Carlson told members of a Senate panel that he disagrees with Gov. Tim Pawlenty's proposal to use part of the state's Health Care Access Fund to solve a state budget shortfall.
The former Republican governor says he's concerned because there's no plan for paying back the health care money.
Carlson says the state budget should reflect truthfulness, and that includes accounting for inflation.
"Inflation is a reality of life. You can't have inflation on the revenue side of a budget, take it out of the spending side, and then say, 'Look what a wonderfully balanced budget we have.' Of course you don't have a balanced budget," said Carlson."
Carlson also urged state legislators to preserve funding for a program that addresses birth defects caused by alcohol consumption during pregnancy, which would be cut under Pawlenty's budget plan.
Carlson says that cut would mean the program's funding will have been reduced by 80 percent since his administration. Carlson's wife was instrumental in calling state attention to fetal alcohol syndrome.
"The fundamental decision that any government has to make is whether or not we want to continue to pay for faulty outcomes, or put more of our resources into the prevention," Carlson said. "The sad tragedy is that every time there's a budget crunch, it's the prevention side of the agenda that gets cut, because we always feel compelled to fund the faulty outcomes."
Carlson says roughly 20 percent of the men and women housed in Minnesota correctional facilities are impaired by fetal alcohol syndrome.