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Two words appeared on flags, banners and business windows around the Plymouth neighborhood Gov. Tim Walz visited Thursday.

Now Hiring.

Minnesota doesn't have enough workers to fill job openings, and with an aging workforce the problem isn't going away soon. Walz, legislators and business leaders are contemplating how to use the state's estimated $17.6 billion budget surplus to strengthen the state's economy and tackle workforce challenges.

"Whether it's helping people who are incarcerated reintegrate and reconnect with work, decreasing disparities in employment for our workers of color, training youth for jobs of the future or helping workplaces hire and support workers with disabilities, this investment is critical," Lt. Gov. Peggy Flanagan said at the HVAC manufacturing business Daikin Applied, where she and Walz announced a portion of their next two-year budget.

They are rolling out their spending and tax plan in chunks, and Thursday's focus was on the economy. Walz proposed hundreds of millions for broadband expansion, business assistance and climate initiatives. But at nearly $669 million, the creation of a paid family and medical leave program is the single biggest item in his economic development budget.

"Happy employees tend to be loyal employees. Happy employees tend to stick around," Walz said of the paid leave program.

DFL legislators who control the House and Senate are holding hearings on the idea. After an initial infusion of state cash, Walz and legislators plan to have employers and employees fund the program through a payroll deduction.

Business owners have differing views on the proposal, which they could opt out of if they pay a fee and provide an alternative that meets state requirements. Some small business owners say it would help them compete with big companies while others oppose the mandated approach and said it amounts to an onerous tax.

Members of the Minnesota Business Partnership had lunch with Walz on Thursday after he unveiled his spending plan. Executive Director Charlie Weaver said they had one big message for the governor: "Just do no harm."

He fears the paid leave plan, along with potential corporate and individual income tax proposals from the Legislature, could make Minnesota less attractive to businesses and create challenges for companies trying to grow. However, he applauded some of the governor's spending plans to boost education outcomes and prepare students to join the workforce.

"We cannot leave people on the bench," Weaver said, noting that for businesses, "The number one issue is: Will they have the talent available and workforce available to grow and prosper here in Minnesota?"

There needs to be a multipronged solution with local efforts to get people into the workforce and federal immigration reform to allow more people to move to Minnesota, he said.

Lawmakers must position the state to be globally competitive, said Sen. Bobby Joe Champion, DFL-Minneapolis, who leads the Jobs and Economic Development Committee. He said he is working on legislation on that topic and on tackling inequity in workforce development.

"A ton of people … are sitting on the sidelines. And usually those are in communities of color. We have to find a way to re-engage them in a real way in order to make sure we are handling the gray tsunami that we are experiencing," Champion said, warning that otherwise, "You are going to lose human capital and opportunities."

Walz's budget has many one-time allocations, including $276 million to expand broadband statewide, $150 million for business development grants and loans and $30 million to prepare more people to enter high-demand sectors with good wages, such as manufacturing and technology.

There could be bipartisan agreement on some parts of Walz's plan, including small-business assistance, said Rep. Jon Koznick of Lakeville, the GOP lead on the House Economic Development Committee. But he sharply opposed the governor's approach to paid leave.

"The most important thing that Minnesotans want to see is: Where are the tax cuts? And how are they going to return the $18 billion surplus back to Minnesotans, instead of creating new bureaucracies and new billion-dollar programs that will make it harder and stifle business growth?" Koznick said.

Walz also presented climate change initiatives Thursday. He wants Minnesota's electricity sector to move to 100% clean energy by 2040. He proposed matching dollars to get federal clean energy funding, as well as cash to help communities with aging infrastructure and schools with solar power. His budget included minimal cash for electric vehicle charging infrastructure.

"Climate change is going to be an existential threat," Walz said. "And the economic benefits are going to go to those states, and those companies, that have the will and the innovation to take it on."