Budget negotiations between Gov. Tim Pawlenty and legislative leaders ended shortly after midnight, with both sides indicating that some progress had been made toward resolving their differences -- although clearly not enough.

About $355 million in spending reductions had been agreed on, said Assistant Senate Majority Leader Tarryl Clark, DFL-St. Cloud. Pawlenty spokesman Brian McClung said that the governor was looking for a "holistic" agreement that included a balanced budget, property tax relief and reduction of next year's expected deficit.

But with Monday's adjournment deadline looming ever closer, there were no breakthroughs Thursday.

"We're stuck in a rut here," said House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, who nevertheless said she saw "a lot of options" for finishing the session.

Talks are expected to resume later this morning after Pawlenty returns from "Capital for a Day" ceremonies in in Winona.

The two major areas of discussion Thursday appeared to be property tax relief and health-care reform, and Clark said that that one probably wouldn't be accomplished without the other.

"We are so close. It's just time to get the job done," she said.

Hanging over all was the need to close a projected $936 million budget gap.

There were some signs of frustration Thursday. Just before a late dinner, Kelliher left the room after an exchange over funding for property tax relief, said House Minority Leader Marty Seifert, R-Marshall.

Republicans want a cap on property tax increases no greater than 3.9 percent, while DFLers want to increase the amount of local government aid that the state provides to communities. But where to find the money?

"If we're not going to reduce K-12 [education] and we're not going to raise taxes, the only large amount left is ... health and human services," Seifert said he told the other leaders.

Seifert said that led to a "lecture" from DFLers on "the poor and the needy."

Clark said basic human services remain a concern. "We're not going to cut health care," she said.

On Wednesday, the DFL-majority House and Senate agreed to use part of a fund designated to ensure access to health care in exchange for Pawlenty's agreement to sign a health-care overhaul he already has vetoed.

But they also wanted $150 million for the next biennial budget for local government aid and other property tax relief, and coupled that with a proposal to cap property tax increases at 5.5 percent.

Pawlenty initially proposed a cap of 3 percent, but DFL negotiators said he agreed to one as high as 3.9 percent - as high as Republicans were willing to go, Siefert said.
 

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