Indiana Thrives Under Mitch Daniels

If conservatives could start from scratch, what would their ideal 2012 presidential candidate look like? A sitting governor from a state the current occupant of the White House carried in 2008 would be a nice start.

If that governor had turned that state’s record budget deficit into a record budget surplus, that would be nice too. So would a proven track record of job creation and a proven tax-and-spending cutter. He should also know how epically bad Obamacare is and might have passed his own truly pro-market and successful healthcare reform.

Last month, just such a candidate, Indiana Republican Gov. Mitch Daniels, walked into a Washington conference room to speak to a select group of conservative journalists, including this author. Daniels’ record is becoming something of legend among conservative activists, but it still bears repeating.

When he was sworn into office in January 2005, the state of Indiana faced a $600 million deficit and a subpar AA S&P credit rating. While other states like Illinois and Michigan wildly increased spending in good economic times, Gov. Daniels did the opposite. Between 2005 and 2008, he reduced the state’s rate of spending growth from 5.9% to 2.8% saving $450 million.

Per-capita state government spending in Indiana has fallen eight spots and is now the sixth lowest in the nation. By 2009, the state sported $1.3 billion in cash reserves and an AAA rating. All this was accomplished while Daniels, working with an opposition-controlled lower house, enacted the largest tax cut in Indiana history, slashing property taxes by a third.

On his first day in office, Daniels issued an executive order stripping government unions of their power to collectively bargain. The decision has not only cost the left’s perpetual dependence machine millions in taxpayer-funded union dues, but also enabled the state to cut costs by instituting a “pay-for-performance” personnel system. Without a burdensome labor contract, Daniels slashed government employment rolls from more than 35,000 to 30,454, a 14% reduction. As a result, Indiana now has fewer state employees than it did in 1982.

When the Great Recession hit, the historically high-cash reserves that Gov. Daniels had built buffeted the state through tough times. While 40 other states have raised taxes during this recession, Gov. Daniels made it clear to the Democrats in the statehouse that that was not an option for Indiana: “We will not make this recession worse by adding one cent to the tax burden of our fellow citizens.”

Instead Daniels has found ways to cut even more spending. All state agencies were forced to cut spending by 10%. The state sold two-thirds of its airplanes and thousands of other vehicles. State employees did not receive a pay raise in 2009 or 2010. Gov. Daniels even sacrificed himself, cutting his own pay for both 2009 and 2010.

While the surrounding rust-belt states of Illinois, Michigan and Ohio have suffered through unemployment rates well above 10%, Indiana’s rate has been close to the national average of 9.7%. Meanwhile, the July 2010 Department of Labor State Employment report shows that the state has created more jobs over the past year than any state but Texas, and that its over-the-year percentage increase in employment is second only to Kentucky.

Finally, before the phrase “Obamacare” had ever crossed anyone’s lips, Daniels had already enacted free-market friendly patient-centered healthcare reform. His Healthy Indiana Program (HIP) helps Hoosiers who do not qualify for Medicaid to enroll in individual health-savings accounts.

The state then contributes up to $1,100 per enrollee to these accounts on a sliding income-dependent scale. These dollars are controlled, and owned, by the individual to spend on health services as he or she sees fit, with almost no interference from government or insurance-company bureaucrats. The plan was immensely successful. Interest in the program was so high that the state had to suspend enrollment (because of federal regulations) a number of times. Today there are almost 50,000 Hoosiers enrolled in the plan.

But those Hoosiers are about to lose their healthcare plan, thanks to Obamacare. The health-savings accounts at the core of HIP are illegal under Obamacare. Gov. Daniels has been forced to freeze enrollment of the plan and has ordered his secretary of Family and Social Services Administration to devise a way to phase out the accounts.

It is no surprise then that Gov. Daniels has been an outspoken critic of Obamacare. He lobbied hard against it throughout the debate in Congress and, on the day it passed, he issued a scathing statement: “Our two best hopes for more jobs are investment and small business. The new ‘healthcare’ bill raises taxes drastically on both, and will harm our economic prospects badly.… Hoosiers will also face higher state taxes as Medicaid rolls explode. It will raise by trillions the crushing debt we already are leaving young Americans; any claims to the contrary are worse than mistaken, they are knowingly fraudulent. In a life of optimism about America and its future, this morning I am as discouraged as I can remember being.”

With this record in mind, there is little wonder why Daniels’ name has been circulating as a possible 2012 candidate. Still, the governor hadn’t faced sharp questioning from conservatives until his recent Washington trip.

Daniels is no stranger to disagreements with allies of the conservative movement. As a candidate for governor in 2004, Daniels refused to sign the Grover Norquist-led Americans for Tax Reform Taxpayer Protection Pledge.

Daniels also raised the cigarette tax to help pay for his Healthy Indiana program, and his record cutting of property taxes was paid for in part by a 1% increase in the state sales tax (from 6% to 7%). Overall, however, the tax cuts far outweighed the increases. And governors, unlike the federal government, are compelled to balance their budgets without resorting to the printing press.

Voters rewarded Daniels for his overall tax-cutting record by resoundingly re-electing him in 2008. While President Obama carried the state 50% to 49%, Gov. Daniels blew out his opponent by an 18 point margin.

With his proven conservative record on tax and spending issues, Daniels did not take any heat from the conservative journalists about his past tax increases. He was asked what he thought of the Value Added Tax, but he quickly dismissed it as a “bad idea.” No, the question that got Daniels in trouble had to do with a line in Andrew Ferguson’s Weekly Standard profile where Daniels said that the next President “would have to call a truce on the so-called social issues.”

Asked if he would issue on his first day in office an executive order to reinstate Reagan’s “Mexico City Policy” (the policy that forbids taxpayer funded abortions overseas), Daniels’ answer, quick and honest, was also disconcerting: “I don’t know.”

Daniels inability to back up his “truce” vision with any policy details elicited quick and wide condemnation from across the conservative movement. It’s not every day that RedState’s Erick Erickson and the New York Times’ Ross Douthat see eye-to-eye, but their reactions to the Daniels statement were echoes of each other. Each thought the statement signaled surrender to the left.

The very next week Daniels was walking his comments back, telling Washington Post columnist and ex-George Bush speechwriter Michael Gerson that he “would reinstate the Mexico City policy.” Daniels went on to say that promoting abortion with international family-planning funds is one of “a thousand things we shouldn’t be spending money on.”

Daniels’ initial response remains disturbing to many, and if he has any national ambitions he is going to have to flesh out a better position. But he has time on that front. He is, after all, still the governor of Indiana and with an unfinished agenda for the state. That, actually, was the very reason he was in Washington to begin with. The meeting with conservative journalists was just a side stop on the real reason for his trip: a fundraiser for Republican Indiana statehouse candidates. Democrats still control Indiana‘s lower body and Daniels has to fight with them tooth and nail every time he wants to cut spending. A Republican majority would make solidifying Indiana’s fiscal health much easier.

But as great as Indiana is, perhaps Daniels is meant to serve a higher calling. At a Christian Science Monitor breakfast this February, Daniels said: “For the first time, I’m concerned about the future of the American experiment.”

Millions of Americans feel the exact same way. And sometime next year, he is going to have to decide whether or not he wants to help save that experiment as his country’s President.