Gov. Tim Pawlenty’s latest attempt to erase a Minnesota deficit would eliminate or reduce benefits to as many as 40,000 people on state health and public assistance programs, further squeeze city and county budgets and force state employee layoffs.

Pawlenty on Monday outlined his solution to a projected $1.2 billion shortfall, a plan that relies mainly on spending cuts but also on hoped-for money from Washington.

As he has in the past, Pawlenty crafted a plan without state tax increases even though it led to levels of cuts he described as “dramatic.” He sliced deeper than required to cover the cost of business tax cuts he wants.

“We are not out of balance in terms of the qualities of our amenities — our arts, our culture, our education and many other measurements,” Pawlenty said. “We are definitely out of balance when it comes to our tax climate, our business climate and our job climate.”

Minnesota has faced recurring red ink for most of Pawlenty’s two terms, and his proposal heaps additional cuts on programs he has targeted before.

The largest reductions — about a quarter of the fix — affect social services programs. Care providers would see reimbursements fall, eligibility for the MinnesotaCare health insurance program would be restricted and grants for chemical dependency treatment would get pared back.

The Minnesota Medical Association, a trade group for doctors, expressed alarm that single adults would be disqualified from MinnesotaCare by earning more than $8,125 a year, down from a $27,000 earning cap now. The change would affect 21,000 people.

Gayle Kvenvold, president and CEO of Aging Services of Minnesota, said a 2.5 percent reduction in payments to long-term care providers comes as many are struggling to stay afloat.

“While we acknowledge the need to respond to the current budget crisis, we also know these proposed reductions are shortsighted given today’s demographics and the future needs of this state,” she said.

Local governments are big losers as well. Already reeling from $300 million in cuts imposed last summer, they would lose another $250 million. The new cuts are more sweeping than before, touching cities with fewer than 1,000 residents for the first time.

Jim Miller, executive director of the League of Minnesota Cities, predicted a dire fallout.

“Either property taxes go up or services get cut or a combination of the two,” Miller said, warning that local governments would face no choice but to cut back on two main expenses — public safety and public works.

“If you don’t like the condition of the streets now, it’s not tough to imagine that they’re going to get worse,” Miller said.

Pawlenty said he would press lawmakers to fortify already installed property tax limits.

His overall plan got low marks from Democrats in charge of the Legislature.

“More potholes, less police. That’s the legacy of this budget,” said House Speaker Margaret Anderson Kelliher, a Minneapolis Democrat who is running for governor. “Less health care. That’s what’s happening in the Pawlenty budget.”

Senate Majority Leader Larry Pogemiller, a Democrat, also questioned Pawlenty’s priorities but said the sides should be able to find common ground on half of the fix soon.

Republicans applauded the tax cuts Pawlenty proposed and suggested they would try to go further down that path.

As for his own administration, Pawlenty said state agencies would face an average 6 percent budget cut. His direct office would take a $275,000 cut. He said state government layoffs would be unavoidable.

“It’s not realistic to think that there aren’t going to be any layoffs. And there should be,” he said. “If everyone else is going to have to manage with those parameters, government should do the same.”

Budget areas spared from cuts include K-12 schools, military and veterans aid programs and state troopers.

Pawlenty’s plan would shave $47 million from state college appropriations. Pawlenty said he wanted to cut more but was restricted by federal requirements.

The proposal won’t be the final word. Lawmakers will get a chance to reshape it and the deficit projection will change in coming weeks. In early March, a new economic forecast will be issued.

What’s more, Pawlenty would have to cut $387 million more if a Medicaid allowance moving through Congress doesn’t materialize.

House Majority Leader Tony Sertich pointed out the irony of Pawlenty relying on federal money as the possible presidential candidate ramps up his criticism of Washington spending.

“It is a budget that is only balanced if we get money from the federal government,” Sertich said.