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Monday, July 24, 2017

Are the Best Run States Republican?

If Wyoming has proven anything over the past few years, it is that Republicans and fiscal conservatives are by no means overlapping categories. A quick glance at what the Republicans have accomplished in Congress over the past 30 years or so even suggests that the two may be strictly separate.   

Somehow, though, a lot of people still believe that just because someone is a Republican, they are also fiscal conservatives. A report in the Investor's Business Daily on July 11  alluded to just that:

According to the latest ranking of states by the Mercatus Center at George Mason University, the most fiscally sound states in the nation are all low-tax, GOP strongholds, while the 10 least-solvent states are almost all high-tax and heavily Democratic. 
The report, called Ranking of the States by Fiscal Condition, does not identify party majorities in state legislatures and executive offices. Yet a quick comparison between the report’s rankings and party control over state governments does seem to verify IBD’s conclusion. Republican-governed states have more money in the bank and slightly lower taxes than Democrat-governed states. 

However, a closer look at the report casts some doubt on the ability of Republicans to keep government in a leash. Wyoming is a representative example. On the one hand, this dyed-in-the-wool Republican state ranks 5th in the nation for fiscal solvency. The government in Cheyenne has enough money in the bank to pay for at least two years of spending. 

On the other hand, while portrayed as a vault of fiscal solidity, Wyoming’s annual budget is getting deeper and deeper into the hole. Already in 2012 the first signs showed up that the government in Cheyenne was spending way more than its taxpayers could afford. Since 2014, this all-Republican governed state has been plunging into a budget sinkhole. 

Other Republican states are also in trouble. All-Republican Kentucky is deep in the fiscal red, and in deficit-ridden Kansas the GOP has begun reversing its own tax cuts. 

Not to mention Alaska, which I have written about on several occasions. On June 21 I explained that the legislature in Juneau was under severe pressure to solve its unending budget problems, or face another credit downgrade. They did not solve the problems, and consequently on July 13 Moody's announced their latest downgrade of the Last Frontier state. As the Alaska Dispatch News reported, this was not the first for this Republican-dominated state:
Moody's Investors Service downgraded Alaska's general obligation debt one notch, from Aa2 to Aa3, the agency said Thursday. Moody's also maintained a negative outlook for Alaska. "The downgrade reflects the state's ongoing structural budget imbalance, a small economy with concentration in energy production, large fixed costs, and heavy pension burden," the Moody's statement said. Alaska "still has the means" to fix its fiscal problems, Moody's said, "and our baseline expectation remains that the state will do so before exhausting its still-considerable liquid reserves." Alaska's credit rating has been sliding since early last year. Moody's downgraded the state twice in 2016, and Fitch Ratings gave a downgrade last summer. Standard and Poor's lowered Alaska's top-flight rating in January 2016 and warned last month that the grade might fall again if state lawmakers do not adopt fiscal reforms.
Democrat-controlled states are certainly not in better shape. Oregon, for example, has a runaway deficit problem. In Washington state, there is an ongoing competition between the state legislators in Olympia and the city councilmen in Seattle about who will be the first to push the state off the left coast cliff (check back later this week for an article on that state). California and Illinois, states with perennial deficits and piles of unpaid invoices, have been in leftist hands for as long as anyone can remember. Illinois Governor Bruce Rauner, a Republican, has found himself in a steep, uphill battle against big-spending liberals. The same is true for his colleague in New Jersey. 

However, the fact that Democrats’ attention to fiscal conservatism is worse than what Republicans can muster, does not excuse the GOP. On the contrary, it raises the question whether or not fiscally conservative voters should bother to pick one party over the other. 

There is one measurement category in the Mercatus report that speaks in favor of Republicans, namely something called “service-level solvency”. This metric shows how much “fiscal slack” states have to raise taxes or increase spending by calculating the size of taxes, revenues, and expenses relative to state personal income. States with high levels of taxes or spending relative to state personal income have, in a manner of speaking, maxed out the size of government that their taxpayers can afford. 

Republican-controlled states are all over the place: of the ten most service-solvent states, six are all-Republican; of the ten least solvent states, five are Republican. Democrat states tend to rank lower. Four of the ten least-solvent states have Democrat legislative majority: Hawaii, Delaware, Vermont and New Mexico. The first two also have Democrat governors. 

Only one state with a Democrat legislature makes the top-ten list: Nevada. At the same time, another metric, not covered by the Mercatus report, suggests that Republicans are actually more frivolous with expanding government than Democrats. The Government Employment Ratio (GER) is based on state employment data from the Bureau of Labor Statistics. It measures the number of state and local government employees per 1,000 private-sector employees in a state. For example, in heavily Republican Wyoming in 2016, there were 305 state and local government workers per 1,000 private-sector employees: 

GER 2016
Wyo. 305 Utah 170
Alaska 263 Virginia 167
N. M. 253 N. Y. 167
Miss. 243 Maine 165
Okla. 235 N. J. 163
W. Va 224 Maryland 162
N. D. 210 Calif. 162
Montana 207 Minn. 159
Alabama 204 Georgia 159
Kansas 200 Missouri 157
S. C. 196 Arizona 155
S. D. 190 Delaware 154
Vermont 190 Wisc. 153
Arkansas 189 Conn. 151
Idaho 189 Tenn. 149
Wash. 187 Ohio 149
Nebr. 184 Indiana 147
Iowa 183 Michigan 147
Oregon 183 Illinois 146
N. C. 181 N. H. 144
Louisiana 179 Mass. 132
Hawaii 179 Florida 131
Kentucky 177 Nevada 122
Colo. 171 Penn. 117
Texas 171 R. I. 116

It is problematic for the Republican party that its state-level elected officials cannot demonstrate a more convincing pattern of limited government. States and local governments are responsible for about one third of total government spending in the United States, which means that fiscally conservative hands on state budgets could make a big difference in reining in big government.

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