A fiscal fitness test

Mid-December found Gov. Tim Pawlenty performing the kind of delicate dance that has increasingly come to typify his public life. Less than two weeks after a state economic forecast predicted the worst financial slide since World War II, Pawlenty hopped a red-eye flight -- to Ben-Gurion airport in Tel Aviv, Israel.

For four days, the governor worked the phones to stay on top of the state's deteriorating outlook, while squeezing in private meetings not only with Prime Minister Ehud Olmert, but also with longtime Israeli leader President Shimon Peres.

The ostensible purpose for the trip was a trade mission. Image-building bonuses that any national political figure would envy included a head-of-state-style photo op laying a wreath at Yad Vashem, the Israeli Holocaust memorial.

Just hours after returning to Minnesota, Pawlenty slashed more than $400 million in state spending over the next six months, the first step in coming to grips with the grimmest fiscal news of his governorship -- a $5.2 billion budget deficit, the resolution of which seems likely to shape both the state's future and his own.

Pawlenty begins his seventh year in office having maneuvered his way through repeated deficits and natural disasters and the collapse of one of the state's busiest bridges. But nothing that has come before has offered as much hazard, or as much potential, as the obstacle course he faces now.

With the defeated Republican Party looking for new ideas and a new generation of leaders, and with a chance to put his own stamp on government's response to economic crisis, Pawlenty's defining moment may be at hand.

"Crisis is also opportunity," said Vin Weber, a former Republican Minnesota congressman who has become a major player on the Washington scene. "This election cycle pretty well established him [Pawlenty] as a national figure.

"He's certainly on everyone's list as a presidential candidate or running mate in four years."

Pawlenty acquitted himself well by all accounts in his near-miss last year as a vice presidential prospect. Coming up short, he escaped being bruised by the GOP's defeat, and since the election he has remained a favorite of Washington talk show hosts seeking a fresh Republican voice to diagnose what ails the party.

"What this last election proved to him is that he's viable," said Jay Kedrowski, a former state finance commissioner who is co-chairing a state budget trends commission. "He's got a taste of it -- to be so close to being VP nominee, the exposure he got. Now he's got to come out and be for something."

Pawlenty says little about the political roller-coaster ride he took over the summer, insisting to the last that he was drawn in simply by his "profound respect for John McCain. I didn't go into it thinking that the endgame was I would be on the short list for VP," Pawlenty said in a year-end interview with the Star Tribune.

He professes not to be thinking about 2012, saying that he is focused on dealing with Minnesota's crisis.

But 2010 is on his mind a bit.

"I haven't ruled out running for a third term and am actively thinking through whether I'm going to do that," he said.

Pawlenty has given few hints about what he plans to propose to address the state's massive shortfall. But he said in the interview that his State of the State address and budget proposals will contain some of the boldest initiatives of his administration.

"This could be one of the more significant reform sessions you've seen in a long time," he said.

Pawlenty has talked about big reforms before -- for as long as he's been in office, in fact -- but the record has produced mainly incremental change. That's been frustrating for a politician who sees himself more as a visionary than, as Pawlenty has put it, "a bookkeeper for the DFL."

While mindful of the hardships that lie ahead, Pawlenty also clearly relishes the chance to make head-turning change.

"You can change things when there's a big surplus because you can buy off objections," Pawlenty said. But bold new directions are also possible, he added, when deficits are so monumental that "even interest groups -- even legislators -- realize the status quo isn't going to cut it."

Ron Eibensteiner, former head of the state Republican Party, likened Pawlenty's opportunity to that of a CEO who comes in after a company has declared bankruptcy. "You can do things you ordinarily couldn't do," Eibensteiner said. "That's when you really get to mold things."

Many have dismissed Pawlenty's no-tax agenda as a tired gimmick designed to please national party poobahs. "This no-new-taxes thing has run its course as a rhetorical tool," Kedrowski says.

But Pawlenty said he remains more committed than ever to reinventing Minnesota government without inflating its revenues.

But, he said, the state will also have to become accustomed not only to "doing more with less," but, in some cases, to just "doing less."

A world of change

Pawlenty has traveled widely in his years as governor: trade missions to India, China, Israel and Eastern Europe; speaking engagements in London and Madrid; troop visits and fact-finding missions in Iraq, the Balkans and Afghanistan.

While bulking up his foreign policy credentials in a way national Republicans find attractive, those trips have also contributed to a broader world view that has left a sobering mark on Pawlenty's thinking about the world and Minnesota's place in it.

"I came away from China thinking we need to get our rear ends in gear," Pawlenty said. "And I don't mean we Minnesotans, I mean we the United States."

Pawlenty said that the 1970s-era of high government spending some DFLers long for is gone, and that those who try to reach back to that era as a kind of government gold standard may instead limit Minnesota's global reach.

The state can't and shouldn't compete with Third World countries in a race to the bottom on wages, Pawlenty said. "That would be a terrible degradation of our quality of life, human rights standards, labor standards. ... But we also can't be so smug about our past that we think you can forever price yourself out of the market and not have that have an effect."

If higher spending alone were the answer, he said, states like Michigan, Pennsylvania, Ohio and Wisconsin would have been better insulated against the downturn.

Instead, he said, the state needs to "recalibrate, redesign." The objective, he said, "is not just to cut costs. It's to be strategic about money we do spend so it's the highest value deployment of our money possible."

Minnesota, he said, "is so enamored with the past that it's missing the future."

Walking a fine line

Those in Pawlenty's inner circle say he has changed during his time in office. Even some critics have noticed a greater show of interest in cooperation -- not always a hallmark of the man who once publicly dismissed a DFL budget proposal as "profoundly stupid."

This time around, Pawlenty has spent months quietly meeting with interest groups and opposition party leaders, even going so far as to speak to a House DFL caucus meeting held away from the Capitol just before Thanksgiving.

"There may be a little of the 'let's all jump off the bridge together' sentiment at work here," said House Speaker Margaret Anderson Kelliher, DFL-Minneapolis. "But he does seem to be listening, and at least open to some new ideas."

Sen. Linda Berglin, DFL-Minneapolis, who frequently has acted as a human roadblock to Pawlenty's health-care cuts, said she still worries that no one who has received the national attention and exhibited the ambitions Pawlenty has can stay focused on interests of the state that may run counter to his own.

"At some point, talk of reform becomes an elaborate cover for just doing less," Berglin said. "Traveling all over the world, cutting services, going on talk shows -- that may help him, but it doesn't help this state."

"There's a lot of ... rethinking going on right now in the Republican Party," said Mitch Pearlstein, head of the Center of the American Experiment, a local, right-leaning think tank. "Tim is imaginative, creating, willing to challenge various factions in the party and movement. Can he provide a new direction? It's possible. I know that unless Republicans and conservatives do a better job of appealing to younger folks, suburban folks, people of color, things will be very difficult down the road."

Weber said Pawlenty may be mindful of the fact that "right now, people want to see government work.

"It's a fine line he has to walk, but he's a skillful operator."

Patricia Lopez • 651-222-1288