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.

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  • Doug Hoffer

    Mr. McLaughry neglected to share some other interesting information about Indiana. For example,

    1. Indiana’s unemployment rate was 8.7% in Aug. (VT = 5.9%)

    2a. Indiana’s median household income in 2010 was $46,156, which was 8% lower than the U.S. average ($50,328) and considerably lower than VT ($53,490) [Census/CPS, three year rolling average]

    2b. Indiana’s median household income has DECLINED by 5.5% since Mr. Daniels took office in 2005. (VT = -1.3%)

    3a. Indiana’s poverty rate was 14.4% in 2009 (VT = 11.4%) [Census, SAIPE]

    3b. Snce Mr. Daniel’s took office, Indiana’s poverty rate has INCREASEDd 2.2% (VT = 1.1%)

    4. Since Mr. Daniel’s took office, Indiana has LOST OVER 161,000 jobs (5.5% of the total). (VT is down half of one percent) [BLS, CES/SA]

    It’s puzzling that Mr. McLaughry would characterize this as a “record of success.” From where I’m sitting, it stinks.

  • Frank Davis

    I kind of like Mitch Daniels. He probaly has some positive programs going. However when it comes to states achieving full employment Vermont should not be looking to Indiana. If John McClaughry, was in Indiana and was the vice president of the Lew Wallace Institute (my hypothetical) he would be touting Vermont’s programs that result in our state being 7th out of 50 in unemployment rates at 5.9% and gripe that Indiana is at 29th place and 8.7% for August 2011. Because it is the practice of the Ethan Allen Institute to foment discontent. Otherwise they have no reason to exist. I for one am proud of my state and think that we do quite a bit right.

  • John Fairbanks

    Oh dear, where to start?

    Unemployment rate:

    VT – 5.9%
    IN – 8.7 %

    Residents in poverty:

    VT – 7.6%
    IN – 12.6%

    Median household income:

    VT – $53,490
    IN – $46,156

    Personal income growth, rank, Q1/2010 to Q2/2011:

    VT – 11th
    IN – 41st

    Jobs added, 8/2011:

    VT- + 1,400
    IN – – 2,500

    And, about that little experiment with privatizing welfare payments –

    But, hey, he cut taxes, cut education spending, and wounded the teachers’ union. Life is good, eh?

  • edd foerster

    Median household income:

    VT – $53,490
    IN – $46,156

    $53,490?? Then why are Doug Hoffer and the alleged “Peace and Justice” folks constantly whining?

    • John Fairbanks

      Because “median” means half the households are below that figure. Thousands of Vermont families are living on a lot, lot less.

      Note, too, the VT Department of Labor figures on how many people are employed in low-paying jobs – in 2010, half of Vermont’s workers were earning less than $33K a year, and a fourth were earning less than $24K. A big chunk of Vermont’s jobs are low-paying service industry positions.

      • Mr. Fairbanks,

        Your point would seem to be at odds with your position that Vermont is doing well relative to other states as a result of its progressive policies. Would average income, then, be a better measure than median income? I don’t know the answer; I’m simply asking.

  • John Fairbanks

    Mr. Kheiry –

    My point was that Mitch Daniels is hardly a model of success. Since I’m a Vermonter, I used VT as the comparison.

    The Right constantly harps the VT is an economic hell-on-Earth because of all those taxes and regulations. (As in, Eek! All the rich people will move away!!) Then one of the most prominent Right scribes extolls Gov. Daniels as a success story. I was pointing out that, despite cutting taxes and hacking at education funding, Gov. Daniels has hardly produced an economic miracle during his tenure.

    My reply to Mr. Foerster was intended to point out that our relatively high median household income does not mean a lot of Vermonters aren’t struggling.

    Average income as a measure should be avoided, since it’s susceptible to swings, e.g., the old joke about Bill Gates walking into a bar and suddenly everyone there’s a millionaire . . .

    It occurs to me now that, despite VT’s HOE status and Mr. McClaughry’s admiration for Gov. Daniels, I’ll bet Mr. McC is not packing his bags for Indiana.