During the period of transition between the Obama and Trump administrations, Pawlenty was reported to be in consideration for a high-level appointment in the Trump administration. He had been considered for the role of Secretary of the Treasury.

Pawlenty was elected on a platform of balancing the state's budget without raising taxes. Assessments of his success have been mixed. During his first year as governor, he balanced a $4.3 billion dollar deficit without raising taxes, mainly by reducing the rate of funding increases for state services, and cuts in areas such as local government aid (LGA). As a matter of economics, some argue that the savings Pawlenty claimed to achieve were illusory. In the next biennium budget, for instance, a reduction in state governmental aid to cities pressured many cities to increase local property taxes in addition to the expected reductions in local services. Nonetheless, reducing state costs, and keeping a campaign promise, was a political success.

A more controversial part of his approach to the budget came from his attempts to hold the line on taxes by raising fees instead. As members of the Minnesota State Colleges and Universities Board complained, students' share of the cost of tuition increased by double-digit percentages in 2003 and the years following. Some defended the practice by citing increasing tuition at universities nationwide, liberals maintained that Minnesota had a special responsibility to ensure affordable higher education at its public universities.

In 2005, a government shutdown resulted from a deadlock between the governor's office and the split-party legislature on the state budget. Transportation, state parks, and other key infrastructures were threatened with the shutdown, dampening the tourism industry. In keeping his pledge not to raise taxes, Pawlenty made a priority of finding alternative revenue resources for the state. One ambitious proposal was to enhance the Canterbury Park horse track into a "racino," which would be operated in cooperation with Native American tribes from the northern part of the state. This plan was poorly received by the few Native American tribes with casino ties very who already had established casinos in the state (a very small percentage of tribes actually receive any benefit from Native American casinos), some social conservatives who objected to an expansion of gambling on the grounds of immorality, and by others fearful of the social costs of gambling addiction. Democrats feared of losing one of their top organizations for campaign finance. Native American Tribes with existing casino ties spent millions of dollars in 2004 lobbying the legislature.

A more popular strategy was to shift the budget burden onto cigarette smokers. But Pawlenty ran into obstacles as he was pressed between his pledge to not raise taxes and the need, which he acknowledged, for the state to take in more money while facing a $404 million budget deficit. Pawlenty proposed that the state collect 75 additional cents per pack of cigarettes, coined as a "health impact fee." Initially, the reaction of skeptics, including some at the Minnesota Taxpayers League, was that Pawlenty had reneged on his campaign promise, arguing that it was simply a tax increase by another name. The measure carried regardless, but victory was short-lived as the terms of the 1996 tobacco settlement stipulated that the state reserved a right to raise taxes -- but not fees -- on cigarettes. Cigarette wholesalers sued, and on December 21, 2005 a District Court judge struck down the fee. The Minnesota Supreme court later upheld the fee.

On November 30, 2005, a $701 million projected surplus for the 2006-07 biennium was announced, the first budget surplus for the Minnesota state government since 2001. While this figure came as a considerable relief, it came just three weeks before Pawlenty's cigarette fee, or tax, was struck down in court. It also did not include over $700 million for budget deferments owed to the educational system under agreements negotiated during the 2002-04 and 2004-06 biennial budgets.

Pawlenty worked throughout 2006 to fund a Minnesota Twins baseball stadium using tax dollars and signed the resulting Minnesota Twins-Hennepin County ballpark bill at the Hubert Humphrey Metrodome. The legislation exempted the county from a state law which normally required a referendum for any new local taxes.

In June of 2006, Pawlenty signed a $999.9 million public works bill that included funding for additional work on the Northstar Commuter rail line (a change in position from personal reservations about the idea initially), an expanded Faribault prison, a bioscience building at the University of Minnesota and science facilities at Minnesota State University Mankato. The bill also funded a $26 million dollar expansion of the University of Minnesota's Carlson School of Management.

During his term, Governor Pawlenty created the Minnesota Academic Standards and new graduation requirements; however, due to budget constraints, he was also the first Minnesota governor to reduce education funding. Reductions included $50 million from higher education and $27 million from K-12. Pawlenty's argument was those policies ensured accountability in education, while critics point to education bureaucratization and a push to encourage more privatized schooling.

Pawlenty's choice for state education commissioner, Cheri Pierson Yecke, was met with some controversy. After developing a state-mandated "Profiles in Learning" education standards plan, much of it had to be rewritten after hearing complaints from some teachers and parents. The revised plan was met with further concerns, especially regarding the lack of funding for implementation. Yecke was also criticized for backing the Governor's position on support for private schooling, which some saw as a lack of support for public education by her department. Yecke's reappointment was not renewed by the Minnesota Senate in May, 2004.

In June of 2006, Governor Pawlenty proposed a program that would send the top 25% of high school graduates to college. The program would pay for tuition for the first 2 years (4 years for selected fields such as science, technology, engineering and math) and would cost the state and estimated $112 million per 2-year cycle.

During Pawlenty's term, urban traffic congestion came up as a significant concern of voters. He appointed his lieutenant governor, Carol Molnau as transportation commissioner, who attempted to reform the transportation department, Mn/DOT, using concepts such as "design-build." For most of his term, he favored raising fees and imposing toll lanes on roads as the primary means of discouraging excessive traffic, despite local business support for building additional roads and improving infrastructure. During his term, the carpool lane's of Interstate 394 leading into downtown Minneapolis were converted into high-occupancy toll lanes. He did not favor expansion of the metro area's light rail system. However, he changed his position in support of funding for Northstar Commuter Rail in late summer 2006, after polls have shown widespread support for it.

In Washington, D.C., Governor Pawlenty has lobbied Congress to mandate higher ethanol use. Minnesota has mandated a 10% mixture of gasoline and ethanol (gasohol) since 1997, while most cars are designed to safely handle 15%. Pawlenty signed into law in May 2005 a bill that will raise the minimum mandated mixture to 20% in 2013.

Governor Pawlenty initially supported importation of less-expensive prescription drugs from Canada, to be used with the state's MinnesotaCare health plan, and also as a means to band together with other states and negotiate lower drug prices. Many Minnesota residents traveled to Canada, as well, to get prescriptions filled and the governor was supportive of their efforts to save money. However, the U.S. government put pressure on Canada to cease these practices and banned the importation of drugs from Canada in 2006.

Since the 1980s, Minnesota governors have increased their travel abroad with the goal of increasing Minnesota's visibility around the world. For example, Governor Pawlenty took a delegation of nearly 200 Minnesotan business, government, academic and civic leaders on a voyage to China in mid-November, 2005. The objectives of the weeklong trip were to provide a forum for companies to acquire market information, assess market potential, evaluate market entry strategies and identify potential business partners, as well as to promote Chinese investment in Minnesota. Pawlenty also led Minnesota trade delegations to the Czech Republic in 2004 and Canada in 2003.

Pawlenty's first term coincided with the deployment of National Guardsmen from numerous states, connected with the War on Terror and the wars in Iraq and Afghanistan. Pawlenty made trips to Bosnia (2003), Kosovo (2004), Poland, Iraq and the Czech Republic visiting Minnesota troops. He also welcomed Mexican President Vicente Fox in 2004 in an effort to strengthen trade. The president announced that his country would open a consulate in Minnesota the next year, removing the need for Mexican residents in the state to travel to Chicago, Illinois for identification papers and other materials.

Early in 2006, after issuing a study that estimated the cost of illegal immigration to the state as approximately $188 million, Pawlenty announced a program for reforming the way the state deals with persons who are in the United States without permission from the federal government. By mid-year he had begun to send Minnesota National Guardsmen to the U.S.-Mexico border at the request of the U.S. Department of Defense and the U.S. Department of Homeland Security. Critics have accused Pawlenty of exaggerating the dangers of illegal immigration -- an issue that arguably has more direct implications for southern and southwestern U.S. states than for Minnesota.

In May 2011, while in Iowa, the former Minnesota Gov. Pawlenty called for a phasing out of federal government subsidies for ethanol. Iowa is the nation’s top producer of corn and ethanol is the corn-based fuel additive. The call came during Pawlenty’s presidential campaign kickoff event in downtown Des Moines. He portrayed it as part of his campaign theme to tell people the truth. He said government money isn’t free, and cuts can’t just be to somebody else’s programs.

“America is facing a crushing debt crisis, the likes of which we’ve never seen before,” Pawlenty said. “We need to cut spending, and we need to cut it big time. The hard truth is there are no longer any sacred programs. The truth about federal energy subsidies, including federal subsidies for ethanol, is that they have to be phased out.”

Possible Trump appointment

During the period of transition between the Obama and Trump administrations, Pawlenty was reported to be in consideration for a high-level appointment in the Trump administration. He had been considered for the role of Secretary of the Treasury.