It was a moment when Gov. Tim Pawlenty's presidential potential could be seen as clearly as his presidential ambitions. Addressing a gathering of Minnesota's business elite this fall, Pawlenty held up troubled General Motors as an example of what ails Minnesota and the nation.

Back in the mid-1990s, GM's leadership shelved the Chevy Volt electrical car, preferring instead the short-term gains of its big-vehicle business model over the hard work of preparing for the future. Pawlenty's message was clear: Minnesota and the nation need leaders ready to re-engineer government for the tumultuous decades ahead.

Wednesday's release of the state's budget forecast -- showing a deficit of $1.2 billion that could swell to a stomach-churning $5.4 billion over the next few years-- gives the governor an opportunity to act on his words. As he does, he should look again to the auto industry, this time for inspiration. Instead of ideologues like Grover Norquist, the anti-tax wonk with little real world experience, Pawlenty's role model should be a proven innovator like Alan Mulally, Ford Motor Co.'s well-regarded chief executive officer. Mulally is leading a remarkable turnaround at the venerable carmaker. He's cut costs, but his strategy wasn't limited to that. He's invested in new products and positioned the firm to thrive again in a world demanding fuel-efficient vehicles -- and he did it all without a federal bailout.

Minnesota is in desperate need of a turnaround, too. On Wednesday, state economist Tom Stinson reported for the first time in a half-century of economic monitoring that average household incomes in Minnesota have fallen for four straight quarters. Fewer people have jobs. Those who do are often paid less or are working fewer hours. That translates into drastically reduced income tax receipts. And that's the main reason Minnesota, like many other states, is in dire financial straits.

As the state's CEO, it chiefly falls to Pawlenty to lead Minnesota back to economic health. This also is a make-or-break time for his assumed presidential bid. The issue isn't his travel; it's whether he gets results at home. He'll be a much stronger contender if he can get Minnesota back on its feet. Leading a weakened home state still mired in a recession argues against readiness for higher office.

A canny CEO would consider any and all solutions in an undertaking as complex as restoring a state's economic health. Yes, deep and painful state cuts are needed. But they aren't the cure-all Pawlenty pitched at his Wednesday news conference. Done ham-handedly, they also hinder a struggling economy. Consider how previous cuts to General Assistance Medical Care hurt some of the region's biggest employers: hospitals. Layoffs are happening at Hennepin County Medical Center.

There's much more work to be done. Tax reform, a topic too far under the radar in last week's budget discussions, should be a top priority. The state is more reliant than most on income taxes, resulting in drastic downturns that make tough times worse. Generating more sales tax revenue from clothing and consumer-purchased services could help stabilize state receipts. It could improve the business climate by lowering business taxes, helping to attract firms and grow jobs.

Pawlenty said Wednesday that he wants to work with legislators to balance the budget. We hope he meant it, and that legislators reciprocate. Unallotment is a blunt budget-cutting instrument that has already been overused by this governor. Vision, innovation and collaboration -- three hallmarks of Mulally's leadership -- would serve Minnesota and its governor far better, and position both for a brighter future.