SAINT PAUL — Gov. Mark Dayton has proposed $86.5 million in state subsidies to business over the next two years, spending he contends would create thousands of new, well-paying jobs.

As part of his budget plan, Dayton predicts up to 10,000 new jobs will result from a $30 million boost for the Minnesota Investment Fund, which offers loans to businesses that relocate in Minnesota and helps existing businesses expand.

The governor’s budget also includes an estimate of up to 5,000 jobs from a $25 million investment in the Minnesota Job Creation Fund, which would be a revised version of the program now known as JOBZ. The remaining $30 million would go to transportation and housing initiatives linked to business development.

But Republicans warn the tax changes in governor’s budget — including his call to lower property taxes and a lower but expanded sales tax rate — will lead to fewer jobs, not more.

The two parties are deeply divided over how government should help Minnesota businesses hire more people. When Republicans controlled the Minnesota House and Senate the past two years, they insisted the state could help create jobs by easing tax and regulatory burdens for businesses.

Now that Democrats are in charge of both chambers, their leaders in the legislature are applauding Dayton for proposing to spend money on job-creating incentives.

State Rep. Tim Mahoney, chair of the House Jobs and Economic Development Finance and Policy Committee, said the approach is long overdue.

“We’ve starved job creation in this state for the last 12 years, while every one of our neighbors has poured money into it, hundreds of millions of dollars,” said Mahoney, DFL-St. Paul. “Whether it’s Iowa or Wisconsin or South Dakota, they’ve just been pouring money into it, and we’ve been doling out pennies, nickels and dimes.”

Mahoney’s counterpart in the Senate, state Sen. David Tomassoni, DFL-Chisholm, said he thinks incentives can work, and he likes the governor’s approach.

“He’s sending a very clear signal that what’s very, very important to the state of Minnesota is that we figure out from the government level how to invest in jobs and to put people back to work,” Tomassoni said.

Dayton’s proposed changes to the JOBZ program are more than a name change. Created by former Gov. Tim Pawlenty, a Republican, the JOBZ program offers tax incentives to businesses in communities outside of the Twin Cities metro area.

The program, a frequent target of criticism from Democrats during Pawlenty’s tenure and today, is set to expire in 2015.

Katie Clark Sieben, Dayton’s commissioner of employment and economic development, said the new statewide program will provide grants to businesses once they have created jobs.

“We would specify up front what investment level the company is looking to make and how many jobs they’re looking to create and write that into an agreement,” she said. “Once the company meets those goals, then they would be eligible for an award up to $1 million. But it’s only after those job creation goals are met.”

Seiben said she is confident in the job-creation estimates. Republicans, however, aren’t so sure. That’s because GOP lawmakers contend that tax changes in the governor’s budget could force some businesses to reduce their workforces or perhaps move operations to a neighboring state.

State Rep. Tim Sanders, R-Blaine, said he’s especially concerned about an income tax increase on top earners and expanding the sales tax to business-to-business services.

“He may be trying to buy some jobs,” Sanders said of the governor, “but when the business community is given the signal that their costs are going to go up and go up in a big way, it’s difficult for me to see how the business community in general will rally behind that idea.”

Sanders also said he found it interesting that Dayton is now proposing a $1.5 million initiative to expand the Minnesota Trade Office, when as a candidate for governor in 2010, he often called for its elimination. Dayton told reporters this week that businesses have convinced him of its value.

“I hope I’m learning a little bit here and there as I go along this process,” Dayton said. “Situations change. Times change and this would be one of those.”

House Democrats are proposing an even larger funding boost for the trade office. One of the first bills they introduced this session called for a $5 million allocation to increase export opportunities.