Why the Statehouse Matters

“The Presidency is the ultimate prize.” “Congress matters most for the issues I care about.” “The world won’t end if the other side takes over our statehouse for a while.” Listen to the political talk for any length of time, and you will hear those three thoughts expressed. You have probably expressed them yourself. Are they generally true? Yes. But they’re not the whole story. Important as the stakes are in Washington DC for this election year, it also matters a great deal who holds the governor’s chair and who leads the legislative majorities, down at your state capitol. Note: The Claremont Institute, for whom I'm a senior fellow, was asked by a business group to spotlight some of the states where a political power shift has had adverse consequences for citizens and taxpayers. My own state, unfortunately, came to mind first, and four others quickly followed. This is the report I compiled for our clients as they mobilize for election 2008.

Depending whether the party in power tends to want more freedom or more government, your livelihood, your liberties, and your values will either thrive or suffer. Your state will either compete in the national and global economy, or it will lag behind. Those are the stakes and nothing less. Which way it goes is up to your neighbors and you.

Experience in a number of states during this decade illustrates the point. We’ll look at the dramatic gains for labor unions and the green lobby in Colorado; whopping tax increases in Michigan and Wisconsin; and the spending spree in Montana and Arizona. Other examples abound across the country, but these five are representative.

Before reviewing the record, let’s be clear about a phrase used above, “the party in power.” That doesn’t necessarily mean Republicans vs. Democrats. As Montana State Rep. John Sinrud observed, “Sometimes it’s a matter of what kind of Republicans.” Or again, as Arizona taxpayer activist Tom Jenney related, “A Democrat voted with us to stop a tax hike after two from the GOP deserted.”

So our focus here will not be on partisan stereotypes. It will be on philosophies of government. Now for those case studies from the states.

Colorado’s Big Chill

During the 1990s and into this decade, under governors of both parties and with a Republican legislature, Colorado was widely admired for its strong business climate, stable tax and regulatory atmosphere, and innovative policy models. Democratic Gov. Roy Romer helped lead the national movement for education standards. His successor, Republican Bill Owens, was named “America’s Best Governor” by National Review.

Things changed abruptly after Democrats captured first the legislative branch in 2004 and then the executive branch in 2006 through a combination of their dynamism and Republicans’ complacency. The term-limited Owens cast over 100 vetoes of anti-business and anti-family bills, but was forced into unfavorable terms for a tax-and-spend package demanded by Democrats. When Bill Ritter succeeded him in 2007, the floodgates opened.

Less than a month in office, Ritter was presented with a bill to overturn the Colorado Labor Peace Act after more than 60 years of bipartisan support. He rejected it but soon repaid the unions with an executive order mandating collective bargaining for all state employees. Renewable energy mandates, a Carbon Fund, and an adversarial rewrite of the state’s oil and gas regulations signaled his indebtedness to the environmental lobby. Over $1 billion in oil and gas investment fled the state in Ritter’s first year. Undeterred, he is now pushing a ballot issue to raise severance taxes on oil and gas.

Meanwhile, the Democratic legislature is weakening tort reform and worker’s compensation to accommodate the trial lawyers, pushing toward single-payer health care, and stalling on highway programs. Speaker Andrew Romanoff has another ballot issue that would repeal the constitutional restraint on annual growth of state spending.

Certainly all these changes have their enthusiastic proponents. But the cumulative effect is sure to drive down Colorado’s 7th-best national economic ranking (“Rich States, Poor States,” www.alec.org). Colorado business knows now, if it didn’t before, why the statehouse matters.

Michigan: Insult to Injury

Michigan, the onetime industrial powerhouse of the Midwest that has been mired in a one-state recession since 2001, didn’t experience same kind of the political sweep that Colorado did. Only a few seats in its state House of Representatives switched parties in 2006 after a massive spending campaign by liberal activist Jon Stryker.

But the installation of a Democratic House majority to partner with Democratic Gov. Jennifer Granholm has really changed things in Lansing, and not for the better as far as taxpayers and small business are concerned.

Working with Speaker Andy Dillon, Granholm wooed enough moderates in the narrowly Republican Senate to pass huge tax increases, 12% for the income tax and 22% for the business tax – despite grim trends that have seen personal income declining in the state every year since 2004, companies shutting down or relocating, and many residents moving away (unless trapped by mortgages that exceed their shrinking home equity).

“We have the 5th highest-paid state workforce in the country, yet legislators prefer raising revenues over cutting expenditures,” laments Leon Drolet of the Michigan Taxpayers’ Alliance. “One big employer, Comerica Bank, recently left the state. Who’s next?”

As a cry for help and a warning to “everyone in Lansing,” Drolet’s group has sparked a recall drive against Speaker Dillon, which will be on the August ballot if proponents can weather a swarm of court challenges. But the damage is already done for a Michigan economy that was 50th in job creation and 49th in personal income growth over the past decade (“Rich States, Poor States,” www.alec.org).

Wisconsin’s Near Miss

A bad dream very similar to Michigan’s – one legislative chamber changing hands, quickly followed by open season for the tax hikers – befell neighboring Wisconsin last year. Democrats rode the 2006 congressional tide to gain 8 seats in the state House, where Republicans clung to control, and 4 seats in the state Senate, taking control. It was the moment Democratic Gov. Jim Doyle had been waiting for.

His Senate allies startled the country with a $15 billion universal health care plan, bigger than all the rest of Wisconsin’s budget put together. Along with that came well-supported Senate bills for a hospital tax, a car rental tax, and – bizarrely timed, considering the trend of the economy – higher gas taxes as well as a doubling of the tax paid upon selling a home.

“We beat all of them in the House,” says Deb Jordahl of the Wisconsin Club for Growth. “House Republicans found their backbone,” she adds, with the help of her coalition – business and taxpayer organizations, pro-family groups, and other players outside the two-party orbit.

But Jordahl worries that the GOP’s three-seat edge in the House may not survive a tough election season this fall. If that happens Wisconsin’s economy, already sagging in the bottom half of ALEC’s “Rich States, Poor States” ratings, both its scorecard for the decade past and its outlook for coming years, may take another hit from big government.

Montana Spending Spree

The pattern continued in Montana, on much the same timeline as Colorado. Prior to 2004, Republicans held both the executive and legislative branches, and fiscal discipline was the rule. But that year, Democrats took the governor’s office with Brian Schweitzer, gained control of the state Senate, and wrestled the 100-member House to an exact tie, resulting a power-sharing arrangement for leadership. The economic consequences were not long in coming.

Montana’s budget has increased 50% in just four years under Gov. Schweitzer, according to Rep. John Sinrud, chairman of the House Appropriations Committee. Sinrud says Republicans’ return to a one-seat edge in the House (50-49 plus a Constitution Party member who votes with the GOP) hasn’t been enough to halt the spending spree, as the governor is often able to pull several moderate Republicans his way.

Hence Sinrud’s cautionary remark, quoted earlier, that “it’s a matter of what kind of Republicans” comprise a legislative majority. Nominal control by those with an R by their name doesn’t always translate to working majorities for limited government and restraint on taxes and spending.

John Sinrud also describes how Schweitzer in Montana, like Bill Ritter in Colorado, consistently does the bidding of the environmental lobby and the labor unions, public employees in particular. The Democratic governor has notably fattened the retirement systems for teachers and the state workforce in gratitude for their political support.

Frustrated with his GOP colleagues and harassed in his architectural firm by Schweitzer’s regulators, Sinrud says he’ll pass up reelection this year in order to form a citizens’ group “to apply pressure from outside.”

Arizona: Bipartisan Bloat

There could be no better example than Arizona of our initial point that it’s the reigning philosophy of government, not the partisan stereotype of R or D, which determines a state’s course.

Democratic Gov. Janet Napolitano has consistently faced a Republican-led legislature since taking office in 2003. Yet she’s gotten her way fiscally year after year by making deals with some of the easy-spending Republicans in the House and Senate, exactly as we saw with her counterparts in Montana and Michigan.

The GOP edge in Arizona is two senators and three House members. It only takes a few weak links to break the chain. Leaders have tended to settle too low in budget negotiations ever since their hard line in 2004 was repudiated by a dozen members defecting to the Democratic position, which handed Napolitano a 12% spending increase. That’s the analysis by Tom Jenney, Arizona director of Americans for Prosperity. He says she has won annual increases of that much or more, ever since.

The last couple of years it’s been closer to 15% growth in spending, according to Rep. Russell Pearce, chairman of the House Appropriations Committee. “She owns the negotiation when it’s clear our party can’t deliver real majorities in either chamber,” Pearce says.

He and Jenney both observed that the legislative spending culture is now so entrenched, and Napolitano’s hand is so strong, that borrowing and bonding schemes will likely be utilized in lieu of budget cuts to meet the looming deficits of this year and next as the economy softens.

Times have been good in Arizona of late. The state was 2nd nationally over the past decade in both job creation and in-migration (“Rich States, Poor States,” www.alec.org). Politicians obviously felt they could afford the open spigot that has pumped state spending from 5.4% of personal income in 2003 to over 7% today. But there’s a consequence for such government bloat. Arizona’s competitiveness and attractiveness will eventually suffer.

Conclusion: Our Responsibility

The statehouse matters greatly to your business, your family, and your future, whichever of the 50 states you call home. That’s vividly illustrated by the examples we’ve looked from Arizona and Montana, Wisconsin and Michigan. I see sobering evidence of it every day from the Claremont Institute’s office within view of the Colorado state capitol.

Who sits in the White House after January 2009 makes an immense difference for America and the world, to be sure. Likewise, it’s vitally important whether the U. S. Senate and House are committed to limited, constitutional government or to unlimited, progressive government.

Yet we’re still a union of states, and in those less-publicized 2008 races closer to home, the stakes for liberty are high. Our responsibility as citizens isn’t either-or. It’s both-and.