Health deal = budget deal?

The glimmers of a state budget accord that could produce a rare win-win for DFL leaders and Republican Gov. Tim Pawlenty appeared to surface on Thursday, hinging on changes to health care coverage.

The framework of the deal, still being debated behind closed doors, would allow DFLers to tap federal health care dollars to cover more poor Minnesotans and Pawlenty to see part of his 2009 solo budget decisions -- ruled illegal by the Minnesota Supreme Court -- become law.

Pawlenty told reporters on Thursday that he would be open to the DFL's health plan in exchange for broader agreement on eliminating the $3 billion budget gap.

Although Pawlenty vetoed the DFL health bill that included the expanded coverage on Thursday, the veto letter was unusually gentle and indicated that elements of the bill could become part of a broader budget agreement.

"It is a bill I think we could potentially find some compromise on," Pawlenty told reporters. "We are working on that."

Thursday was not the Capitol's deal day, but that day will have to come soon. The session is supposed to end Monday, and legislators are not able to pass any bills after Sunday.

The tasks ahead are massive: close the $3 billion state budget deficit without raising taxes, which Pawlenty won't do, or cutting too deeply into services, which legislators can't stomach, and still somehow let everyone running for election declare at least a partial victory.

House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said that what happens with health care will be key.

"That's important to us," said Kelliher, who is also a gubernatorial candidate. She said she is "darn confident" that expanded health coverage would become law. Legislators paused Thursday in crafting a budget deal while they worked on specifics of health care issues.

Under the health care plan that Pawlenty vetoed, more of the state's poorest residents would obtain coverage by moving from various state-funded programs into Medicaid, which is funded by the state and federal governments.

The vetoed bill would have added about $189 million to the $1.2 billion the state already pays to cover those Minnesotans. That $1.4 billion would bring in a matching amount of federal funds. The so-called early enrollment into Medicaid became possible for Minnesota and 10 other states under the new federal health overhaul law.

Democrats proposed paying for the extra $189 million through a "surcharge" on health care providers, but Pawlenty rejected that option.

Making offers

As legislative leaders and the governor grappled for solutions to the $3 billion problem, groups bounced around the Capitol's marble halls to offer their own solutions -- and cash.

Backers of the seemingly dead proposal to allow slot machines at Canterbury Park racetrack offered the state $100 million from a "licensing fee," should the gambling proposal be approved.

"The offer would guarantee that Minnesota would receive $100 million and could put the money to good use in the current budget cycle," said Randall Sampson, Canterbury's president and CEO, who extended the offer in a letter to Pawlenty and legislative leaders.

DFL legislative leaders and the Republican governor have said the so-called racino idea won't pass muster this year.

"We're willing to help," said Frank Ball, executive director of the association.

The proposal has rattled around the Capitol for more than a decade and has never been a winner.

Meanwhile, union, non-profit and religious leaders rallied at the Capitol on Thursday to push for "fair taxes" to balance the budget. Their favored solution -- an income-tax increase on Minnesota's highest earners -- already met with decisive failure this week. The proposal passed the House and Senate but was vetoed by the governor.

The coalition was unswayed.

"Do the right thing," they chanted outside the Minnesota House chamber.

"Thank you for being here to stand up for Minnesotans," she told them. "We are standing up together for the people who cannot stand in this state."

Warren Wolfe contributed to this report.