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Privatization & Government Reform Newsletter

Sampling the State of the State Speeches

Whether red or blue states, common themes include tax reform, government reform, rainy day funding

Leonard Gilroy
January 29, 2014

While much of the public’s attention is focused on President Obama’s State of the Union address this week, it’s easy to forget that over a dozen state governors have also been busy in recent weeks giving their annual State of the State speeches. Compared to the State of the Union, these state-level speeches offer a much more granular perspective on where things stand in the country today. What’s even more interesting is the degree of commonality among themes from these speeches, regardless of whether the governor is a Democrat or Republican, and whether the state is a red state or blue state.

This article examines a representative sample of six recent State of the State speeches—three with Democratic governors and legislative majorities (California, New York and Colorado) and three with Republican governors and legislative majorities (Wisconsin, Indiana and Georgia)—to explore some of those common policy themes. The most prevalent were tax reform, government reform, increasing rainy day fund balances, education and infrastructure, as discussed in the following sections.

Tax Reform

Governors of each state either touted enacted tax reforms or proposed some new form of tax reduction as a pathway to economic growth. These ranged from targeted tax credits in California and Colorado to broad-ranging tax cuts proposed in New York State and Wisconsin:

California: Gov. Jerry Brown cited the benefits of a tax credit to help medical and scientific innovators hire and expand operations in California and noted that six of the twelve top-performing U.S. metropolitan areas in biotechnology are located in the Golden State.

Colorado: Gov. John Hickenlooper called for an extension of the state’s job-creation tax credit from five years to seven to encourage more businesses to maintain employees and expand hiring.

Georgia: Though he did not propose any new tax reforms, Gov. Nathan Deal cited the state’s low tax burden and his administration’s previous efforts to encourage job growth through tax reduction, including the elimination of the sales tax on energy for manufacturing; removal of the marriage tax penalty; and the elimination of the state’s annual birthday tax on vehicles.

Indiana: Gov. Mike Pence touted the state’s recent progress at enacting major tax reductions, though he singled out one major remaining tax impediment in the state’s business personal property tax, calling for its phase-out. Noting that neighboring states like Illinois, Ohio, and Michigan either do not have or are eliminating that tax, he cited the business personal property tax as “especially damaging because it makes it harder for Hoosier businesses to grow by directly taxing any investments they make in equipment.”

New York: After noting that New York State had once had the highest taxes in the country, pushing businesses to leave, Gov. Andrew Cuomo touted the state’s recent efforts to reform its tax code—including a reduction in state income taxes and the passage of the state’s first property tax cap—and called for more tax relief, noting that, “the state has no economic future as the tax capital of the nation.” He specifically called for reducing the state’s corporate tax rate from 7.1 percent to 6.5 percent, eliminating the estate tax, adopting a manufacturer tax credit for 20 percent of the firm’s property tax liability, and enacting both a renter’s tax credit and a property tax credit to help low and middle income families. He also endorsed the findings of the Pataki-McCall Commission, which recommended a freeze on property taxes for two years to help homeowners and incent local governments to reduce costs through shared services and consolidation.

Wisconsin: Building on over $1.5 billion in tax cuts enacted in recent years, Gov. Scott Walker called for using some of the state’s estimated $911 million surplus to reduce the tax burden by an additional $800 million as part of his Blueprint for Prosperity initiative. Specifically, his administration is seeking a $406 million reduction in property taxes by $406 million, a $98.6 million reduction in income taxes, and a $322.6 million adjustment to state income tax withholding in worker paychecks. Walker also cited the positive benefits of recent reductions in the number of tax brackets and rates related to the state income tax, as well as a manufacturing and agriculture production tax credit adopted in 2013.

Government Reform

The six governors all highlighted various actions and proposals in the area of government streamlining or reorganization. These were often mentioned in the context of actions taken in the wake of the fiscal crises of the Great Recession, though governors in three states (California, Georgia and New York) also focused on major criminal justice reforms adopted in recent years:

California: Gov. Brown highlighted one of the most significant reforms enacted under his tenure—the “realignment” policy that has transferred the supervision of thousands of inmates from state prisons to local authorities. Brown also warned of future fiscal threats that will demand action, including over $100 billion in unfunded public pension liabilities, tens of billions in unfunded retiree health care liabilities, and looming threats from “congressional decisions, natural disasters and the uncertain costs of the Affordable Care Act.” The scale of those threats suggests that a second term for Gov. Brown might include significant government reforms, particularly in the pension arena.

Colorado: Gov. Hickenlooper touted his administration’s efforts to streamline state government, focusing on the adoption of over 100 LEAN processes to improve government efficiency across every state agency. Some specific outcomes from the LEAN initiatives include a 19 percent decrease in contracting timelines and $2 million in total savings in the state department of transportation; an increase in the percentage of property assessment appeals resolved within one year (up from 33 percent in 2008 to 79 percent today); and a 44 percent reduction in the average time it takes the Division of Real Estate needed to complete an investigation of a mortgage loan. He also noted the state’s efforts to review, modify or repeal nearly 11,000 state rules, “many of which were redundant and flat-out dumb,” according to Hickenlooper. He also called for technological upgrades to the state DMV’s antiquated computer systems to reduce the average wait time in DMV offices from 60 minutes to 15. Last, his administration plans to request the legislature to fund a plan to enact budget transparency for every public school via a new online data portal.

Georgia: Gov. Deal listed a number of efforts to streamline the state since taking office, including reducing the number of state employees by 12,750 (16.5 percent) from five years ago and reviewing 40 percent of all budgetary programs through a zero-based budgeting analysis, which has led to the consolidation or elimination of duplicative programs and activities. Deal also cited hundreds of millions of dollars in estimated savings from implementation of the state’s criminal justice and juvenile justice reforms, and he proposed an increased emphasis on reentry programming to reduce recidivism.

Indiana: Gov. Pence cited a list of accomplishments that included balancing the state budget while cutting taxes, cutting red tape by 55 percent and paying down state debt. He also cited putting the state’s airplane up for sale.

New York: In his speech, Gov. Cuomo called for the elimination of regulatory barriers to business growth, primarily through the creation of a joint commission to identify and eliminate such barriers. Cuomo also cited a “proliferation of government that is exceedingly expensive and costly,” noting the existence of 10,500 local governments and local special districts—including “one district just to count the other districts in case you missed a district.” He cited the state’s growing role in addressing local fiscal distress, including increased aid to municipalities and financial assistance to insolvent local governments if they work with the state’s financial restructuring board. He also called for new anti-bribery and anti-corruption laws as part of a push for more ethics reform. Finally, he touted the state’s elimination of 5,500 prison beds, called for a re-entry council to coordinate state efforts to reduce recidivism, and proposed a new commission to examine and recommend changes to the state’s juvenile justice laws.

Wisconsin: Gov. Walker touted the state’s efforts to reform unemployment insurance “to save employers tens of millions of dollars, while protecting the unemployed, “ as well as Medicaid reforms that allowed the state “to cover everyone living in poverty, reduce the number of uninsured, and still not expose Wisconsin taxpayers to the uncertain potential cost of the federal Medicaid expansion.”

Shoring up Rainy Day Funds

Governors in four of the six states specifically discussed actions or proposals aimed at shoring up depleted reserves in their state’s rainy day funds:

California: Gov. Jerry Brown called for the constitutional establishment of a “solid rainy day fund”—the subject of a November 2014 ballot measure—and asked the legislature to enact amendments to current law that would allow the state to pay off debt early and address other structural flaws.

Colorado: Gov. John Hickenlooper cited the state’s reserves for helping the state to navigate difficult fiscal times, and noted that since taking office, the state had increased the percentage of the state’s general fund set aside in rainy day reserves from 2 percent to 5 percent. His administration’s latest budget request would increase that to 6.5 percent.

Georgia: Gov. Nathan Deal touted a 518 percent increase in the state’s rainy day fund since he took office, at time when the state had depleted its reserve fund after withdrawing $1.4 billion in fiscal years 2008 and 2009.

Wisconsin: Gov. Scott Walker noted that when he took office, the state only had $1.7 million left in its rainy day fund and that today it stands at a level 165 times higher. Walker also proposed depositing a portion of the state’s estimated $911 million surplus into the rainy day fund and using the rest to provide tax relief.

Education

K-12 education, higher education and workforce training were a common theme in each of the six speeches:

California: While not making any new education proposals, Gov. Brown touted last year’s enactment of the Local Control Funding Formula, an attempt to devolve some education decision making to the local level. According to Brown, there is “no way the state can micromanage teaching and learning in all the schools from El Centro to Eureka – and we should not even try!”

Colorado: In addition to his proposal to make the budget of every public school transparent, Gov. Hickenlooper called for changing the basis of school funding to an average-daily population figure (as opposed to a one-day population snapshot), increasing per-pupil funding by $400 over two years, and spending $100 million more for higher education in return for a 6 percent cap on tuition increases.

Georgia: Gov. Deal proposed several new education initiatives, including a new Zell Miller HOPE Grant for students in the state’s technical college system to cover all tuition costs for students maintaining a 3.5 grade point average, a new low-interest loan for students attending technical colleges, and the creation of a new Governor’s High Demand Career Initiative to help educators identify the highest-growth industries of the future. He also proposed a $547 million increase in K-12 education funding, which includes over $44 million in proposed spending on technology investments and digital learning initiatives.

Indiana: Gov. Pence cited the success of Indiana’s growing school choice program and called for a number of new proposals, including a new, voluntary and voucher-based pre-K program; a new teacher innovation fund; and expanded career and vocational curricula in our high schools, along with new partnerships with local businesses for career and technical education. Pence also proposed expanding the availability of charter schools, allowing them to manage their budgets with the same flexibility as traditional public schools, and making it easier to let charters take over unused and underutilized public school buildings.

New York: Gov. Cuomo called for the creation of statewide teacher performance bonus program to reward highly effective teachers with up to $20,000 in performance pay as a bonus. He also urged support for a bond referendum to generate $2 billion for new school technology—including laptops, desktops, tablets, and high speed broadband—and reiterated his previous calls for universal, full-day pre-K statewide.

Wisconsin: Gov. Walker focused the education component of his speech primarily on workforce education, citing the state’s recent efforts to expand worker training in manufacturing and construction and proposing new incentives for schools to provide career and vocational programming, a new dual enrollment program between high schools and technical colleges, and new support programs aimed at helping people with disabilities enter the workforce. Walker also cited his administration’s efforts to increase traditional public school funding by $387 million, while expanding the state’s school choice program.

Infrastructure

Each governor touted the need for further infrastructure investment as an economic driver:

California: Gov. Brown noted that one remaining economic threat to the state was the $65 billion needed to maintain and repair aging highways and other public infrastructure. He also proposed new investments in safe drinking water, water recycling, expanded storage and groundwater management.

Colorado: Gov. Hickenlooper called for the creation of a nonprofit enterprise to develop public-private partnerships to fund highway, water and other infrastructure projects. He also cited a state department of transportation program that has freed up $300 million annually for five years for accelerated construction.

Georgia: Gov. Deal called upon the state legislature to approve $35 million to deepen the Port of Savannah to launch the project—originally authorized by Congress in 1999, though later stalled by planning studies—this year.

Indiana: Gov. Pence called for the release $400 million for “the next era of highway expansion.”

New York: In his speech, Gov. Cuomo cited the need to modernize the state’s aging airports, noting that the state planned to assume management responsibility from the Port Authority for construction at both JFK and LaGuardia airports. He also proposed expediting the construction of an “energy superhighway” via streamlining the approval of new electrical transmission projects.

Wisconsin: While not offering new proposals, Gov. Walker touted the $6.4 billion invested in the state transportation system in the current budget, noting that transportation investments are “vital to a thriving economy.”

Leonard Gilroy is director of government reform at Reason Foundation and is the editor of the Privatization & Government Reform Newsletter, available here. This article was featured in the January 2014 edition of the newsletter.


Leonard Gilroy is Director of Government Reform


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