Counties and cities are still in a holding pattern.

However, they got their first bit of welcome news with Gov. Mark Dayton’s budget proposal.

Dayton’s budget, which he outlined Tuesday, calls for lawmakers to spare city and county governments from state payment cuts in hopes of avoiding property tax increases.

“I think that’s good news, but I don’t think that’s where it’s going to end up at,” said County Coordinator Craig Oscarson.

Weeks after discussion began on the state’s budget, there’s still no certainty concerning potential cuts to local aid. After the House and Senate both passed bills that would cut Local Government Aid and County Program Aid, Oscarson said cuts still seem likely.

In 2010, the City of Austin received $7.1 million through LGA, with $7.8 million expected for 2011. Mower County is set for roughly $3.5 million in county aid for 2011.

Oscarson noted it’s still early on the debate process. The GOP-controlled Legislature and Dayton will have to meet somewhere in the middle, he said.

“It’s basically just a waiting game,” Oscarson said.

“Hopefully both parties have compromise in mind,” he added.

Albert Lea City Manager Pat McGarvey sees the governor’s move as promising, but he’s not holding his breath.

“Gov. Dayton’s proposal would protect property tax payers and ensure that communities across the state remain strong financially in order to provide acceptable municipal services that keep the entire state competitive and desired places to live and do business in,” McGarvey said. “Will the final state budget outcome be different than his current proposals? In my view, yes.”

City Administrator Jim Hurm is in the same boat.

“I’m appreciative that the governor understands the importance of LGA as part of the Minnesota Miracle. Of course, we also recognize there’s a long legislative process ahead,” Hurm said.

If Dayton has his way, the budget would affect the wealthiest Minnesotans more than local governments.

According to Hurm, protection of local governments should be a priority of Minnesota politicians.

“LGA has been cut much greater than other state budget programs in the past, so if we��re held harmless, that levels the playing field a little bit,” he said.

Dayton’s $37 billion budget calls for more than $2.8 billion in new income taxes, which he says would fall on the top 5 percent of income earners, and a property tax on million-dollar homes. Dayton said other steps he takes would protect most taxpayers from increases, including safeguards against property tax hikes many homeowners have been coping with.

Dayton said his proposal would shield 95 percent of state taxpayers from tax increases, while making the top earners pay a proportionate share of income in state and local taxes. The plan would restore recent levels of state aid to cities and counties, which Dayton said would help stave off local property tax increases.

Dayton’s tax plan would impose a new fourth bracket for single filers making $130,000 or more and couples who make more than $150,000. He also would enact a three-year surtax on people with $500,000 or more in taxable income.

The proposed budget is not without pain.

Dayton outlined $775 million in cuts for health and welfare programs. He would eliminate MinnesotaCare health coverage for 7,200 adults.

MinnesotaCare is a state-subsidized health care plan for the working poor, who pay premiums on a sliding scale. It offers less generous benefits than federal health care programs.

Dayton’s health and welfare cuts would also increases surcharges on health providers by $627 million, but some of the money would be recouped in federal funding.

It would also cut reimbursements for nursing facilities by 2 percent and those who provide care in homes and community-based services by 4.5 percent.

The plan includes more money for education but wouldn’t immediately repay more than $1 billion in aid that was delayed as part of last year’s budget fix. Dayton said his goal is to begin paying that money back in the budget cycle that starts roughly three years from now.

But the governor would raise general fund spending on education to $14.2 billion, a slight bump. That’s about 38 percent of the state’s entire spending.

Dayton’s budget directs money to optional all-day kindergarten for poor students. It would also set up a rating system to help parents make informed decisions about early childhood education providers.

Republicans who took control of the Legislature at the beginning of the session want to erase the deficit without tax increases. They are trying to hasten the process by directing their committees to finish crafting budget bills within six weeks, an accelerated timeline. The Legislature is constitutionally required to adjourn on May 23.