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Minnesota reaches budget deal, shutdown to end soon

The Minnesota State Capital is seen in Saint Paul
The Minnesota State Capital is seen in Saint Paul

By David Bailey and Todd Melby

MINNEAPOLIS (Reuters) - Minnesota's Democratic governor and Republican legislative leaders said on Thursday they had reached the framework of a budget agreement to end a two-week-old state government shutdown within days.

Democratic Governor Mark Dayton, Republican House Speaker Kurt Zellers and Republican Senate Majority Leader Amy Koch announced the deal that addresses a $5 billion budget deficit in a joint news conference outside the governor's office.

The Minnesota shutdown is the longest in recent U.S. memory and many of the debates over tax increases or spending cuts reflect the core of the ongoing debate in Washington over raising the debt ceiling and budget arguments in other states.

When asked when the shutdown would end, Dayton told reporters, "very soon, within days."

The broad shutdown reached 14 days on Thursday and has included the furlough of more than 22,000 state workers with a drag on Minnesota's economy that could raise the state unemployment rate by a full percentage point.

The shutdown came just before the July 4 holiday weekend, shuttering state-run campgrounds, rest stops, historical sites, and halting the sale of fishing licenses and lottery tickets.

Dayton said he would accept the financial terms of a Republican budget offer made hours before the shutdown began on July 1, if his opponents took policy issues and big state job cuts off the table and agreed to a $500 million bonding bill.

The details of the agreement were not completely clear. Dayton, Zellers and Koch met for three hours on Thursday afternoon and said they would work for hours to wrap up the details and bring the budget to a special legislative session.

"I expect to be here all weekend," Dayton said. "I expect to do everything around the clock because of the urgency of getting the lights back on and Minnesota back to work as soon as possible, and I think that will be very soon."

Koch and Zellers said they expected the agreement to have the support of the Republican caucuses. However, Dayton's proposals drew criticism from some Democratic lawmakers.

"At the end of the day we had to compromise. None of us got all of what we wanted," Zellers told reporters.

NO EASY ANSWER TO BUDGET DEFICIT

Dayton said he insisted on a comprehensive agreement and believed that could be completed very quickly and that the budget would protect what he saw as critical services.

"I said at the outset that there was no good or easy way to resolve a $5 billion deficit which we all inherited from our predecessors," Dayton said.

Minnesota's election in November of a Democratic governor and Republican House and Senate majorities not big enough to override his vetoes helped set the stage for the impasse.

Dayton and the top Republican legislators had not met in a week before Thursday. Fitch debt ratings agency pulled the state's AAA bond rating, partly over the shutdown and partly over long structural budget deficits.

The deal closes a $1.4 billion gap between the governor's proposed budget and the Republicans', half by delaying school aid payments and half by issuing state bonds against future revenue from a settlement with tobacco companies.

Dayton said the two-year budget would be very close to a midpoint between his proposals and Republican offers. It was expected to be in the neighborhood of $35.4 billion with the school aid shift and tobacco bonds.

The governor said he was hopeful a separate bonding bill, normally handled in even-numbered years in Minnesota, could be part of the deal, but was not required.

Dayton had proposed a budget of about $35.7 billion, with some tax or fee increases, none of which were included in the framework deal. Republicans had opposed any tax increases.

He said again on Thursday that he did not agree with the proposals to delay school aid payments and issue tobacco bonds, but would agree to the compromise.

The governor said earlier in the day that policy issues such as restrictions on stem cell research, abortions and collective bargaining were ones Republicans and Democrats were not likely to agree on in three months or even three years.

About 100 state road construction projects were suspended during the shutdown, leading to additional temporary layoffs of non-state workers. Gaming oversight was also suspended, forcing two horse racing tracks to close, leading to more layoffs.

Among other residents caught in the shutdown, new nurses have been unable to get state certificates needed to start work. People applying for their first driver's licenses have been out of luck, though current drivers can renew licenses.

Some licensing and permit renewals have been suspended, putting MillerCoors' ability to sell 39 brands in Minnesota in jeopardy as well as halting sales of alcohol to more than 300 bars, restaurants and liquor stores with expired permits.

(Additional Reporting by Todd Melby; Editing by Jerry Norton and Cynthia Johnston)

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