In November more than half the states will elect governors. With the states now facing a combined projected budget deficit of $50 billion in 2003, principally as a result of an over-spending binge, this new crop of governors will largely determine whether taxes are raised, or state government is reformed and shed of wasteful services.
Conservatives have high hopes that a new breed of Reaganite Republicans will be elevated to the nations statehouses. There is no shortage of potential stars. For example, former conservative and free market oriented congressmen Matt Salmon of Arizona, Mark Sanford of South Carolina, and Steve Largent of Oklahoma have all proven their mettle on Capitol Hill and are now battling in gubernatorial races. These three all want to cut taxes, advance choice-based education reforms, and fix ailing health care systems. They are also all former members of the congressional class of 1994 that pushed revolutionary changes in Congress.
Bill Simon in California, whose campaign has suffered a series of gaffes, but who still remains in a competitive race against bumbling incumbent Gov. Gray Davis, also wants to fix the California tax system. He has vowed to chop the states capital gains tax. In Kansas, Tim Shallenburger has vowed to close the states largest ever budget deficit without any new taxes. He has vowed to cut the income tax if elected. In Tennessee, another former congressional Republican rebel, Van Hilleary is running to succeed the despised Republican Gov. Don Sundquist. He has promised to stick a stake through the heart of the proposed income tax that Sundquist continually attempted to resurrect.
One of the lessons learned during the 1990s was how influential the governors can be as policy entrepreneurs. The push for welfare reform came from governors like Tommy Thompson of Wisconsin and John Engler of Michigan. Choice-based school reform has been a top priority of Jeb Bush in Florida. George Allen of Virginia (now a U.S senator) led the way on common-sense crime control measures, including abolition of parole for repeat offenders.
The current crop of governors have performed unevenly. According to the Cato Institutes fiscal rating of U.S. governors, Bill Owens of Colorado has been one of the shining lights of fiscal restraint. Owens has cut taxes every year he has been in office. He has held spending growth to below the rate of personal income growth, and he instituted a paycheck protection plan so unions could no longer withhold dues from workers checks without their consent.
Three of the biggest tax increases this past year were signed by Republican governors: Bob Taft of Ohio, Bill Graves of Kansas, and Don Sundquist of Tennessee. Graves is so left-leaning he actually worked in primaries to try to defeat anti-tax Republican legislators and his endorsement of his potential Republican successor, Tim Shallenburger, came late and was only half-hearted. Why? Because Shallenburger represents the conservative wing of a party that in Kansas is now engaged in civil war.
It is unclear whether the governors have learned the fiscal lessons of the recession of the early 1990s. Most Democratic candidates for governor, for example, have refused to rule out higher taxes. But during that last recession, about half the states-led by Arizona, California, Connecticut, New Jersey, and New York-tried to close yawning budget gaps by enacting major tax hikes. Most of those tax-hiking states had the most persistent budget woes and the slowest economic recoveries.
The tax-cutting states had double the population growth, nearly three times the job growth, and about 25% faster income growth than the tax raising states. The state that cut tax rates most in the 1990s, Arizona, had a 36% increase in jobs.
Many governors have also failed to appreciate the root causes of the current state fiscal crisis. "States overspent, they didnt undertax," says New Mexico Gov. Johnson. Hes exactly right.
The 1990s era of prosperity created an unsustainable expansion of state budgets. Many doubled in size. Gray Davis expanded the California budget by 35% in four years. Roughly two of every three surplus dollars into the state coffers between 1996 and 2001 were used for new spending, not tax reduction. This has caused a widening budget gap during the recent economic contraction as the revenue trend has failed to keep pace with agency budgets.
It is time for new blood in the governors offices. Todays Republican governors generally have fiscal records more closely resembling Nelson Rockefeller than Ronald Reagan. More than a dozen Republican governors raised tobacco taxes this year. Many others, led by Engler and Mike Leavitt of Utah, have led the charge for an Internet-taxing scheme. Only four Republican governors failed to sign a letter to Congress calling for an Internet tax.
So this years gubernatorial races could have enormous consequences for the future of domestic policy. Education reform, tax policy, health-care cost containment, litigation reform, and the next steps in ending welfare are all likely to be driven by the governors, not the U.S. Congress.
The rock stars of the Republican Party these days are Bill Owens, Jeb Bush and, if things go right on November 5th, Matt Salmon, Mark Sanford, Steve Largent and Bill Simon. They represent the next generation of Americas Reaganite policy innovators