Some Governors Are Offering Big Ideas for Reform

Published March 1, 2009

More than 40 state budgets are in deficit or projected to be there in the coming fiscal year, and in some states the dire budget situations are creating pressure on lawmakers to increase efficiency and reduce government waste.

Governors in several states are putting together proposals for policy innovations. Several prominent governors already have unveiled major reforms for the 2009 legislative session.

Palmetto State Tax Reform

South Carolina Gov. Mark Sanford (R) has introduced one of the most sweeping tax reform packages to come out of the states in recent history.

Sanford’s tax package, aimed at spurring job creation and capital investment, involves a three-pronged strategy emphasizing tax cuts for individuals and employers. The key provisions include an optional flat income tax, elimination of the corporate income tax, and full indexing of income tax brackets.

Under Sanford’s proposal, South Carolina taxpayers could opt out of the state’s graduated income tax system and instead pay an alternative flat income tax of 3.65 percent. The state’s top income tax rate is currently 7 percent.

Sanford’s reform also would phase out the state’s corporate income tax over a decade and fully index income tax brackets for inflation.

“There has never been a more important time for this discussion about where we want to go as a state with respect to growing our economy,” Sanford said upon unveiling his proposal in December.

Instead of focusing only on enticing new companies into the state, Sanford believes his plan also will reward and encourage longstanding South Carolina employers to stay in the state and expand their operations.

Louisiana Health Care Reform

Facing a $6.7 billion annual Medicaid program and costs consuming ever-larger portions of the budget, Louisiana Gov. Bobby Jindal (R) has introduced a plan to overhaul the way Medicaid operates in Cajun Country.

To control costs and improve service, Jindal has unveiled a proposal to move the lion’s share of Louisiana’s Medicaid enrollees, representing about a quarter of the state’s population, from traditional “fee for service plans” to private managed care plans.

A similar reform was passed by the Republican Congress in 1995 but was vetoed by President Bill Clinton. Jindal’s plan would require approval from both the state legislature and the federal government.

Automatic Refunds in Indiana

Indiana Gov. Mitch Daniels (R) is not resting on the laurels of the property tax reform the state successfully passed last year. He has brought forth another bold reform seeking to return money to taxpayers.

Under Daniels’ proposed Automatic Taxpayer Refund, money would be returned to taxpayers when state revenue exceeds a set level. When revenues are 10 percent greater than the amount appropriated for the following year’s budget, the automatic refund would be triggered.

Daniels said his proposal is guided by the principle that the government should “collect only what it needs to provide essential services, to protect itself against a downturn, and to have an adequate reserve. Above that, the money stays with the taxpayer to be spent on family needs and to be reinvested in a growing economy.”

Indiana taxpayers worked until July 10 last year, well over half the year, to pay for the costs of state, local, and federal government, according to Americans for Tax Reform’s annual Cost of Government Day report. That refers to the date when the average worker has earned enough gross income to pay off his or her share of that year’s spending and regulatory burdens imposed by all levels of government.

If Daniels’ plan succeeds in putting money back into taxpayers’ hands, future Cost of Government Days in the Hoosier State could come earlier in the year.

Transparency in Many States

One of the newer policy innovations already proven to be a winner, both in terms of policy and politics, are initiatives to put state government expenditures and contracts online and in a searchable format.

Sandra Fabry, executive director of the Washington, DC-based Center for Fiscal Accountability, is convinced this effort will continue to sweep the nation. Here too, entrepreneurial governors are leading the way, she notes.

It was a governor, Rick Perry (R) of Texas, who kicked off the transparency movement at the state level in 2005 with an executive order requiring school districts to post their expenditures online.

“The transparency movement is only going to continue to grow, because it is one of the simplest yet most powerful concepts. Until recently, we’ve only been able to scratch the surface in terms of identifying fraud, waste, and abuse in government finance,” said Fabry.

Identifying Savings, Efficiencies

Fabry and other policy experts believe increased transparency is the ultimate reform because it provides tools to hold government accountable and identify potential savings and efficiencies.

“Let’s face it, given the state of our economy, it is imperative that lawmakers find these savings and efficiencies,” said Fabry.

In tough economic times such as the present, companies are more open to rethinking the fundamental way they do business, Fabry notes. That, analysts say, means there’s good reason to believe voters, lawmakers, and economic stakeholders also will be open to rethinking the status quo and considering reforms.

Policy innovators in gubernatorial mansions and state capitols across the country are hoping to capitalize on this opportunity to garner support for real reforms.

Patrick Gleason ([email protected]) serves as state affairs manager for Americans for Tax Reform.