McClaughry: Mitch Daniels, an Indiana success story

Editor’s note: This op-ed is by John McClaughry, vice president of the Ethan Allen Institute.

When the people of Indiana elected Republican Mitch Daniels governor in 2004, he took office with one overriding goal in mind: “to make private-sector job growth a leading goal of government policies, while also changing the culture within governmental institutions in ways that encourage thriftiness and a healthy respect for the liberties of individual citizens, and do it without letting up on environmental protections or taking away essential government services.”

Seven years have now gone by, during which Daniels was overwhelmingly reelected in the year that Democrat Barack Obama narrowly won Indiana’s electoral votes. Last year, thanks to his successes and personal popularity, the Republicans broadened their margin in the Senate from 33-17 to 36-14, and shifted the House from 52-48 Democratic to 60-40 Republican. Daniels must have been on to something.

In his new book “Keeping the Republic: Saving America by Trusting Americans,” Daniels tells how he did it. Here are just a few of his accomplishments.

When Daniels took office, the state had had seven successive years of budget deficits. Four years later, the $700 million operating deficit was gone, and Indiana had $1.3 billion in rainy-day reserves. State spending grew only 1 percent per year, and rising revenues produced a surplus. Debt was reduced 40 percent, and the state earned its first AAA bond rating.

Daniels insisted that the Legislature make the actuarially required annual contributions to the state employees’ retirement fund. Once the state budget is balanced and the rainy-day funds filled to 10 percent of a year’s spending, Indiana now refunds any excess revenue directly to taxpayers.

In 2007, Daniels led the drive to install a constitutional cap on property tax rates: 1 percent of fair market value for homeowners, 2 percent for farmers and landlords, and 3 percent for businesses. Local governments could go beyond the caps only by winning a referendum vote of their citizens. Shortly after taking office, Daniels revoked a 16-year-old executive order mandating union membership for state employees. That put an end to restrictive union work rules that made it almost impossible for managers even to relocate copy machines. Within a few months, he writes, 90 percent of state workers stopped paying union dues — “a rational decision to reward themselves with a 2 percent pay raise.”

Daniels installed a Health Savings Account option for state employees that gave them much more control over their health expenditures. By this year, 85 percent of the workers had chosen the HSA option, preventive care was up and the state spending for employee health benefits had dropped by 11 percent.

He also installed a similar option, called Personal Wellness and Responsibility (POWER) accounts, for Medicaid recipients. They pay up to 4.5 percent of their (low) adjusted gross incomes, and the state adds cash to top the accounts at $1,100 per person per year. The recipients have an incentive to manage their costs, and doctors and hospitals welcome the instant payment.

Indiana moved up to second place behind neighboring Michigan in auto production by attracting Toyota, Honda and Subaru. “The workers of our growing companies,” he writes, “have been unreceptive to unions that would take away part of their pay, spend it on purposes about which they are not consulted, while insisting that jobs be kept narrow and boring, and that the most hardworking, productive employee be treated no better than the slacker next to him on the line.”

Explaining his success, Daniels writes: “I believe one reason why Hoosiers have shown a maturity about public spending, and a willingness to support limits on the size and scope of government, is because, at least in recent years, their government has acted as though it sees them as adults, as the bosses and not the vassals of public institutions.”

Daniels’ conviction that citizens must be trusted with their own destinies, instead of powerless subjects of their “Benevolent Betters” who believe that they know what is better for the people, pervades the entire book. Daniels deeply believes this, and it accounts for a lot of the trust Hoosiers have placed in his leadership.

One would think that an Indiana Governor with that record of success, a commitment to open and civil discourse, and a philosophy of trust in the people, limited government, fiscal responsibility, economic growth and liberty as the highest value, would by now be a commanding presence in the Republican presidential sweepstakes. And he surely would have been, had he (and his family) not decided to stay out of the race. Mitch Daniels is the sort of man and leader that Americans would be proud of, and it is a pity — nay, a tragedy — that they won’t have that opportunity.