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lt. governor smith mr. speaker and membersof the minnesota house of representatives. madam president, majority leader, and membersof the minnesota senate. madam chief justice and the distinguishedmembers of the minnesota supreme court and the court of appeals. my fellow constitutionalofficers. members of my cabinet and staff. governor wendell anderson. other distinguishedguests. family and friends. my fellow minnesotans. thank you, president kaler and board of regents,for graciously hosting us here at the university of minnesota tonight. as most minnesotansknow, our state capitol is undergoing a monumental renovation and is largely inaccessible. so i want to begin tonight by paying tributeto the legislators and other state officials,

who have, for the past two years, sacrificedtheir workplace for the good of minnesotans during the next century. befitting the respect, and even reverence,that our citizens feel for this magnificent minnesota landmark, legislators of both partieshave worked exceptionally well together to make this enormous undertaking a reality. supreme court justices, constitutional officers,state officials, and many citizens have also devoted countless hours to help lead and guideit. i hope that our fellow citizens will recognize and appreciate that, in this important instance,your elected representatives have done their jobs very well.

i look forward to making this address nextyear at our newly renovated state capitol. i know that legislators will be even moredelighted to have returned. when i took office five years ago, i pledged“a better minnesota.” there is no doubt in my mind that our state is better todaythan it was back then. but don’t take my word for it. instead,look at our accolades from many national organizations. gallup ranks minnesota first in the nationin its 2015 job creation index. it is the first time minnesota has achieved this nationaldistinction. cnbc recently ranked us the best state inthe nation for business. aarp says minnesota is the best state to retirein, and noted that we offer some of the nation’s

best housing, health care, and other servicesto our senior citizens. wallet hub recently said minnesota is thebest state in the nation for women’s economic and social well-being. politico ranked us the 2nd-strongest statein the nation in its 2015 “the states of our union” report. porch and redfin said we’re the 3rd-beststate in which to own a home. and we were named one of the five best-runstates in the nation last year by 24/7 wall street. it’s hard to get minnesotans to admit thatour state is doing better. most are too “minnesota

modest” to say it. others don’t want tobelieve it. and, of course, for too many others, it’s still not true. we should take deserved pride in what we haveaccomplished in minnesota – for our families, for other families, and for our communities.because we have worked hard to earn it. minnesota works, because we work hard to makeit work. let me say that again. minnesota works, because we work hard to make it work.we have a magnificent state, with incredible beauty and priceless natural resources. but we don’t have some other states’ easyadvantages. we have no tourist-tempting oceans or mountains. no oil or natural gas, to padour state revenues. we aren’t located in

our country’s largest commercial centerson the east and west coasts. although, as my son, eric dayton, who is heretonight, has pointed out, we’re something better: we’re north.we minnesotans have always built our success through our hard work. whether farmers intheir fields, workers in their factories, executives behind their desks, teachers intheir classrooms, truckers in their cabs, or doctors in their clinics – whether through our brains or our brawn, wehave worked hard to earn our individual success and our collective progress. the corollary is that, if we stop workingtogether, we stop making progress. when we

slacken our efforts, pause, or take a break,we fall behind. we should have learned that lesson with ourtransportation systems. we curtailed our investments, failed to keep pace with our growing populationand economy, and we are now suffering the consequencesof inadequate and unsafe highways, roads, and bridges, and inadequate transit. we stopped making the investments of otherstates in early childhood care and education, providing all-day kindergarten over a decadebehind other states, still debating voluntary pre-kindergarten, and then wondering why wehaven’t eliminated the achievement gap. it’s pretty straightforward. we succeedwhen we do what we have to do to be successful.

we fail when we stop. that is why we can’t stop now. there isstill so much that we must do. so many challenges and opportunities that, if we face them andseize this moment, will propel our state farther ahead. to begin, too many minnesotans are still suffering.it is imperative that we devote some of our time and the resources available over thenext ten weeks to relieving some of that suffering and rectifying some of those inequities. for starters, i will hold the speaker andhouse republicans, to their commitments the last couple months to provide 26 weeks ofextended unemployment benefits retroactively

to those good men and women on the iron range, who, throughno fault or choice of their own, have been victimized by illegal dumping of foreign steelinto this country. if you keep those promises – and send theiron range families the unemployment benefits they need and have earned – i will signthat legislation next week. if you don’t, it will be a broken promise that people willlong remember. i pledge to work with you in this sessionto provide meaningful unemployment tax reductions for minnesota businesses. but that changedeserves proper review through your established committees and procedures.

to hold $29 million of desperately neededunemployment benefits hostage to $272 million in fund cuts is unnecessary. and it’s cruel. we must also take immediate action to beginto relieve the terrible and persistent racial inequalities imbedded in our society. the median income for u.s. born african americanfamilies in minnesota is 55 percent less than for white families, and their poverty rateis 41/2 times greater. the median income for mexican-american families is 40 percent lessthan white families. ojibwe family incomes are 56 percent lower. somali family incomesare 71 percent lower than average white family incomes in minnesota.

that is unacceptable. and tragically, incidents of racial intolerancecontinue in minnesota. in november, asma jama [az-ma jam-a] was attacked in a coon rapidsapplebee’s because she was not speaking english, although she speaks three languages.another woman smashed a glass beer mug across her face. asma sustained cuts across her facethat required 17 stitches. she said, and i quote: “i [can't] believe after all these yearssomebody hit me because i'm different. somebody hit me because i was speaking a differentlanguage.” she said she's feeling ‘traumatized’ anddoesn't feel safe leaving her house alone.

"i'm actually thinking about moving out ofminnesota. i'm scared for my life. i don't feel comfortable here anymore." i have invited asma as my guest here tonight.i ask all of you to join me in showing her, and all muslim-minnesotans, the open armsand the respect they deserve. azma? we’re very glad you’re a minnesotan. two sundays ago, the lt. governor and i paidone of the most profoundly painful site visits of my career. we went to a mosque in minneapolis,which had been vandalized just days before. the broken outside doors had been partiallyrepaired. however, there were still holes in doors and walls inside the mosque.

this despicable act of bigotry was even worsethan others. it desecrated a place of worship. a house of any religion should be sacrosanct.one of the most fundamental rights in our united states constitution is the freedomto practice the faith of one’s own choosing – free from interference by government oranyone else. in addition to being un-american, illegal,and immoral, this heinous deed had an even more searing effect. we saw children of agesfive to fifteen had to walk by this damage on the way to their religious instructionclasses. i said to the lt. governor, “what does this say to them about who they are?about their right to be who they are? about their acceptance by other minnesotans, asthey are?”

i urge all of us, as leaders of this state,to stand up and speak out together in denouncing any acts of racial or religious intolerance.minnesota must be better than this. we must also show our leadership by actingnow to reduce the economic and other disparities in our state based upon race, religion, nationality,or disability status. we cannot resolve these disparities in onelegislative session, but we must begin now. next week my supplemental budget will proposea significant initiative to provide better economic opportunities to minnesotans of colorall across our state. i will be advancing some of my ideas; butit is not intended to be a complete package. i look forward to the ideas and initiativesthat legislators will bring forward. i also

invite community groups and civic organizationsthroughout minnesota to bring forward their proposals. the final legislation should beas broadly inclusive as possible. obviously, state government cannot make thesenecessary changes alone. last night, i urged the members of the minnesota chamber to reviewtheir companies’ hiring practices and consider how they could do more to provide the qualityjobs that will reduce these disparities. it’s time we stopped holding our schoolsand educators solely responsible for closing our state’s opportunity and achievementgaps. every facet of our society has a part to play. all of us share that responsibility. i want minnesota state government to leadby example. we have made increasing the diversity

in state agencies and services a top priority.when i took office, 8 percent of state employees were women and men of color. now that numberis 10 percent. so, under the outstanding leadership of ourterrific chief of staff, jaime tincher, we’re doubling down on state hiring practices. our goal is to double the percentage of minoritiesworking in state government, when i leave office in january 2019, so that our diversityaccurately reflects the diversity in minnesota’s workforce. we will have to manage these and other prioritieswithin a new budget forecast, which is not as robust as before. we have today a remaining$900 million budget surplus for this current

biennium, which ends june 30, 2017. it doesnot count an additional $600 million of the surplus, which was deposited in our budgetreserve, after last november’s forecast, boosting that reserve to an unprecedented$1.6 billion. nineteen other states are still facing budgetdeficits. by contrast, we have righted our state government’s fiscal ship. we haveturned the $6 billion projected deficit we faced, when i took office in january 2011,into projected surpluses. we have paid back our schools over $2 billion borrowed fromthem. we have cleaned up the other games and gimmicks used to disguise that fiscal mess.and, as i just said, we have built the budgeted reserve fund to an unprecedented level.

yet, this forecast should give serious pauseto everyone’s wish list for this legislative session. the projected surplus for the currentbiennium, from now through june 30, 2017 dropped by 25 percent, from $1.2 billion to $900 million,since the previous forecast just three months earlier. the projected surplus for the next two years,fiscal years 2018 and ‘19, dropped by 42 percent, from $2 billion to $1.2 billion. state spending is projected to decrease fromthe previous estimates in both biennia, due to expected reductions in health care spending.the competitive bidding we required last year for department of human service contractsis one of the principal contributors to these

health care savings. however, tax and other revenues are projectedto be $427 million less in this biennium and $698 million less in the next biennium thanpreviously forecasted. i am especially concerned about the forecastfor the next biennium. it assumes that those lower revenues and surplus would occur despitecontinued growth in state and national gdp in both 2018 and 2019. however, at the annualmeeting of the national governors association two weeks ago, we heard from a panel of fiveprominent economists, all of whom predicted the strong likelihood of a national recessionby 2018. now you’ve heard before the joke that thenation’s economists have predicted twelve

of the past five recessions. and we know thatno one has a crystal ball that gives insight into economic conditions two years away. if,however, minnesota’s economy were to be caught in a national recession, the surplusprojected for fiscal years ‘18 and ’19 would quickly erode. thus, my number one priority in this legislativesession will be to protect the fiscal integrity of our state government. i will never forgetthe experience of coming into office in january 2011 and being confronted with a projected$6 billion deficit for the upcoming biennium. i will not leave that kind of fiscal disasterto my successor or the people of minnesota. this does not mean that i will propose todo nothing with a fiscal impact in this legislative

session. my supplemental budget next weekwill propose some more modest spending increases and middle-income tax cuts. but we must makeour decisions over the next ten weeks with a close eye on the next ten years. i support tax reductions for middle-incomeminnesotans. my supplemental budget will again propose increasing the child care tax credit.the average cost of child care for minnesota families is one of the highest in the nation.i will also support federal tax conformities, which will further reduce state income taxesfor many minnesotans. however, some people are proposing permanenttax cuts, which would put our state’s budget, once again, on a fiscal precipice.

they say, “give it all back” to the taxpayers.but that slogan is based upon a wrong premise and a wrong conclusion. those surpluses didnot come from raising personal income taxes on all minnesotans. many politicians say it,even though they should know it’s not true. as a result, many people believe it. in 2013, we raised state income tax rateson only the wealthiest two percent of minnesotans. on only the wealthiest two percent of minnesotans.no other minnesotans received a state income tax increase, unless, of course, their personalincomes increased. the personal income tax rates on those 98percent of minnesotans have not been changed for the past fifteen years. not once. andnot since i became governor. in fact, we cut

state taxes for over two million minnesotansby $500 million in 2014. our budget surpluses have resulted entirelyfrom the income tax increases on the wealthiest 2 percent of minnesotans and from more minnesotansworking, earning higher incomes, and thus paying higher taxes based on those higherincomes -- not from higher tax rates. the other dead horse, which is being resuscitatedfor the current political/economic debate, is that those tax increases are the causeof minnesota’s slower projected economic growth in the next biennium. our state recoveredmore rapidly than most other states from the great recession. our increases in employment,state gdp, and per capita income outpaced the nation. however, those increases haveleveled off, and the forecast predicts they

will continue more modest growth over thenext few years. so, of course, we are hearing the perpetualrefrain that the state’s high taxes and excessive regulation are driving businessesand jobs away and threatening our continued economic progress. i have worked in and around minnesota stategovernment for the past 39 years. i have always heard some say that taxes are too high, andthe business climate is too awful. if we have a budget surplus, it’s because taxes aretoo high. if we have a budget deficit, it’s because our taxes are too high. i expect it will never change. if a meteorfrom somewhere in the universe should ever

come crashing to earth and land on minnesota,it will be, some say, because taxes here are too high. at this pivotal moment, however, it is criticallyimportant that we make the correct diagnosis of our economic situation, so that we canprescribe the proper remedy. if a doctor misdiagnoses a patient’s condition, and prescribes thewrong treatment, the patient will get sicker and might even die. so it is with state policy-makers. our state economist said recently that themain drivers of slowing future growth in minnesota’s total employment and personal incomes arebaby boomer retirements and less labor force growth. not state tax policies.

she said, “it’s simply a factor of demographicchange. when the boomers were in their prime working years, our work force grew and oureconomy benefited. but we are going to produce a lot fewer workers in the next two decades,as the boomers continue to transition out of the workforce. and that means we will needto use the talents of all the workers we have.” she went on to say that the consequences ofbaby boomer retirements will be the minnesota economic story for the years to come. furthermore, as recently as 1999 and 2000,minnesota’s then-governor and legislature tried the experiment of cutting the state’spersonal income tax rates and providing tax refunds. twice.

and what was the result over the followingdecade? did minnesota’s economy surge ahead of other states? no. was there a demonstrableincrease in private investment? no. did minnesotans’ standards of living improve? no. even beforethe great recession, minnesota’s growth was not on par with many others. meanwhile, the state stopped improving criticalfunctions. state support for higher education dropped drastically, forcing higher tuitionson students and their parents. real state funding for k-12 education was also cut, causingteacher layoffs, larger class sizes, reduced academic and extra-curricular offerings. school upkeep and improvements lagged.

the state avoided facing and funding its growingresponsibilities for child care assistance, for mental health services, and for elderlycare. growing problems at st. peter and anoka state hospitals continued to fester and plagueus still. then, when the great recession arrived, withrevenue depleted and fiscal reserves non-existent, the state’s economic woes compounded, andits services were further decimated. so, what astounds me is: why on earth wouldwe want to go back and try that again? we haven’t made such progress during the pastfive years by having state government do less or fund less that others are doing. we’ve done more for minnesota and we’vedone it better. all-day kindergarten. flood

control and disaster relief. response to theavian flu epidemic. and to ebola. an increased minimum wage. the equal rightto marry. early childhood education. two year tuition freezes at the u and mnscu. state-wideproperty tax relief. and more. what we have been doing is working. minnesotansare working. minnesota is working. how could we stop now, when there is more work leftto do? let me highlight just a few of those key areas. take transportation. the facts are clear.we must make additional investments to repair and improve minnesota’s transportation systems– every year for the next ten years – or they will get worse. highways, roads, andbridges will become more crowded and less

safe. public transit will become more inadequateto serve our growing metro populations, and more commuters will be forced on to even morecrowded streets and highways. two questions remain? will the legislaturecommit enough real money for the next ten years to improve our state’s transportation?and how will they pay for it? i made my proposal over a year ago. many peopledidn’t like mine. but it provided real money – and enough of it to make real transportationimprovements all over minnesota. the improvements people and businesses must have, if they areto continue to thrive here. i’m waiting for an alternative. i’m willingto be flexible, but i will also insist on a real solution. no smoke and mirrors. nodouble-counting existing revenues. no counting

non-existent revenues. this is about constructionprojects, not campaign posters. and it’s too urgent to be left for another year. we face another growing problem with the qualityof our water in some parts of our state. left unattended, this problem will become a crisisfor some of our citizens and communities. we face the immediate challenge to providehelp, especially to smaller communities in greater minnesota, who must treat their incomingdrinking water to make it safe for human consumption. the cost of those treatment facilities isprohibitive for some. my bonding bill proposes over $220 millionof low-interest loans, grants, and technical assistance. it will not be enough, but itwill be a start.

then we must face the multiple causes of ourincreased water contamination. this is a complex problem, without a single or simple solution.but it is one we cannot avoid. minnesota has a proud history of tacklingenvironmental problems and finding effective solutions. when i was a boy in the 1950’s,our neighboring town of long lake was dumping its untreated sewage into its namesake, longlake. it produced giant, 70 pound carp, for unsuspecting customers in japan; but it madethe lake unfishable and unswimmable for humans. a modern waste-water treatment plant starvedthe carp, but saved the humans. that was progress. on an even larger scale, i recall the 1970’s,when reserve mining company was dumping its untreated taconite tailings, filled with asbestosand other contaminants, into lake superior.

there was a huge uproar, when the minnesotapollution control agency and finally a federal judge ordered them to stop. the company threatened to close, eliminatingthousands of jobs, if it had to change its ways. but they did change, and the plant hasoperated to this day – until the recent industry shutdown. we will hear the same refrain from some, whowish to avoid their share of responsibility for contaminating our state’s waters. fortunately,increasing numbers of their neighbors have accepted the challenge and are leading theway forward. in partnership with the us department of agriculture,our state ag. department has developed the

minnesota agricultural water quality certificationprogram. it provides voluntary opportunities for agriculturallandowners to implement conservation practices that protect our water. in return, they gainregulatory certainty for ten years. to date, our agriculture department has certified104 farms totaling 60,000 acres. an additional 340 applicants are currently working towardcertification, and another 450 applicants are expected by june 1st through partnershipswith local soil and water conservation districts. the program has already reduced sediment losson those properties by over 4,600,000 pounds per year, prevented over a ton of phosphorusfrom entering our waters, and reduced nitrogen losses by an estimated 49 percent.

that is important progress. but we must makemore. all minnesotans should have the right to clean,safe water, for their drinking, bathing, and recreation. no one else should be allowedto take it away from them. assuring that safety is our legal and moral responsibility. there are other features in my bonding billproposal that deserve special mention. in fact, all of them do. we joust every yearabout the proper size of our bonding bill. even though minnesota ranks in the middletier of states in bonded indebtedness, some believe minimal capital construction is inthe public interest. i strongly disagree. if we unnecessarily limitthe state’s capital investments, we unwisely

limit its future. for example, many buildings on the universityof minnesota and mnscu campuses are badly in need of basic repairs. they cannot be expectedto attract and retain first-rate students with second- or third-rate facilities. theyalso need to build new facilities, in which to provide the world-class educations theirstudents will need to be successful in this global economy. and, working with local employers, they needto redesign and re-tool their existing programs to better prepare their students for jobsthat are now unfilled, due to lack of the necessary training.

i could make similar cases for every one ofthe capital projects i have proposed and for many that i couldn’t fit into my capitalbudget. i invite legislators to do even more. i urge you not to do less. another crucial capital investment, whichi will include in my supplemental budget, is expanding access to broadband for everypart of minnesota. this statewide access is vitally important,especially to our citizens and businesses, who reside in greater minnesota. rebecca willart, a genetics counselor in belleplaine, is also my guest here tonight. rebecca? welcome.

she wrote me a letter, saying that she isable to do her work thanks to broadband internet access. she said, “i currently live on a hobby farm outsideof belle plaine. i am a laboratory genetic counselor and work for genedx, one of thenation’s largest genetic testing companies. i was one of the first of what is now over30 remote genetic counselors working for this wonderful company. “every morning i sit down in my home officeand log into my company headquarters in maryland. the ability to telecommute has greatly expandedthe opportunities available to me as a genetic counselor in minnesota. additionally it hasmade it possible for me to be fully engaged

with my family by eliminating a 2 to 3 hourdrive to commute. “my only problem is my current internetconnection speed…this is painfully slow for the work that i do…this is an extremelyimportant issue for myself and my family as quite literally my livelihood depends on it.i know that you have supported efforts to expand rural broadband and i beg you to continuethese efforts and encourage you to consider the truly rural farms throughout minnesota.we need service too. please keep up this important work.” rebecca, i hope you’ll be right. elsewhere in minnesota, the city of bemidjihas seen new business openings in diversified

fields, due, in large part, to the city’shigh-speed internet access. four bemidji businesses were recently ranked among the fastest-growingin the united states by inc. magazine. there are other important challenges and opportunitiesbefore us to continue to build a better minnesota. in addition to clean water, clean air andreducing global warming are other important priorities for my administration. last monthin washington, the united states supreme court stayed federal enforcement of president obama’sclean power plan. here in minnesota, some have questioned our decision to continue developinga plan to tackle the worst impacts of climate change. however, developing clean energy has neverbeen about satisfying federal bureaucrats.

beginning with my predecessor, governor pawlenty,former lt. governor prettner solon, and other key legislators in 2007, it has always beenabout serving the best interests of citizens. over the past five years, minnesotans havemade their interests clear to my administration. from kids concerned that pond hockey doesn’tstart until january to farmers trying to predict growing seasons, to folks wondering why thisyear’s march blizzards have turned into sixty degree days, many thousands of minnesotanshave expressed their concerns about the growing impacts of climate change. i received one letter from paul and susanschurke, who operate wintergreen dogsled lodge in ely. they wrote,

“in the 35 years that we’ve operated wintergreendogsled lodge in ely, minnesota, we’ve watched our season diminish by nearly 20 percent – froman average of 116 operating days to about 94. and our winter tourism industry is thelucky one – dogsledding is very accommodating of marginal snow conditions. all our dogsneed is a few inches of snow & off we go. “but cross-country skiing and snowmobiletourism need a much more substantial snow base. those tourism sectors are measuringtheir operating loss over the past few decades not in days, but rather in weeks. in fact,during some recent winters we’ve only had a 3-4 week window of optimal cross-countryskiing and snowmobiling conditions here in minnesota’s arrowhead region. one that hasbeen renowned nationally as a winter recreation

mecca.” it’s clear that we need to do more to protectminnesota’s climate -- and the lungs of our children and grandchildren -- by developingthousands of innovative, clean energy jobs. we have an opportunity this session to buildon the progress of our predecessors. lt. governor smith and i are eager to work with legislatorsand with businesses to grow minnesota’s clean energy economy. some of minnesota’s utilities, like xcelenergy, are national leaders in developing wind, solar, and other clean energy alternatives. let us proceed, not by politicking with thehealth of future generations, but rather by

protecting them. during my first five years, i have made additionaleducation funding and new initiatives my top priorities. we have made vitally importantprogress. much of it, however, was simply making up for past deficiencies. in fiscal2012, real state support for higher education had fallen to its lowest level in thirty years.and even after the increases in state funding for k-12 education, minnesota’s per-pupilexpenditures place us in the middle of the fifty states. our citizens properly place a high value onthe quality of their children’s and grandchildren’s educations. overall, they have been very well-servedby our state’s extraordinarily dedicated

teachers, professors, and other educators. however, as we know, the challenges facingour schools are more diverse and difficult now than ever before. when i taught in newyork city – right after college – just a few years ago – our multi-racial studentsspoke four different languages. today, well over 100 different languages and dialectsare spoken throughout our state; over 50 in some single school buildings. more and more students are coming to our schoolsless ready to learn – from other states or other countries, which lack our educationstandards. some recent arrivals from other nations have had no formal education at all.

and, unfortunately, more children from moreminnesota families start school without the education and socialization experiences mostother children enjoy. they enter kindergarten or early elementary grades already behind,and they struggle to catch up. we have finally learned what many child developmentexperts have been telling us for decades: the very first years of a child’s life aredeeply formative and determinative. if we don’t prevent achievement gaps beforethey appear, or close them quickly thereafter, they will require much more difficult andmore expensive remedial efforts for years following. increased legislative support for early childhoodcare and education has grown significantly

over the past five years. and i thank youfor that. yet the numbers of children, who desperately need those services, continueto rise. next week i will propose further initiativesto help provide more children with the decent life beginnings that every child deserves. there are disagreements over how and whereto best provide those services, particularly for four year-olds. some of those disagreementsare professional; others are political. sixty-thousand minnesota four year-olds needminnesota’s grown-ups to go beyond their big self-interests and place those littleinterests first. in closing, as minnesotans, we find ourselvesat a crossroads. we, the elected leaders of

our state, face important choices. over thelast five years we have made great progress toward a better minnesota. we can continue down that road and build astate that works better for all minnesotans. or, we can reverse course and retreat to wherewe were just a few years ago: doing less and getting less. minnesota has always been at its best whenwe work together. we are better when we recognize and anticipate the challenges ahead, and cometogether as one minnesota to create opportunities for every child; every family; every personto succeed. that is the minnesota, which has built oursuccess. that is the minnesota that you and

i must work together to achieve. thank youvery much.

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