Gov. Mark Dayton told leaders of Minnesota's counties Monday that he's sympathetic to their financial difficulties, but promised no immediate relief.

Dayton was speaking at the annual convention of the Association of Minnesota Counties. Several members of the Koochiching County Board attended the convention.

Koochiching County Board Chairman Wade Pavleck said that while the state government now reports $800 million of excess revenue, it won’t help a $5.7 billion shortfall expected in the next biennium.

“Next year and beyond, it’s impossible to grow our way out of this,” Pavleck said.

While Pavleck said the news from Dayton wasn’t cherry, the governor delivered it with humor.

Pavleck said Dayton talked about compromises he made with Republican legislators in an effort to end July’s state shutdown.

“He’s blamed for caving into Republicans when they went behind closed doors, and we were concerned about that, but his position was unfortunately that compromise was the only way to get state back to work,” said Pavleck.

Pavleck noted that Dayton is open to criticism and criticizes himself. “He said he’s made mistakes and learned, too,” said Pavleck.

Dayton predicted “big property tax increases this year and next” as counties struggle to make up for declines in state aid programs even as property owners contend with the elimination of the homestead market value credit — a popular program that reduced most peoples' property tax bills.

Pavleck said Dayton was well received by county commissioners, especially when he acknowledged the increase in property taxes caused by elimination of the homestead credit.

“He said clearly the fault lies with Legislature, and commissioners liked hearing that,” said Pavleck.

Dayton called property taxes “the most unfair tax of all — you have to pay it whether or not you have a job or an income.”

And while Dayton didn’t say there’d be a return to the homestead market value, Pavleck said he’s heard that some legislators will attempt to bring the program back.

Pavleck said Dayton has been consistent for many years saying he views income tax as the fairest tax.

“The pain is spread, so to speak,” relayed Pavleck.

The Democratic governor said he'd like to lessen pressure on property taxpayers with income taxes that take more from wealthier earners — but said he wasn't likely to make another big push for those changes until at least 2013, after the next legislative election.

It's an understandable strategy for Dayton, who's found Republican legislative leaders highly unreceptive to his proposed income tax hike on the wealthy.

But county commissioners at Monday's meeting in downtown Minneapolis said their budgets are quickly stretching to the breaking point.

“We're running on the bare bones,” said Rachel Nystrom, a Crow Wing County commissioner from Baxter, near Brainerd. Nystrom said she and fellow commissioners managed to reduce their property tax levy the last three years in anticipation of state aid cuts — but that most property owners in the area will still see higher property tax bills this week, thanks to the elimination of the homestead credit.

“People don't have money to pay more taxes,” Nystrom said. “We're on the front lines of these decisions — we're the ones in line with folks at the grocery store.”

Few commissioners had a serious expectation that lawmakers, when they reconvene in St. Paul at the end of January, would have the will or the resources to restore any of the lost state aid. Dayton and lawmakers did learn last week of an unexpected $876 million state budget surplus, but that money by law must be held in reserve.

If the surplus grows by late February, Dayton said, additional proceeds should be used to repay Minnesota school districts who've seen their own aid payments delayed in order to bridge a budget deficit earlier this year.

“We're not expecting anything more,” said John Baerg, a Watonwan County commissioner from St. James, in southwestern Minnesota. “We just hope we don't lose anything.”

Several commissioners spoke of bottled-up need, particularly in the area of road and infrastructure projects. “We could sure use more money for roads,” said Richard Samuelson, a Goodhue County commissioner from Cannon Falls.

Baerg said he and allies would use the convention to get county leaders from around the state to coalesce behind a series of legislative changes to how counties operate. The “Minnesota Accountable Government Innovations and Collaboration,” or MAGIC Act, would aim to free counties from some state mandates and allow county leaders greater flexibility in decisions about using county resources.

Dayton is not free from responsibility for the very budget-balancing maneuvers he decried before county leaders, which were the result of compromises between the governor and Republican legislative leaders that ended a 20-day partial state shutdown last summer. But Dayton said he only signed off because Republicans were unwilling to endorse his favored approach, noting his earlier opposition to both the local government aid cuts and the elimination of the homestead credit.

Dayton said in the second half of his first term, starting in 2013, he was likely to get behind a major overhaul of the state's system of income, sales and property taxes.

The Associated Press

contributed to this report.