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With a nearly $5 billion projected deficit facing the state, Gov. Tim Pawlenty urged bipartisan teamwork and proposed tax cuts and credits to businesses to stimulate job creation in the state’s lackluster economy.

“We face brand new challenges in a rapidly changing world,” Pawlenty said in his State of the State address Jan 15. “The old ways aren’t going to cut it anymore.”

As a way to “jump start” job creation, the governor outlined his proposed Minnesota Jobs Recovery Act that would:

• cut the state’s business tax rate in half, from 9.8 percent to 4.8 percent, over the next six years;

• provide a $50 million package of tax credits that would create more than $100 million in new investments;

• provide a 25 percent refundable tax credit for small business owners who reinvest in their business quickly to stimulate the economy;

• provide a capital gains exemption for qualifying investments in small businesses; and

• provide businesses with a 100 percent exemption from the sales tax immediately upon the purchase of equipment, instead of filing paperwork for a refund.

“These tax cuts and incentives may seem aggressive in the context of our budget challenges,” Pawlenty said. “But we simply have to take dramatic measures to improve our job climate and kick-start job growth in Minnesota.”

With an image of a mom and dad sitting at their kitchen table fretting over “a budget that’s tighter than it’s ever been,” Pawlenty asked legislators to bring the same emotions and concerns faced by everyday Minnesotans to the Capitol. “We need to start by taking the kitchen table approach and setting priorities.”

Among other things, the governor wants to change the way government does business so it is not “to the detriment of taxpayers.” For example, he said the state’s 87 counties duplicate services 87 times.

“I’m not proposing to eliminate counties,” he said. “But I am proposing that we save money by encouraging counties to work together.”

He also suggests that counties be given incentives to create no more than 15 new regional enterprises that “will manage and run all human service programs so each county doesn’t have to run their own.”

Pawlenty said an ongoing top state priority must be to “dramatically reform and improve our K-12 education system.” He vowed his biennial budget, to be released Jan. 27, would contain ways to do that.

In addition to having minimum entrance requirements for teacher preparation programs and modernizing the way teachers are paid, Pawlenty suggests paying school districts based on results.

“I propose we increase school district funding by up to an additional 2 percent per student for students meeting standards or at least showing reasonable growth towards achievement,” he said. “This will align the money we spend with the results we expect. It’s common sense.”

Pawlenty said the state must get health and human services costs under control; otherwise, the ability to fund other priority areas could be eliminated. The budget forecast shows these programs will rise nearly 19 percent if left unchecked.

“As my budget will reflect, there is no easy way to do this. But, in the midst of these changes, we will protect all current health care eligibility for children,” he said.

Other items proposed by the governor include:

• creating tax-free Green Job Opportunity Building Zones (JOBZ) for renewable energy jobs created anywhere in the state;

• requiring the Minnesota State College and Universities system to deliver 25 percent of credits online by 2015;

• imposing a firm cap on tuition increases; and

• instituting a two-year wage freeze for state government employees and entities that accept state money.

“The state of our state is challenged, but overcoming challenges is what Minnesota does best,” he said.

Some DFLers, including House Speaker Margaret Anderson Kelliher (DFL-Mpls), were left wondering about Pawlenty’s logic behind increased spending. She said his proposals would push the state’s projected budget deficit north of $6 billion.

“When we were looking to the governor to make concrete solutions as to how we’re going to solve this very massive problem together, the governor’s answer will actually make the problem worse for Minnesotans,” Kelliher said. “Let’s be clear, some Minnesotans are going to pay for that spending. … It’s those exact same families around the kitchen table who end up paying for the governor’s spending.”

She also wondered why the address did not reference a potential federal stimulus package, something the DFL is anticipating.

In contrast, House Minority Leader Marty Seifert (R-Marshall) said, “It’s a little bit like waiting for the Publisher’s Clearing House guy to show up at your door.”

Staff writers Sue Hegarty and Mike Cook contributed to this story.

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