Sunday, June 10, 2018

Hageman vs. Galeotos

Saturday night, Republican Women of Fremont County PAC held an event with six Republican candidates for governor. It was a good event, tightly run by Senate President Bebout, and it revealed a great deal about the candidates. 

As we enter the final stretch up to the August primary, it is now becoming clear that the GOP primary has narrowed to a two-horse race between Harriet Hageman and Sam Galeotos. As much as I don't want to write anyone off, these were the two candidates who stood out. Both of them did well; you can watch the entire event in the video link at the end of this article.

Starting with Harriet Hageman, she came out strong already during her introductory statement, being specific about what she wants to do in terms of regulatory reform. She also went straight for the state budget, citing the number $1.15 billion as our state's structural budget deficit. The definition of a structural budget deficit is debatable - I wrote a paper on that for another venue a couple of years ago - but Hageman deserves credit for going straight for the deficit issue. Here is what she said during her opening statement:
We have a $1.15 billion structural budget deficit in the state of Wyoming, but the fact is you cannot grow the economy by growing government. We need to right-size our government, we need to assess government's role in our lives and identify those services that are perhaps better provided by the private sector.
This was the most specific statement that any of the candidates made on the state budget problems. But she was not done: she added that she wants transparency, accountability and efficiency in government as tools for advancing fiscal conservatism. Together with the rest of her performance during the event, she has now taken the position as the leading fiscal conservative in this race. 

At 39 minutes into the debate, Senate President Bebout asked Hageman about ENDOW and what she would do about the program if elected governor. She expressed a couple of concerns:
One is that ... the final ENDOW report will not be issued until August. The information that I have now is focusing on subsidizing commercial air service, as well as some of the other diversification ideas that they have come up with ... I think we need to take a step back and again determine what the role of government is in our lives. When we talk about diversifying our economy and we are talking about economic development, a lot of times we are talking about central planning and I think we need to be very careful about that. One of the things that I have repeatedly asked is how does subsidizing commercial air service create jobs and generate revenue for the state of Wyoming?
This is precisely the question that has not yet been answered. Many people claim that there will be tremendous benefits from ENDOW and related initiatives, such as the commercial air service capacity purchase in Laramie County, but so far nobody has published a single report that even tries to make the case for those benefits. 

As a contrast to Hageman's incorruptible bean counter candidate, Sam Galeotos was the inspiring visionary. Raising his eyes to the horizon, he wanted to talk more about the big strokes than small budget items, an approach that is equally respectable as Hageman's. 

The problem for Galeotos is that he has not quite turned his vision into actionable fiscal conservatism. He came closer this time than I have heard him do before, so perhaps he is getting there. However, in order to do so he needs to be more clear on how his support for ENDOW fits with his ambitions to control state spending.

In fact, ENDOW is one of two issues where Hageman and Galeotos clearly see it differently (the other being higher taxes where Hageman is strongly opposed and Galeotos is AWOL). Hageman criticized the reliance on tax-paid economic development, rightly suggesting that it is no "panacea" for our state's economy. She also referred to a report earlier this week to the Revenue Committee, suggesting that economic development spending often times ends up costing us more than the benefits it may bring.

Galeotos, on the other hand, expressed measured support for ENDOW (41 minutes into the video):
I absolutely love the aspirational aspects of ENDOW. Our governor has put together a group of some very bright people, both senior leaders of our state and next-generation leaders of our state. Thinking about the future and being aspirational is never a bad thing. We need to focus more on the aspirational aspects. My biggest concern about ENDOW - not really a concern but more of a discipline - is that it has generated a number of recommendations for taking care of problems that are very critical to Wyoming moving forward in the future. We need to make sure that each of those initiatives are like business cases and that we have rigor around every one of them, based on how much do we need to invest in looking into the initiative, how long do we have to invest, what expectations do we have at the end and how long will it take for us to achieve success?
This is a good, general statement and sounds prudent enough. The problem is that, as Hageman pointed to, it is difficult to find any case of economic development that has been unequivocally positive for the taxpayers who invest in it. But beyond that, ENDOW is not just another economic development program: it proposes that the state of Wyoming effectively create its own airline. ENDOW wants us, the state's taxpayers, to make a permanent commitment to annual purchases of commercial air service capacity to the tunes of tens of millions of taxpayer dollars.

It is important to understand the difference between a capacity purchase agreement and an airline subsidy. There are different ways to structure a business subsidy, but they all have one common denominator: they compensate the business after the fact. For example, a subsidy per sold passenger seat is an after-the-fact pile of money that government would provide an airline with, based on whatever passengers the airline was able to attract in the first place. The fewer seats the airline can sell, the smaller the subsidy. 

By contrast, a capacity purchase agreement means that taxpayers tell the seller of the capacity, in thsi case an airline: "we are going to send to a check of the same amount of dollars every month regardless of how many people fly, or do not fly, with you." The purpose is not to encourage the airline to sell passenger seats, but to keep their planes flying in the hope that people may use them. 

Since this capacity purchase idea - known in Wyoming parlance as WyoFlot - is an open-ended commitment of taxpayers' money, without any incentive toward commercial viability, it is an inherently bad idea. I doubt that Galeotos would commit to spending an open-ended amount of his own money the same way. (If he would, then may I suggest he gets some good business people together to bankroll WyoFlot out of their own pockets? They can keep the profits.) Therefore, he needs to deliver on his encouraging statement about turning every part of ENDOW into a business proposition. Taxpayers need to know, in good time before the August primary, whether or not Galeotos is willing to put a cap on the cost of ENDOW to taxpayers.

However, he needs to deliver more. He has not pledged to refrain from tax increases as governor, which - in view of his open mind to ENDOW - raises two questions:

1. What tax does Galeotos want to use to fund the parts of ENDOW he thinks are worth taxpayers' commitment? 
2. How is he going to fund ENDOW and, at the same time, control state spending and close the state's budget gap?

Galeotos has the potential to become a strong fiscally conservative candidate, but he needs to go from aspirations and visions down to practical policy. In his opening remarks, at about 25 minutes, Galeotos expressed concern about the long-term negative effects of the state's budget deficit and how it impacts long-term stability in our local governments. This is a very good statement, one that needs to be heard more. At the same time, even if there were a case to be made for ENDOW; even if it would work as its proponents suggest; it would not bring in any new tax revenue, and certainly not enough to exceed what has been spent on it, until several years into the future. 

In the meantime, we are steaming toward $700 million in annual deficits, with $1 billion lurking on the horizon, especially if we start doling out more on economic development.

Galeotos also says that we need an education system that can prepare our young "for the jobs that we will create". I understand that Galeotos is a visionary, and that by saying "we" he probably refers to us as a state in general. That said, his open-ended support for ENDOW raises the question of where, exactly, he is willing to draw the line on what government should and should not commit to.

Here, again, Hageman is one step ahead. Her ambition is toward smaller, more restrained government. Galeotos needs a stronger anchor for his inspirational visions in our state's fiscal realities.

Again, I do not want to be overly critical of Galeotos. He has great potential as a candidate. He also deserves recognition for his observation that "there is an outpouring" of tech jobs from the coasts that could certainly benefit us here in Wyoming. However, this does not require all that much more spending - in fact, it can be a door opener for substantial and permanent reductions in government spending. The key is an overhaul of our K-12 school system with a comprehensive school-choice reform. This would open us for a sky-is-the-limit tech revolution, much of the kind Galeotos is envisioning. 

As for the other candidates, Taylor Haynes squandered an opportunity to take the lead on fiscal conservatism. He pledged his allegiance to it, but he spent his entire opening remark talking the confiscation of federal lands. He also failed to engage on spending reform. 

Bill Dahlin hit many of the right points, but as a candidate, he is still too thin. He sometimes did not use his allotted time, leaving viewers wondering if he really does not have more to say about how to use the most important elected office in the state. 

Mark Gordon had a challenge separating himself from the background. Foster Friess, nice guy as he is, spent most of his time being everyone's grandfather.

The way things look right now, this is coming down to a race between Harriet Hageman and Sam Galeotos. So far, Hageman is stronger on actual policy, including fiscal conservatism, but Galeotos holds the edge in visionary and inspirational thinking. Right now, fiscal conservatism matters more, putting Hageman in the front. However, these two candidates could learn a great deal from one another; can I vote for Samiett Hagelotos?

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