Resetting compensation for public employees is one way that Michigan can mend its economic fractures, according to Republican gubernatorial candidate Rick Snyder.

"That's the single toughest thing .. we'll be looking at," Snyder told a crowd of nearly 250 people Wednesday morning during a meeting of the Washtenaw Economic Club.

The Ann Arbor venture capitalist and entrepreneur outlined his vision for the state during an on-stage interview with Nathan Bomey of AnnArbor.com's Business Review.

The vision, as Snyder has been saying at appearances across the state, is "to start a new era of innovation."

And the way to do that is to retool government so that it uses outcome-based budgeting, encourages business development and creates new solutions for structural problems that are creative and positive, Snyder said.

"I'd argue that the government model is broken in many respects," Snyder said. "We need to ... go to a service model."

Snyder's experience in both business - he's former president of Gateway Inc. - and in economic development, as a leader at the Michigan Economic Development Council and founder of Ann Arbor SPARK, came through in much of the discussion, as he differentiated himself from career politicians.

Snyder's opponents for the Republican nomination include Attorney General Mike Cox, U.S. Rep. Peter Hoekstra and Oakland County Sheriff Michael Bouchard. Lt. Gov. John Cherry is widely viewed as the favorite to win the Democratic primary. Primary elections will take place in August, and the general election in November 2010.

Partisanship can create healthy competition, Snyder said, but it can lead to gridlock.

"I want people to look at me as a person who's out innovating and implementing," he said.

He drew early applause when he noted that federal stimulus funding seems disconnected from true needs. As an example, he pointed to a new park and ride lot at Plymouth Road and U.S-23, while the East Stadium bridge in Ann Arbor has two lanes closed to disrepair - and the city has no funding to repair it.

"That's a function of government being messed up," Snyder said.

Re-doing regulatory systems also was high on his list of needs for the state, as was revising the tax system: "The Michigan Business Tax is the dumbest tax in the U.S."

He also criticized Lansing for turning public education into a political football.

But, he said, "adding transparency and accountability ... and getting facts on the table," would help the public weigh education funding and potential changes to it.

Addressing public compensation - pay, health care and pension - will be difficult, Snyder said, but it's necessary. The two questions, he said, need to focus on whether they're in line with the private sector and whether it's affordable, based on the existing and future budgets.

The lack of attention to that so far, and the lack of top-level support for state health care reforms, shows that structural problems in Michigan will continue to worsen without leadership that changes that course.

"It's a reflection of our government not necessarily understanding that tough decisions need to be made for the long-term," Snyder said.

That means changing the culture, he said. The east-west divide between the state's regions, the anti-Detroit sentiment and the win-lose mentality that pits parts of the state against each other instead of building Michigan as a whole all conspire against innovation and progress.

"Let's get over the cynicism and skepticism," he said.