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Pawlenty speaks Monday at chamber of commerce luncheon in Farmington

Minnesota Gov. Tim Pawlenty speaks at the Dakota County Regional Chamber of Commerce lunch at the Farmington Eagles club.

Governor Tim Pawlenty said there are challenges ahead for state government but expressed confidence the state will balance its budget and put Minnesota on sound financial footing.

"This is a tough challenge for all of us, but we can do this," Pawlenty said Monday at a Dakota County Regional Chambers of Commerce lunch at the Farmington Eagles Club.

The Governor addressed the state's $5 billion budget deficit and the steps state government is taking to address it. He also took questions, including one from Farmington mayor Todd Larson, who asked about the state's decision to cut Market Value Homestead Credit aid to cities including Farmington. Locally that means a $300,000 hit to the budget after the city had set its tax levy and has forced the city to make cuts including reduced summer hours at city hall and wage cuts for many employees.

"We have to figure out what services to cut. We have to either cut employees ... or raise property taxes," Larson said.

Pawlenty said the MVHC cut was necessary because the state had cut local government aid to some Minnesota cities. The timing was a result of different budgeting schedules from city to state.