A major fight over property tax increases is looming in the final two months of the legislative session with Republican Gov. Tim Pawlenty proposing cuts in property tax relief programs more than double what Democratic lawmakers are suggesting.

The Minnesota Department of Revenue is projecting real estate taxes will rise by $626 million under Pawlenty’s budget plan, although the governor believes local governments can avoid tax increases of that size if they freeze employee salaries.

Detailed budgets are still being formulated in the DFL-controlled House and Senate, but budget outlines target property tax aids and credits for reductions of about 7 percent compared to 15 percent in Pawlenty’s plan. That section of the state budget, which now totals about $3.4 billion, includes about $1 billion for Local Government Aid — a key component of the budgets of most cities in the Mankato area.

North Mankato City Administrator Wendell Sande said the governor’s plan pushes a disproportionate share of the state’s budget problem onto cities and the property tax payers who finance the part of local budgets not covered by state aid.

“That’s really not fair to push the problem to the local level,” Sande said.

Pawlenty’s long-time pledge to block any new taxes becomes something of a charade if his budgets indirectly push up property taxes, according to Sande.

“‘No new taxes’ is not a functional thing if all it means is ‘No new state taxes,’” he said.

Pawlenty, in a visit to Mankato earlier this month, said some cities are guilty of exaggerating the size of the cuts they’re facing under his proposal. He specifically mentioned a statement by Wadena Mayor Wayne Wolden, the president of the Coalition of Greater Minnesota Cities, that the governor’s plan would force his city to make such severe cuts “we’re going to plow our streets every other blizzard.”

Pawlenty said much of the reduction in LGA could be covered by using municipal reserve funds and instituting a salary freeze on employees.

“The public employees, to be blunt about it, have it pretty darn good,” Pawlenty said.

Mankato City Manager Pat Hentges concurred that all public employees should have a pay freeze in the face of the state’s $4.6 billion budget shortfall — which grows to $6.4 billion when subtracting one-time help from the federal government.

“Yes, I agree with that 100 percent,” Hentges said.

But the freeze needs to be statewide, according to Hentges, if a city is going to win arbitration cases with employee unions and if a city wants to avoid losing top employees to wealthier cities not forced to institute a freeze.

“We’d lose the best and brightest if we did a (unilateral) salary freeze,” Hentges said.

Pawlenty also argues that cities are overstating the size of the budget hit they would face under his proposed cuts. Mankato and most other cities would be limited to just a 5 percent cut in its two main sources of revenue for the budget year starting July 1 — LGA and local property taxes.

“If you can’t do 5 percent, what can you do?,” Pawlenty asked. “... What number can you live with?”

Steve Peterson, a property tax analyst for the Coalition of Greater Minnesota Cities, said Pawlenty’s frequent use of the “5 percent” figure is technically accurate but hides a broader truth.

The state does its budgets on a two-year cycle, and Pawlenty’s proposal for the budget year beginning July 1 of next year is to cut LGA by 31 percent — an amount that would leave cities with 10.5 percent cut in state aid and property taxes on top of cuts already made, Peterson said.

“Which is, of course, a much larger number,” he said. “... You’ve got to tell kind of the whole story with that.”

When asked about the steep cut in the second year of his plan, Pawlenty conceded that it could be a more troublesome problem for cities.

“That’s a legitimate concern,” he said, predicting that lawmakers would insist on a lesser reduction in the second year.

But Pawlenty, issuing a revised budget three days later that included $1.8 billion in new federal revenue, kept his proposed LGA cuts at the same level for both years.