Governor Tim Pawlenty

Top politician has great economic clout.

Photos by Kris Kathmann

Huffing and puffing up endless white steps while carrying camera equipment under the Capitol dome shadow in St. Paul, higher and onward, Kris and I finally enter through double doors and hang a left toward the Governor’s Office. His receptionist tells us to relax, but can we? We’re nervously waiting for this person with the power to make or break Minnesota’s business climate, to make or break your business perhaps.

So this is the Governor’s Office.

Kris is our Connect Business Magazine photographer and he and I are almost speechless. Not so much the Governor, it’s as much the idea of interviewing in this spacious rococo meeting area of burgundy curtains and stately windows, colossal paintings of Minnesotans in Civil War battles, a magnificent fireplace, and dozens of other adjectives and nouns that don’t do this place justice.

Standing alongside us is Trooper Frandrup and in time she cuts into our thoughts. She says that Gov. Tim Pawlenty is “pretty much a regular guy” and “for a Republican, not that bad a governor.” Her winsome grin and wit brighten our rococo heaviness.

Ten minutes late, the Governor appears. No Spanish-Armada entourage, no media jackals chomping at his Achilles heel, no violent protesters—only Frandrup, the Governor, an aide and us. We exchange pleasantries. He beams. He sits. He says we can digitally spruce up his photo and he chortles. For the camera, I ask him to say “hockey” and “Cheney” to get him smiling wide.

So this is our Governor. And the private interview begins.

CONNECT: What events or people in your personal or professional background have helped craft your views on business?
I’ve had the good fortune of being friends with business leaders. As a policy maker I’ve observed them at the city and state level, and as governor. I have a very deep appreciation for the economic benefits, quality of life, and opportunities good businesses bring to Minnesota. And so I recognize business as a key ingredient in our state’s success. I’ve become a real champion for their interests.

Can you give the names of business people that have influenced your views on business?
The people I’ve been closest to and received advice from includes corporate leaders such as Bob Alrich of Target, Bob St. Clair of Minnesota Life, and Stan Hubbard of Hubbard Broadcasting. These are folks running large organizations who’ve said to me, “Let me give you a couple of lessons learned from running my company that may apply to public policy.”

Was there anyone who influenced your business views when you were a youth?
I’m from South St. Paul. My dad was a truck driver and later in life a dispatcher. I didn’t have much exposure to business leaders because I grew up in a mostly blue-collar area. In my youth I really didn’t have a business mentor.

Your favorite books? What do you read?
I read mostly history, and biographies or autobiographies of historical figures. I enjoy history a great deal. There is a lot to be learned from it. I tell people reading a lot of fiction that the stories of history are just as good—and they are real.

Can you name recent books you’ve read?
Sometimes I read autobiographies and other times books that reflect on lessons learned from history. One recent book was Lincoln on Leadership. The author takes examples from Lincoln’s life and extrapolates leadership lessons. I recently read The Founding Brothers, which is a story about the relationships and dynamics between the “founding fathers” of our country. On the airplane to a recent trade mission overseas I read a faith-based book called Finding Our Way Home, written by a Dutch priest some 30 years ago. That was interesting.

What did you learn from that last book?
When you are a governor it seems everyone gives you a book, especially ones that have changed their lives. So I get lots of books as gifts, more than I can read. I read that one for variety, so I don’t read all history. The theme of it is how a person in power can give it up and share it in a constructive and positive way.

Sounds sort of anti-machiavellian.
Yes. Primarily it’s about empowering others and making them stakeholders, and doing it in a way that doesn’t make the leader appear weak. I thought it was a good book.

Which part of the political process do you enjoy most?
The best part by far is getting out to meet Minnesotans. Every day I get to meet a teacher, a scientist, a business leader, an assembly line worker, and almost all are very happy to see me. They also have interesting things to share. I get a free education in life every day as I meet dozens, and some days hundreds of people who have insights or perspectives or lessons they want to share.

Now on to economic policy: Could you discuss your new JOBZ program and the rationale behind it?
It stands for Job Opportunity Building Zones. The rural economy is changing all across America. Rural areas are losing population, and a tax base, and jobs. As for demographics, the population is aging. Rural economies have fewer jobs to service the needs of an aging population. So we had to find ways to stabilize the rural economy, to bring jobs and a stronger tax base to rural Minnesota. To that end, we put together a very powerful incentive package for businesses.

In short, JOBZ is the mother of all tax incentives to grow or establish businesses in parts of rural Minnesota. In a JOBZ area there are no corporate income taxes, no property taxes, no taxes on goods purchased and used in the zones, and no taxes on investments made in the zone for a period of up to twelve years. I call it the ‘kitchen sink’ of incentives. There are so many zones because we had to spread them out to get them through the legislature. Not all are going to work but many are. We’ve already seen good results.

Can you give examples of good results?
Polaris is making a big expansion. We have a new agricultural processing plant in Albert Lea. We have a number of (expanding or new) facilities in west-central Minnesota. Luverne has actually lured a South Dakota business back to Minnesota. (Laughter.) That’s almost unheard of. We are really proud of that. Already we have hundreds of new jobs as a result of JOBZ and several hundred million dollars of capital investment.

Do you support retail businesses receiving JOBZ?
I don’t think so. We don’t really have a shortage of retail in most areas. We want to try to promote what I call “traditional” industries and manufacturing in capital and wage intense sectors. We don’t seem to be lacking for retail opportunities in Minnesota.

About 90 percent of small business owners nationwide pay individual rather than corporate state income taxes on their business income. What’s holding back the further lowering of individual tax rates in Minnesota so small business owners here can remain competitive with ones in other states?
The short answer is big government deficits. The supplier-siders, of course, would say that if you cut taxes you’d actually have more revenue. There is some evidence for that. But unfortunately in Minnesota, the way the rules are set up, you have to score tax cuts for budgeting purposes in a static model. In other words, a dollar for tax cuts in the budget forecast shows up as a dollar lost in revenue. From an economist’s standpoint, I don’t think that way is correct. But that’s the rules. And the record budget deficit that we’re just now crawling out from underneath, and with those rules in place, it’s difficult to cut taxes without showing an even bigger deficit on the books. That being said, I’m a tax cutter. I was a Majority Leader in the Legislature when we had better economic times and were able to lower personal income tax rates for the first time in a long time.

Wasn’t it twice?
Twice. We had the biggest tax cuts in Minnesota history and I was able to lead those through. But the short answer to your question, again, is the way we score tax cuts in the state budget process. With our budget currently “leaky,” it’s not persuasive right now to argue for (further) tax cuts.

One thing we might want to look at is reforming the way we score tax cuts. If the way we are doing it isn’t fair or accurate—the current way of scoring a dollar of tax cuts as taking a dollar from revenue—then perhaps we should be more sophisticated in our scoring. Perhaps we should allow for some dynamic scoring, so tax cuts could translate into some economic growth. That’s a potential reform we could look at. A dollar of tax cuts doesn’t necessarily correspond to a dollar of revenue loss. In fact, a lot of evidence exists to the contrary.

Give me an adjective or two coming to mind for each of these legislators living or serving in Connect Business Magazine’s reading area. First, Carol Molnau?
Wonderful and multi-skilled.

Dick Day?
Colorful.

John Hottinger?
Serious.

Bob Gunther?
A delight; just a good person.

Julie Rosen?
Rising star.

Denny Fredrickson?
Statesman.

The completion of a four-lane Highway 14 from Rochester to New Ulm is important to our business readers. How familiar are you with the issue and what can you do to help?
I’m familiar with the issue because I’ve driven Highway 14. That stretch of road is one of the most pressing transportation needs in Minnesota. We are really proud that our administration was able to pass the largest infusion of transportation dollars into the system for large projects in modern history. It will result in a 30 percent or so per year increase in road construction funding for the next five years. So last year we had the biggest road construction season in history. I think this year will be the same, and likely the same for the next three or four years. So we really have energized road construction.

A piece of that money is going to Highway 14. I realize that people are tired of getting “pieces” and they want the Highway done all at once. But we need to keep working on it. The next phase will come in the not-too-distant future. There is work underway on Highway 14, as you know, from east of Mankato toward Waseca.

We also have to start thinking of what to do over the next 25-30 years, not just the next five. And I think this next legislative session you’ll see proposals from our administration, interest groups and others to come up with even more transportation funding dollars. If that happens, Highway 14 accelerated construction will likely be on that list.

Of all issues in our region, that one would likely top the list right now.
It’s a big issue. It’s not just an issue of convenience or commerce, it’s one of safety. That’s one of the most “challenged” stretches of road in the whole state.

Moving university technology quickly to market to create Minnesota jobs seems a priority of yours. Tell us of your initiatives, or those of others (either in the House or as Governor), any progress on them, and any other ideas you have in this vein.
One of the factors in any region or state’s economic success—as compared to ones that aren’t doing so well—is the strength of the college university system in developing innovations, ideas, technologies, inventions and getting those translated into the business marketplace in the form of business opportunities, economic development and job growth. Minnesota historically has done a good job on that front, but lately we’re lagging a bit behind. So we need our university and college system to be more entrepreneurial, and to have a culture that celebrates people who want to be in business, who want to get their ideas to the marketplace.

Other states do a better job of that. I think of the Cal Berkeley-Stanford cluster and the areas around Austin, Texas, and Boston. Our Univ. of Minnesota is third highest in the U.S. in the amount of research it does by volume, but much of its research is licensed out to existing companies outside Minnesota. The University might benefit from that financially, but it doesn’t result in many jobs here. So we’re going to ask the University and MNSCU system to put a higher premium on—not just licensing technology to some company across the country or the world—but encouraging them to have a physical presence in Minnesota in exchange for the technology. That’s something we’re working on.

Secondly, we want to encourage professors and academicians to be entrepreneurs. We’re discussing the idea of developing a school in which we would offer workshops to make it easier for them to be entrepreneurs. We want the University and MNSCU systems to have a culture that—within appropriate ethical boundaries—makes being an entrepreneur “okay.”

We also have a series of initiatives around bioscience and funding strategically some priorities (in that area) that hopefully will promote the types of research most likely to translate into business in Minnesota.

Why couldn’t a few strategic, high-tech doctoral programs be added to Minnesota State University in Mankato, or other outstate universities, so rural Minnesota rather than just the Twin Cities and Rochester can benefit from the jobs created by some of these initiatives?
We could do that, but we have to be strategic about where and why. One of the great frustrations I have is we have a very expensive college and university system. One reason it’s expensive is because we have colleges trying to be everything to everybody. In an era of limited resources perhaps we should start thinking of “centers of excellence.” Maybe Mankato might become the center of excellence in a certain program, but not try to duplicate what is going on at Rochester. Or Southwest State might become the center of excellence for certain programs.

High-end, research Ph.D. programs heavy on laboratories and equipment, and research investment—they are really expensive. We shouldn’t duplicate those programs all over the state. I don’t think that is in the state’s best interests. We should declare “centers of excellence” so a few places are the best in the country and a magnet for talent. Maybe we should make sure those centers of excellence are distributed throughout the state.

But I think we would be ill served by asking MSU or St. Cloud State to compete with the U. of M. Maybe the better answer is to have a strategic plan identifying where the centers of excellence are going to be and parcel a few out around the state. We shouldn’t duplicate.

Rising healthcare premiums are a big business gripe. What’s the cure?
It’s not just a business gripe; it’s an “everybody” gripe.

Were there some cures this last session?
Modest. Some legislation passed will help. That’s one piece of the fix.

This is the most pressing domestic policy issue in the country. We have healthcare costs going up so quickly, so rapidly, that they are suffocating the abilities of individuals, family, businesses and governments from advancing other priorities. To give you one measure: When I became governor the Health and Human Services budget in Minnesota was scheduled to go up 24 percent in one budget cycle. I actually helped slow it down a little bit, but barely made a dent in long-term trend lines. If continuing on its current path, it will consume most of the state’s budget within 10 years. That will crowd out better funding for K-12 education, roads, and just about everything else. It’s a huge crisis and there are no simple answers.

Everybody defines “healthcare reform” as keeping and getting more benefits and making someone else pay for it.

We are aggressively working on a set of initiatives for next session that will focus on (the state) taking “Mayo Clinic-level” standards. We will focus on reforming the market by using bulk purchasing power—either through government or an alliance of purchasers—to demand that providers follow best practices. The ones that do, by the way, are also the most efficient. So you can get the best of both worlds: better healthcare, and that more efficiently.

Again, we’re going to have to start focusing on centers of excellence for certain procedures. The “big four” in maintaining good health are diabetes, cancer, heart disease, and obesity. And if you add “end of life” issues, those five account for about 75 percent of the healthcare dollar. If you can find the best way to treat diabetes, cancer, heart disease and obesity, and you can find people who do it 30 percent better in terms of outcomes and efficiency, then let them do it. We don’t want to pay a 30 percent differential, for instance, because some providers aren’t doing certain procedures very well.

You mentioned some laws from the last session that might help modestly?
A bill was passed requiring more reporting around best practices and outcomes, and opens the gate maybe to some Internet-style accountability—not accountability as much as disclosure and reporting.

There was a bill involving fair contracting between different providers, such as chiropractors and alternative medical practitioners, and insurance companies.

Again, one of the frustrations of this in the public policy arena is that healthcare is so complicated. The public, understandably, doesn’t follow it. Even most legislators don’t understand the details because it’s too complicated. There are only five or 10 people (in the state) who really dive in and understand the system.

Are you a metro or an outstate governor?
I’m the governor of the whole state. Folks trying to pigeonhole legislators or me are doing a disservice to the state. I take very seriously the responsibility that if you’re going to be governor, you’re going to be governor of the whole state. Just because I grew up in South St. Paul doesn’t mean I’m a suburban governor. I think I’ve spent more time in Greater Minnesota than any governor in modern history. I have a heart and passion for making sure the whole state is healthy.

Which would explain why you pushed JOBZ?
People that look at just one program or slice of the pie, or one issue, and say it benefits this part of the state of that part—they need to look at the whole picture. Some people just take a slice of data and make conclusions with political motives in mind. We strive to be as fair to the whole state as we can. We do that purposefully and very consciously in the Governor’s Office when making policy.

Last year during the session you did a “fly-in” to Mankato Regional Airport for a press conference. I and perhaps 40 others were there. There was a man with quadriplegia using an electric wheelchair. He called for you. He was concerned about funding cuts. You went over and talked to him. That was the only person I can remember you talking to personally after the press conference before you flew to another airport. Do you remember that man?
I don’t remember the specific words we said, but in my mind I remember him well. He was using a breathing assistance device and had an attendant with him.

Last year we had a huge budget battle and a slow down in social service and healthcare spending. It’s easy to talk about budgets here while looking at them on spreadsheets, but not so easy going out and looking into the faces of the people they impact. That emotionally impacts me. I try to take those kinds of conversations seriously.

I also encourage people to be a little patient. We are a country at war. We had a huge recession. At the state level we had the biggest budget deficit in state history—times three. When I was running for governor the deficit was supposed to be $1.6 billion. When I was elected they then told me $4.5 billion. We’re only now just crawling out of a very big hole. It’s been a hard time.

I want to make sure I’m available to hear people’s concerns. I don’t want to make decisions in a vacuum or here in the office. So I do like to get out and meet people. More often than not they have something helpful to say.

I’ve heard some people say this last Session “did nothing.” Was that all bad?
(Laughter.) They did get a lot done, so it wasn’t a “do nothing” session. There were a few good things coming out. We had the new school standards in social studies and science come out of the session. That was a big deal for us, one of our marquee issues. We had blood alcohol concentration level legislation, lowering the level from .10 to .08 for drunk drivers. In historical terms, yes, it wasn’t a very productive session, but there are a lot of people who would say having government do more, spend more and encroach more isn’t a good thing.

Finally: Were you personally hurt by the failed confirmation hearings of former Education Commissioner Yecke?
Yes, in the sense I was saddened. Commissioner Yecke, by almost any fair-minded person’s account, is one of the most talented, energetic, bright, and knowledgeable people we’ve had as Commissioner of Education in state history. No clear-thinking person could look at her experience, credentials and accomplishments and say she wasn’t qualified for the job. They threw her out because they didn’t like her politics. I don’t think that was an appropriate basis for the Senate denying her confirmation. She was qualified. It’s a sad day for Minnesota.

Now I’m relegated to going across the country asking candidates for the position to pack up their family and move here to help lead change in Minnesota. They tell me, no, not with that Senate. So the Senate’s denial of former Commissioner Yecke’s confirmation really limits our ability to recruit and attract national-level talent. And it’s sad for Minnesota.

Anything else?
This is what I’d like to say to your readers: For starters, we’re going to make sure we don’t worsen the environment for business in Minnesota. It’s important we don’t raise taxes. You’d be pretty hard pressed to make a credible argument that Minnesota is under-taxed—we’re highly taxed compared to the rest of the U.S. Minnesota has also had a bit of a spending problem. So we need to bring taxes and spending into balance. It’s important for us to preserve our quality of life, by striking the right balance for Minnesota’s future in a highly competitive marketplace.

Get It While It’s Hot

Connect Business Magazine readers can learn more about Job Opportunity Building Zones (JOBZ) at www.positivelyminnesota.com. Completed JOBZ deals in our reading area as of August 1 have helped create 94 new jobs, including ones in St. Peter (Exceed Packaging, 24 jobs, $11/hour average); Le Center (Electronic Assembly Services, 2 jobs, $11/hour average, and Earth Tech Tables, 2 jobs, $11.00/hour average); St. James (Performance Plating, 18 jobs, $9.50/hour average); Le Sueur (Control Products, 45 jobs, $14.50/hour average); and Elmore (JD Truck, 3 jobs, $9.73/hour average).

Second Time’s A Charm

The Senate’s denial of former Commissioner Yecke’s confirmation really limits our ability to recruit and attract national-level talent. —Gov. Tim Pawlenty.

Soon after interviewing with Connect Business Magazine, Gov. Pawlenty offered up Rep. Alice Seagren (R-Bloomington) as his next choice for state education commissioner. Rep. Seagren is chair of the House Education Finance Committee, has a four-year business marketing degree from Southeast Missouri State, and has served on the Bloomington School Board. Yecke, the rejected candidate, is a St. Paul native, taught public school eight years, earned her Ph.D. from the Univ. of Virginia, served as a Virginia State Board of Education member, Virginia State Education Commissioner, and worked at the U.S. Dept. of Education. The Senate is expected to confirm Seagren.

Getting To Know You: Tim Pawlenty

Tim Pawlenty, 43, was the only child in his family to attend college. A Univ. of Minnesota graduate, he practiced law before serving as a Hennepin County prosecutor and Eagan City Councilman. He served in the Minnesota House and in 1998 was elected House Majority Leader. In 2002, he was elected governor. Pawlenty is married and has two children.

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