The Third Perspective

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Ten Governors Fail Fiscal Policy

Posted by Ratman on October 14, 2016 at 1:05 PM

The Cato Institute released its 2016 Fiscal Policy Report Card on America’s Governors showing 10 governors with an “F” or failing grade.

The bottom spots on the list with “F” grades were, from the bottom up, Tom Wolf (D) of Pennsylvania, Jay Inslee (D) of Washington, Kate Brown (D) of Oregon, Brian Sandoval (R) of Nevada, Dennis Daugaard (R) of South Dakota, Dan Malloy (D) of Connecticut, David Ige (D) of Hawaii, Jerry Brown (D) of California, Peter Shumlin (D) of Vermont, and Robert Bentley (R) of Alabama.

Only five governors received the “A” grade in the report. Theses governors were, highest first, Paul LePage of Maine, Pat McCory of North Carolina, Rick Scott of Florida, Doug Ducey of Arizona, and Mike Pence of Indiana, all Republicans.

Chris Edwards, the author of the report, told that to get an “A” grade, governors should pursue tax reforms, restrain budget growth, and limit government. Conversely, the governors who got an “F” increased government spending and taxes.

“Restraining should not be that difficult. The best governors did not slash spending. They restrained spending,” Edwards said, “The average change [among the “A” governors] in per capita spending was three percent. Only two governors cut spending. Indiana restrained spending growth to two percent. There is no reason to increase taxes. As the economy grows, revenues will go up. If education [spending] is important, find spending cuts elsewhere.”

According to the report, California’s general fund has increased 15.7 percent from 2015 to 2016 and will increase 5 percent in 2017. One example of the Golden State’s runaway spending: the $68 billion high speed rail system, which was sold to California taxpayers at a cost of $33 billion which needed a $9.95 billion bond from California taxpayers and $3.2 billion from tax-payers across the United States with private investors chipping in the rest. Surprisingly, or perhaps unsurprisingly to some, the private investors have been suspiciously absent.

Edwards points out that California’s situation is worse because the state’s budget relies heavily on the top 1 percent of earners for half of the funds, a situation that even Gov. Jerry Brown knows is problematic.

“We are taxing the highest income earners, and as you know, 1 percent of the richest people pay almost half of the income tax… That’s fair, but it also creates this volatility. So in order to manage this budget, it’s like riding a tiger.”

Edwards noted that a bust or recession is likely to occur in the near future which will leave California’s budget in bad shape. He suggested that California and states in a similar situation not only restrain the budget but move away from their heavy reliance on income tax. He went on to suggest that raising the sales tax would be a good way to create a more stable budget.

But taxes and spending are not the only budgetary problems for states. The report also covers debt as well as unfunded pension and healthcare liabilities.

“The level of pension liabilities varies widely, Edwards said. “The highest liabilities are in New Jersey, Illinois, Alaska, Kentucky and Connecticut.”

Connecticut and New Jersey are the worst, as they are pushing costs off onto future generations instead of using a pay as you go model. According to Edwards, there is a political inventive to spend money or promise to spend money on certain special interests but worry about where to get the money later.

“Government unions lobby for higher pensions or greater healthcare coverage and push the costs off onto the future generations,” he added.

Edwards pointed out that Wyoming and Idaho do not issue debt through bonds to finance infrastructure. Edwards thinks that this is the model that states should follow.

He also noted that the idea in the media that Republicans are “slashing and burning” budgets is untrue since only two governors have actually cut spending. Some GOP governors have even dramatically increased it.

“Nikki Haley’s budget that has gone up 38 percent. Three of the ten “F” [grades] were Republican governors.” He went on to say that Nevada was the worst as it had the biggest increases in state history. Brian Sandoval, the Republican governor of Nevada, promised that he would not increase taxes, and yet, he even imposed a broad-based commerce tax.


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