By Brian Bakst, Minnesota Public Radio News

Two of Gov. Mark Dayton’s prized business incentive programs will see steep funding cuts under a budget bill he signed this week.

The Democratic governor wants lawmakers to reverse cutbacks to the Job Creation Fund and the Minnesota Investment Fund during a possible special session. But that demand isn’t going over well.

If nothing changes, there could be disappointment ahead for companies hoping for state subsidies.

Bob Jackson, general manager of Stern Rubber, was caught off guard by the Legislature’s decision to slice more than $23 million from the fund. He scrambled to call his state contact to check on the company’s application.

An uptick in construction of new houses has been good for business at Stern Rubber, a half century-old company in central Minnesota. The valves and gaskets it makes for water mains are in demand and its other rubber products are, too.

So the company is pressing ahead with an expansion at its plant in Aitkin and has been considering one at a second site in Staples. The Aitkin project that’s due to break ground this month will add 10,000 square feet and almost double the number of employees there.

The Aitkin plant will be helped along by grants from the state’s Job Creation Fund. The future of the Staples facility, however, is less clear without the expectation of state help.

“It’s pretty substantial. We were kind of, not counting on, but assumed the money is there, but now it’s not,” Jackson said. “So that’s definitely going to play into our decision whether we move ahead this year or not.”

Officials at the Department of Employment and Economic Development can’t comment on specific projects awaiting approval, but deputy commissioner Kevin McKinnon says the cutback will be felt.

“All of those instances where we have existing agreements in place, yes will be fulfilled,” McKinnon said. “Those that we have been talking to and understanding their needs and looking at long-term plans, we just won’t be accepting applications for that program.”

Since it started in 2014, the fund has been tapped for 62 expansion projects — for corporations that are household names to smaller companies off the beaten path. The agency says the $30.5 million in state funds distributed has been matched by 20 times that in outside investment and led to more than 3,800 new jobs.

Companies can qualify for grants to make facility upgrades and then get rebates when they add the promised jobs to their payrolls.

The separate Minnesota Investment Fund dates back longer. It provides things including forgivable loans once applicants fulfill hiring and investment goals. It was drained of $17 million by the budget bill.

Rep. Pat Garofalo, R-Farmington, said new spending in other areas of the state budget had to be offset somewhere.

“I think we’re better off having a favorable tax climate for all businesses as opposed to having government trying to pick winners and losers,” Garofalo said. “And having direct corporate subsidies is not the best way to grow the economy.”

Garofalo was adamant the cuts won’t be reversed this year despite Dayton’s appeal for a second look. The Democratic governor signed the bill containing the reduction on Wednesday.

Dayton says he had to accept the cuts to unlock spending he wanted for broadband, preschool programs and more. He says Minnesota will be at a disadvantage because other states aren’t cutting back on their incentive funds.

“I think they’re just as valuable in good times because the competition among states for these new businesses or expanding businesses is fierce in good times and bad,” Dayton said.

Dayton says he wants to restore the job funds as part of the special session conversation because he’s worried that it will be harder to reboot the programs if they fade now.