Three kings of deficit-cutting

October 8th, 2010
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My “Open Range” column from the October 2010 issue of Alberta Venture magazine:

U.S. governors can teach us a lesson we should already know

Two things about our provincial government’s near $5-billion budget deficit are especially stomach-churning. First, the sheer avoidability. This is the Progressive Conservatives’s third long cycle of profligacy, mind-spinning numbers and deer-in-the-headlights cluelessness (weirdly combined with an unearned chippiness) I’ve been forced to spectate as a lifelong Albertan. If history repeats itself, first as tragedy, the next time as farce, what do we call our current cycle? The new normal? If this is the “progress” part of PC, we’re in deep.

Second is our sad descent from North America’s fiscal leader. Back in the mid-’90s we showed them how spending is cut, interest groups are stared down and deficits are slain. The unique style of then-premier Ralph Klein caught the eye of the New York financial press, which ran caricatures of a round-tummied, ski jump-nosed Klein and hailed his budget-slashing as an example for U.S. states, Washington and Ottawa to emulate. Some even did. Nowadays, our province is mere bystander. It’s in a few U.S. states where fiscally embattled governors are rediscovering Alberta’s winning ways of yore – and stand as today’s examples for the rest of us.

In Minnesota, Republican governor Tim Pawlenty last year faced a Democratic-controlled legislature that had voted $1 billion in new taxes to fund huge spending increases. Pawlenty vetoed the budget. The Democrats then refused to draft a new budget. Instead of backing down, Pawlenty exercised an obscure governor’s power and simply began allocating resources as he saw fit – slashing sacred-cow health and education programs. Result: spending down $2.7 billion and a balanced budget with no new taxes.

Nearby Indiana had also gone through a near fiscal meltdown. Republican governor Mitch Daniels took a lighter, more gradualist approach. Rather than slashing programs, Daniels replaced failing expensive ones with practical cheaper ones, such as creating a voluntary health-savings-account program for state employees. It was resisted bitterly by union officials, but 70 per cent of state employees soon joined and the state began saving $20 million per year. Not a huge sum, but symbolic proof that you can make things cheaper and better. Daniels also privatized infrastructure. He eased Indiana out of an $800-million deficit, made the largest tax cut in the state’s history and delivered a $1.3-billion surplus. With recent polls showing nearly 80 per cent of the U.S. public is concerned that federal spending and debt could destroy their country’s economic future, it’s no surprise the well-liked Daniels is a leading contender for the Republican presidential nomination in 2012.

Public opinion has played a role in all these fiscal dramas – but an uncertain one. In Alberta, some today look back and say Klein merely rode a vast populist wave generated by a masochistic public yearning to be fiscally whipped, bruised and bloodied, with Klein opportunistically adopting the role of tormentor. I think that sells short what he achieved. For a few stirring years, Klein was gutsy, wily, stubborn and imaginative. Sure he was pushed and prodded by the public, and he fed off his own infamy, but he also led and levered public opinion. What’s so glaring today is the lack of leadership, arguably its wilful avoidance. Ed Stelmach and Ted Morton seem bent on suppressing rather than exploiting any popular will for leaner government.

I think there’s a symbiosis between popularity and leadership, a dynamic rather than a one-way relationship. For the wilful leader, public support is a bank to draw on rather than just a wave to ride. Pawlenty, for example, lost popularity during Minnesota’s budget battle – then rebounded strongly after his cuts didn’t bring Armageddon. Daniels’s budgetary approach, meanwhile, made him wildly popular and voters rewarded his leadership by re-electing him in a landslide amidst the 2008 Democratic electoral wave.
My third example, Governor Chris Christie of New Jersey, is also going through that fickle courtship between public opinion and leader. Corpulent, plain-spoken and pugnacious, but with an uncanny ability to connect with people, Christie at times seems like a latter-day Klein. (There are major differences: Christie was a distinguished district attorney, Klein a scrappy TV reporter.) Rather than being driven by public opinion, Christie is coaxing it, nurturing it, shaping it, hoping his reluctant state comes around fast enough to keep up with his breathtaking moves. His message is that what ails the economy are “too much debt, too big a government, too much spending and taxes being too high. We all know it in our hearts … we all understand that the day of reckoning is here.” That’s resonating with millions.

Christie came into office in January facing gargantuan deficit of $10.7 billion and no room on the revenue side. Within months he had erased $13 billion in planned future spending, cut actual spending by more than $4 billion (much of it to school funding), asked teachers to take a salary freeze, help pay for their own health-care benefits and capped annual property tax increases at two per cent. Christie won his opening battles, but at a steep cost. He once told a hectoring schoolteacher that if she felt underpaid she should find another line of work, and not surprisingly, the public sector unions despise him. His enemies call him “Governor Wrecking Ball” and some public-sector union officials openly hope for his death. His job approval ratings are below 50 per cent.

Today, we Albertans seem a complacent lot, addicted to our government entitlements, happy to see massive government construction jobs, unafraid of debt, with hardly a care whether budgets balance. There may come a time, however, when Alberta’s premier will have to dust off the playbook of a Daniels, Pawlenty or Christie. The longer we wait, the less likely it’ll be Daniels’ rather than Christie’s.

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By George Koch