MADISON, Wis. -- Saying challenging days ahead will require "deep cuts and hard sacrifices," Gov. Jim Doyle outlined a plan on Wednesday designed to blunt the effects that a national economic downturn will have on Wisconsin.

In his sixth annual State of the State speech, Doyle outlined a plan of targeted tax breaks for research and development, venture capital, and manufacturing and agriculture innovation.

He also outlined a plan called "Badger Choice," a health care pool for small businesses to allow for increased competition and lower costs.

"Modeled off the most innovative solutions in the country, our plan will create a consumer-driven health care marketplace for nearly 800,000 people," Doyle said.

But on the economic front, the governor didn't mince words on the challenges ahead.

"In Wisconsin we used conservative estimates from the fiscal bureau to develop our budget, but because of the national economic slowdown, we too will face a very difficult fiscal situation. We will have to delay some of the things we all agreed on," Doyle said.

Doyle didn't identify what those cuts could be, but advised that they will likely happen.

"In Wisconsin we'll have to deal with fiscal shortfalls like we've seen in other states. It will require some difficult choices," Doyle said.

The Democratic governor is pushing a variety of long-term economic development proposals targeting the state's small businesses, agricultural community and manufacturing sector. He is not advocating any type of income tax cut for individuals or a sales tax reduction.

"When a business increases its research and development by 25 percent, let's reward them dollar for dollar for what they invest beyond that," he said.

Doyle also touted a new campaign to increase the availability of renewable fuel.

"Tonight we'll launch a new campaign to increase the availability of renewable fuel by 1 billion gallons," Doyle said. "First, we'll provide new tax credits for biodiesel fuel producers and add 400 new renewable fuel pumps to our roads."

But Doyle's ability to follow through on the agenda outlined in his State of the State speech will be complicated by the divided Legislature and the state's economy, which continues to show signs of weakening.

Many of the ideas he is supporting originated with Republican lawmakers, helping their chances in the Assembly but posing a potential problem in the Democratic-controlled Senate.

Leaders React To Governor's Speech

Both Assembly Speaker Mike Huebsch, R-West Salem, and Senate Majority Leader Russ Decker, D-Weston, praised the governor for his remarks on health care.

Huebsch said it's clear that something needs to be done to improve the health care system as a whole.

Decker praised Doyle's support for raising the minimum wage.

"Governor Doyle's support for raising the minimum wage and indexing it for inflation will help get hard-working families the raise they need to make it in this struggling economy," Decker said.

Both leaders also echoed the governor's message of difficult economic times ahead.

"What I've seen from the national economy, from what I've been reading in the papers and seeing on the news reports, is that there is some downward turn in the amount of money that's coming in," Decker said. "So, we're going to have to be sensitive to that. I think the main focus is to put people to work and put them to work now."

Huebsch said he is optimistic about the chance that the Republican Assembly has to work with the governor to implement some policies to spur the economy.

"He outlined some ideas that I believe the Republicans are willing to work with him on," Huebsch said. "As far as providing tax credits and reforming the tax system for capital gains and research and development companies, and giving companies and individuals the opportunity to invest in their community and in their families, that's something that Republicans can stand with the governor to do, and I think we have a great opportunity."

Huebsch said the last thing the government should do is ask the public to give the government more money. He said legislators are going to have to get creative to find out ways to pay for some of Doyle's initiatives.

Highlights From Doyle's State Of State Address

Doyle highlighted a number of issues during the annual State of the State address at the Capitol tonight. Here are some of those issues:

ECONOMY: Doyle supports a variety of tax breaks, incentives, grant programs and other initiatives designed to ward off a recession and help the state's manufacturing, business and agriculture industries.

HEALTH CARE: Doyle wants to create a health insurance pool for small businesses with up to 50 employees to allow for increased competition and lower costs. However, the plan relies on a subsidy of up to $100 million, which could come from the state, making its chances of passage more difficult.

SMOKING: Doyle continues to back a statewide smoking ban that would cover all bars, restaurants and workplaces. The measure is stalled in the Senate by lawmakers who want to exempt taverns.

AUTISM: Doyle wants to require all insurance companies to cover autism, but opposition from insurance companies and Republicans in the Assembly has derailed the measure.

GREAT LAKES: Doyle wants lawmakers to approve a compact with Great Lakes states to protect water from being siphoned from the lakes.

MINIMUM WAGE: Doyle called on lawmakers to support a bill to increase the minimum wage annually for inflation. It has already passed the Senate.

EDUCATION: Doyle renewed his call to require a third year of instruction for high school students in math and science. He said his next budget, to be proposed next year, will include a teacher pay raise plan that rewards those who take on the hardest assignments, who advance their skills, and who help their students achieve success.

RENEWABLE ENERGY: Doyle praised an initiative to spend $150 million over 10 years to promote renewable energy and a new campaign to increase the availability of renewable fuel by 1 billion gallons and add 400 renewable fuel pumps.

WHAT HE DIDN'T SAY: Doyle didn't talk about three incidents in the past 14 months in which state residents' Social Security numbers were made public on mailings sent by state agencies or their vendors. He also didn't bring up the fight over Wisconsin's virtual schools. He has been reluctant to wade into the fight over the future of those online schools, instead urging the Legislature to work out a deal on how much state money they should get.

Doyle also didn't endorse the universal health care plan backed by Senate Democrats. A new version of that $15 billion plan is expected to pass the Senate again this year. And while Doyle last year urged the Legislature to pass campaign finance reform, it didn't receive a single mention in this year's speech.