicans who he said want to tout their opposition to the light-rail line back home.

Daudt denied that assertion. "Politics hasn't played into my decisions on whether or not to proceed," he said, leveling the same charge at the governor.

Dayton said he is open to reviving the tax and bonding bill early next year when legislators reconvene for the regular session.

House Minority Leader Paul Thissen, DFL-Minneapolis, pledged that if his caucus wins back control of the chamber, it "will bring a robust bonding bill and middle-class tax relief to the House floor for a vote in the first 30 days of the next legislative session."

Some local officials were disappointed in the outcome.

Duluth Mayor Emily Larson said in a statement that her city would miss out on funding for a stream renovation project she called critical.

"Our hopes for a productive legislative process have been dashed," Larson said. But she said she remains hopeful that someday soon the deadlock at the State Capitol finally will be broken.

Star Tribune staff writer Janet Moore contributed to this report.

Ricardo Lopez • 651-925-5044