BOISE - Gov. Butch Otter on Monday proposed eliminating Idaho's personal property tax, a move that would cost $141 million in tax revenue but provide a boost to business leaders who say the tax is a drag on the economy.

Otter outlined his intentions for 2013 during his State of the State address where he unveiled a slightly larger state budget and discussed health care and education plans for the new legislative session.

Business leaders have urged lawmakers to dump the personal property tax, levied against everything from office desks to transmission lines and machinery in semiconductor factories. They say the tax prevents them from expanding their businesses and hiring more workers.

To make up for the money local governments would lose out on, Otter set aside $20 million to pay cities, counties and school districts. The Republican governor also advocated giving local leaders more flexibility to raise sales or income taxes in their districts to help fund courts, public safety, education and roads.

"My preference is granting local-option taxing authority that enables county voters to decide for themselves how to address their most-pressing needs," Otter told nearly all the 105 representatives and senators.

Minority Democrats are often critical of Otter's proposals but didn't immediately rebuff the property tax plan.

Rep. Grant Burgoyne, D-Boise, said he's amenable to ditching the personal property tax - as long as local governments are given the power to ask voters to raise taxes within their own jurisdictions. Burgoyne has already drafted legislation he hopes gets a vetting once negotiations begin.

"Different communities are going to have difficult solutions," Burgoyne said. "Some communities that don't have much of a sales tax opportunity are going to find a local option income tax to be more useful."

For fiscal year 2014 starting in July, Otter proposed a roughly $2.8 billion budget, reflecting about a 3 percent increase. He said the proposal was conservative because it grows less quickly than the state's overall anticipated revenue.

The two-term governor also promised quick legislation for Idaho to enact its health insurance exchange, envisioned by the federal Affordable Care Act as a federally-subsidized online marketplace for individuals and businesses to compare and shop for insurance coverage. Lawmakers must still approve the bill, something hardly guaranteed in Idaho's conservative Legislature.

Otter opposed the federal health care law, joining the unsuccessful suit that sought to overturn the 2010 changes in the U.S. Supreme Court.

However, he said, now that the law is in place, it's important for Idaho maintain its voice in enacting the regulations as state leaders see fit.

Idaho is one of only four Republican-led states pursuing exchanges, a status Otter predicts will provide leverage in negotiations with the Department of Health and Human Services. Officials still must determine which benefits must be offered in insurance policies and which companies can participate.

Neither Obama, nor HHS Secretary Kathleen Sebelius wants a Republican state that "was trying to create its own exchange walking away from the table," he said at a press conference following his speech.

Otter is avoiding a related fight, however, by not immediately endorsing the expansion of Idaho's Medicaid coverage to include more than 100,000 additional low-income residents whose bills would largely be paid for with funding from Washington.

In November, Otter's own, hand-picked panel urged him to accept the expansion foreseen by the federal health care law, arguing doing otherwise could cost Idaho $284 million by 2024.

Instead, Otter now plans to spend the next year studying how Idaho's federal-state funded health care system for the poor can be revamped to make it less focused on paying fees for services and more on requiring Medicaid beneficiaries to take more responsibility for their health.

"We have time to do this right," he said, on what he calls a "broken" Medicaid program. "I hope to return in 2014 with specific proposals."

Following the speech, new House Speaker Scott Bedke said he agreed with Otter's decision to wait - even if it means continued funding of an existing insurance program that covers medical bills of the state's indigent population - but costs the state and counties some $60 million annually, without federal help.

"That's the devil we know," Bedke said.

Otter also used his address to ask lawmakers to increase state funding of public schools by 2 percent, to about $1.28 billion, or $25 million more than the current year. He did not propose pay raises for teachers and most state workers.

The governor acknowledged Monday he and Superintendent of Public Instruction Tom Luna made mistakes in pushing through the "Students Come First" public education overhaul in 2011 without more public support, a problem that led to voters' rejection of the plan on Nov. 6.

He reiterated hopes for a new panel he assembled last month to come up with new, broadly-supported proposals - not this session, but 2014.

"I'm convinced that acting too quickly or without due deliberation will generate needless distraction," he said.