This article was originally published in the March 22, 2012 edition of Howey Politics Indiana.
By BRIAN A. HOWEY
INDIANAPOLIS - The final bills of Gov. Mitch Daniels’ career are being signed this week. From a policy standpoint, Daniels promised a “freight train of change” and delivered much. He demanded and received four balanced budgets without smoke and mirrors, passed Major Moves, telecommunications reform, funded full-day kindergarten and avoided educatioal funding cuts like most other states, set up the Healthy Indiana Program and the Indiana Economic Development Corporation, and then sprawling education and labor reforms.
As with any governor, the historical verdict on the exact impact of his tenure will be years away. Howey Politics Indiana was able to establish a review of Gov. Evan Bayh’s tenure a decade after he left office in 1996 as he was gearing up for a presidential run. Next year will mark a decade since the death of Gov. Frank O’Bannon, and such a review will be published in 2013, when the community college program he pioneered, for instance, can be aptly placed into context.
It will be well into the third decade of the century before the true thrust of the Daniels era can be weighed. Daniels will leave office with national prominence despite passing on a presidential run. He is championed by his Republican Party as a prolific jobs creator, though the state’s jobless rate has been mired between 8.5 and 10% for almost all of his second term and isn’t expected to dip below 6% until 2014. The state is facing troubling trends in births to single mothers, obesity and educational attainment.
A classic example of the preamble rhetoric surrounding legislation and the actual law would be Major Moves. Passed in the 2006 session with a one-vote margin in the House, Daniels presented it as the “jobs bill of a generation.” House Speaker Brian Bosma said just hours after passage, “We will put 130,000 Hoosier families to work over the next decade. That is a record investment in infrastructure.”
Under Major Moves, the state received $3.8 billion for a 75-year lease of the Indiana Toll Road, which allowed it to accelerate an array of projects that were unfunded, including the U.S. 31 freeway, the I-69 extension from Indianapolis to Evansville, the completion of the Hoosier Heartland Highway, and Ohio River bridges. But heading into the sixth year of the decade, the construction jobs have yet to be realized. In 2010, Howey Politics Indiana reported that while U.S. Department of Transportation formulas expected 47,000 jobs created per $1 billion spent – or 117,500 project jobs – estimates revealed just 28,500 jobs that year, or less than one-fifth supporters had hoped.
“That was never the central point,” Daniels told HPI intern Bryan Ault from Franklin College. “It was never about construction jobs. It’s about having a first class infrastructure over which the private sector over the long haul will invest and create the big number of jobs.”
Thus, once the Great Recession subsides into a truly dynamic job growth economy, the real success of Major Moves should emerge. The completed infrastructure could propel Indiana as a national leader in job creation, but it hasn’t happened yet.
Other impacts impossible to gauge now also come into play. U.S. Sen. Jeff Bingaman, D-New Mexico, authored a successful amendment to the Senate’s version of a transportation bill that removes privatized highways from the calculation used to distribute federal highway funds to states. Bingaman said it doesn’t make sense for a state to get federal funding to maintain a road “once it has been shifted out of the public sphere.” Daniels called it a “backward and senseless proposal” that he hopes the House will put “directly in the wastebasket of bad ideas.”
Critics of Major Moves see the Macquarie-Cintra consortium making huge profits over the final five decades of the lease, suggesting it was a bad deal. But should the consortium go bankrupt, ownership and profit would revert back to the state, which would create a historic win.
Ditto with the sprawling education reforms passed in 2011. They changed things from grading schools on an A to F scale, altered collective bargaining, brought a limited voucher program, and introduced new teacher and principal evaluations and pay for performance schemes. It will be at least a half decade before the impact of the new program can be gauged.
Here is a year-by-year rundown of Daniels and the Indiana General Assembly:
2005: Balanced budgets, DST and regional governance
HPI described Gov. Daniels’ first session by saying: Daylight Saving Time was merely the glitzy wrapper that cued in the short attention spans of TV news, with his economic “shovel ready” reforms something far more substantive that he believes will usher in a new era of growth. For the first time in Hoosier history, regional governance aimed at the state’s two biggest population areas, Indianapolis and Northwest Indiana, brought stadiums, convention centers and mass transit projects that will become enduring economic cornerstones for the next several generations.
“This is a balanced budget and it is honestly balanced,” Daniels asserted. “By the time we’re done I still hope we balance it with executive actions and savings we find in the first year. Medicaid will be very difficult but we think it is achievable.”
House Minority Leader B. Patrick Bauer, who Daniels described Bauer as having “car bombed” the agenda when House Democrats held legislation hostage for a few days, declared that Daniels had balanced the budget and funded education “on the backs of taxpayers.”
Purdue University economist Larry DeBoer told the Lafayette Journal & Courier, “They have in a sense helped to balance the state budget with a property tax increase. It surprises me they are moving in that direction. After all the talk about moving away from property taxes, of defending property taxpayers from tax increases, here we are, essentially reversing course.”
There were historic changes in the school funding formula where the money follows the child and the Property Tax Replacement Credits. The Indiana Economic Development Corporation was created, essentially replacing the Commerce Department. But the true Daniels audacity came when he took over the proposed Indianapolis Colts stadium and convinced seven of eight doughnut counties to pass a food and beverage tax to help pay for the new stadium. That deal also helped create the Northwest Regional Development Authority that was hailed by State Rep. Chet Dobis and U.S. Rep. Pete Visclosky.
“It’s been discussed for 30 or 40 years,” Daniels said. “Go talk to Chet Dobis, with whom I’ve met many times along with many other folks. He said he thought in 1991 we were getting close. It’s hardly a novel idea but I’m prepared to defend it. This state cannot move forward successfully if any big piece of it, northwest or rural Indiana, doesn’t succeed. So what’s good for one part is good for all.”
And Daylight Saving Time, the annual session hot potato for decades, passed with a one-vote margin in the House by State Rep. Troy Woodruff, who lost his first reelection bid in 2006.
2006: Major Moves and telecommunications reform
The impact of what House Speaker Bosma called the “boldest” session in history yielded the 75-year lease of the Indiana Toll Road that brought $3.8 billion and what Daniels would hail as a “fully funded 10-year road plan.” There is tangible progress being made on I-69 between Evansville and Crane Naval Base, on U.S. 31 in Howard, St. Joseph and Hamilton counties, and the Hoosier Heartland Corridor. It passed the House with the vote of State Rep. Jackie Walorski, who represented a district in St. Joseph and Elkhart counties where Major Moves was highly unpopular.
“I am the only Republican in St. Joseph County,” she said of her status in the legislative delegation. “I could not look at that bill, and 130,000 jobs, and say after all the nasty political rhetoric and all the Democratic guns trained on me, that I could turn my back on that. I knocked on 7,000 doors during my campaign and they all said, ‘We need change,’” Walorski said of her 2004 campaign. She won reelection in 2006 and left the House in 2010 before losing a cliffhanger to U.S. Rep. Joe Donnelly.
The other key legislation was the Telecommunications Act of 2006. Ball State’s Digital Policy Institute observed this year: “Drawing upon deregulation legislation in Texas, Indiana’s 2006 reform statutes included statewide video franchising, and have since been recognized, even by Texas, as the legislative template for other states to follow. Since that time, a number of other Midwestern states have followed Indiana’s lead. Now, five years after deregulation in Indiana, competition in the market has held consumer prices in check, and as a recent IURC report to the General Assembly suggests, new capital investment has occurred, there have been increased build-outs of infrastructure using fiber optics and digital transmission technology, and consumer complaints about redlining are nonexistent. Early findings included the accelerated deployments of digital subscriber line (DSL) services in more than 100 new rural Indiana communities, collective capital expenditures of more than $516 million in new infrastructure, new competition for video in multiple markets in Indiana, more than 2,200 new jobs created for Hoosiers, and, finally, a positive impact on price in the marketplace.”
2007: Cigarette tax hike and property tax reforms
Because of the Iraq War, unpopular President Bush’s second mid-term election, and fallout from Major Moves and Daylight Saving Time, Democrats returned to control the House. Thus began a relative four-year decline in Daniels’ initiated legislation. Because of House Democrat obstinance, the administration worked a path of executive orders and administrative changes on various education boards.
The 44 cent-per-pack cigarette tax increase created what Gov. Daniels described as “the most important health care legislation of our lifetimes” that would fund the Health Indiana Program, expanding access for low income and difficult to insure Hoosiers. It came after a furor erupted when the House initially rejected the bill. Daniels explained, “I have asked a host of people whether they can think of a better example and nobody has. I am excited about the passage of the plan and what it can mean for uninsured Hoosiers and for low-income children, and, of course, to try to bring down the second-highest smoking rate in America.” There was a second – by almost all accounts – honestly balanced budget after a decade of smoke and mirrors. And there was $92 million for full-day kindergarten, $33.5 million in 2008 and $58.5 million in 2009.
The course of the legislature changed with the pronouncement by Dr. DeBoer that Indiana property taxpayers, on average, were looking at a 24% tax increase. This assured that the pursuit of any long-range property tax control program would not be forgotten for the session. Instant relief became the watchword as it was in 2006. And, if there was ever a doubt about not legalizing slots at racetracks, those thoughts disappeared. One-time money was needed. The franchise fees from the slots became a necessity in order to lower property tax bills for 2007 and 2008, but Daniels demanded franchise fee so high that both racino parent companies went bankrupt. Sen. Luke Kenley said on WXNT’s Abdul in the Morning Show that “the property tax bill is 85% on the way to real reform. We’ve got a few things we need to keep working on. There may be a few things that will happen that will be unintended consequences. It’s unfortunate but it’s a necessary part and at least we know we’re making change and driving away from a property tax based system.”
Former Senate Finance Chairman Larry Borst observed in an HPI column: “The governor and many Democrats were locked in on providing health insurance for the low-income uninsured. After a slow start Sen. Long found a Senate rule that allowed for a vote for an increase in the cigarette tax and pushed the idea along. Budgets tend to come together more easily when there is an additional two billion plus dollars to spend for the next biennium. Compromises were made and the new money was spent: $550M more for tax relief, $200M more for universities. $681M more for the school formula, $92M more for FDK, $223M more for Medicaid.”
The most conspicuous initiative was Daniels’ creation of the Kernan-Shepard Commission on Local Government Reform. Their report came in December of 2007, but the legislative session that spring revealed how tough it would be to institute reform. Indianapolis Mayor Bart Peterson’s IndyWorks legislation took aim at townships in the city, but was thwarted by Ways & Means Chairman Bill Crawford.
2008: Property tax reform
Daniels initiated and got House Democrats to join Republicans in passing the most significant property tax reforms since Gov. Otis Bowen’s 1973 initiative. It was heralded at an extraordinary election year rotunda signing ceremony attended by Bauer and GOP leaders. “I was talking with Pat (Bauer) and I said, ‘If you’re not uncomfortable, instead of passing the bill around and Becky signs it and Pat signs it and David signs it, why don’t we all sign it together - and we invited every legislator who voted for it - we’ll have a little thing in the rotunda all right together,” Daniels said.
It began the property tax cap process that culminated with Indiana voters passing the constitutional amendment by a landslide margin. “I believe the caps and spending limitations will now be the force that will pull Kernan-Shepard off the shelf, where otherwise it would collect dust,” Daniels said. “The people who would otherwise guard their turf and who would otherwise protect the redundant systems of today will have to get serious about cooperation, collaboration, consolidation.” And Daniels added, “I wanted to put it beyond the reach of either future politicians or some judge. My guess is – and law school has been a long way back and I’m nobody’s lawyer – a court would say ‘this issue is not ripe.’ The people may be in the very process of delivering an answer.”
There was also the passage of the Patent Derived Income Tax Exemption, designed to help Indiana’s high-tech, entrepreneurial firms with state tax breaks for patents for the first five years, then stair-stepping down over the final years of the decade. Daniels lauded this bill for innovative small businesses which would establish corporate headquarters in the state.
As the next four sessions would show, Daniels never made Kernan-Shepard a top priority. It was replaced by the constitutional caps, the education reforms and then Right-to-Work. But there was some incremental change on the local government front. A referendum on whether to continue with the 1,008 township assessors reduced their ranks to just 12 that November. The other historic piece of legislation in 2008 was a bill carried by State Sen. Brandt Hershman that would allow no more than two 911 emergency call centers per county.
The most fascinating thing about 2008 – beyond the Barack Obama/Hillary Clinton presidential primary – was Daniels’ 58% reelection over Democrat Jill Long Thompson, but for the first time in modern history, the victorious governor failed to pull in a GOP House majority. That would create a dearth of legislative victories for the governor until his party could regain the lower chamber.
2009: A stimulated budget and special session while reforms falter
If there was a moment that characterized the third year of the lack of GOP control in the House, it came in February. Gov. Daniels was in the Statehouse atrium at a rally for the constitutional tax caps. In the House Chamber, Government Reform Chairman John Bartlett killed almost all of the Kernan-Shepard reforms that year. HPI would analyze: Watching Daniels this year has been perplexing. He pushed for the Kernan-Shepard reforms in his State of the State speech, but did very little early in the process (other than two town halls with Joe Kernan in Kokomo and Fort Wayne), allowing State Rep. John Bartlett to crush the reforms. As even his critics have noted, the governor has a bully pulpit, but it wasn’t used very effectively to push the caps and reforms this year.
It was also the first special session of the Daniels’ governorship as he undercut Senate Republicans. The biennial budget passed the Senate by a 46-3 margin with the help of $4.5 billion from President Obama’s American Recovery and Reinvestment Act, but it was mauled in the House by a 71-27 margin with wholesale GOP defections. Daniels had signaled his unhappiness with the budget. Ranking Ways & Means Republican Jeff Espich described the governor as “tough to love.” At the second Daniels inaugural earlier that year, Appropriations Chairman Kenley found his reserved seat – in the back row – which he interpreted to HPI as a subtle signal of his perceived standing. A blatant one came when Daniels rejected the Kenley budget and sent the House out to destroy it while the Senate voted.
The legislature passed an Unemployment Insurance tax to close a $2.2 billion deficit in that fund. It increased the tax rate on employers. The tax which was increased by $400 million was deemed too harsh on employers during the persistent recession. Its implementation was delayed from Jan. 1, 2010 and a year later.
2010: The least dynamic session
The 2010 short session was the least dynamic of the Daniels’ governorship. It almost seemed as if Daniels realized that Bauer would remain such a barrier that he selected just three issues – the referendum on the constitutional property tax caps, ending social promotion for students, and confiscating the lottery winnings from deadbeat parents – to press for this session. It was an agenda that paled compared to those in 2005 and 2006 when he told legislators not to make vacation plans. Daniels acknowledged that it was his “least eventful session of the six I’ve been involved with.”
The Daniels administration made only half-hearted attempts for education and local government reform.
House Republicans, working in tandem with the Indiana GOP and Daniels, began a recruiting program and vowed to regain chamber control in that November’s election. It came as fissures began occurring with House Democrats. On the one significant issue that did pass - the Illiana Expressway - Dobis was demoted by Bauer for supporting a GOP version of the bill.
“I think he (Bauer) must see him (Daniels) in his dreams because he’s always lurking in the shadows even when he’s not even around,” Dobis told the Times of Northwest Indiana about the Bauer-Daniels dynamic. “You don’t get positive things done that way. The chemistry is not good in here.” The Democrats were further weakened when State Rep. Dennie Oxley suffered a debilitating heart attack and never showed.
Daniels gave clues as to what his priorities would be if he regained control of the House. Asked about local government reform after Ways & Means Chairman Bill Crawford’s Trojan horse township bill failed, Daniels said, “Stand by. All I can tell you is that we will be back. Citizens of Indiana deserve modernization. Taxpayers deserve wasted dollars being reduced. Our schools deserve more dollars in the classroom and not chewed up in administration. Nobody said it would be easy.”
Asked if he would take an active role in passage of the property tax caps (the answer was yes), Daniels described himself as an “enthusiastic cheerleader; (and) celebrator of successes, which have begun and I just want to commend these folks and others we can mention for doing right by their taxpayers and their citizens. I hope this will start a cascade of reform.”
By October, it was clear that Daniels would regain control of the House, with HPI’s final preelection projection set at 60 seats, which Republicans achieved. More significantly, the Southern Indiana flank of the Democratic Party was decimated as the GOP took two congressional seats, seven Indiana House seats and four Indiana Senate seats south of U.S. 40. It represented a historic erosion of what had long been a bulwark for legislative Democrats as names like Bob Bischoff, Paul Robertson, Russ Stilwell and others went down to defeat.
2011: The education governor
In the 2011 Indiana General Assembly, Daniels worked in tandem with Supt. of Public Instruction Tony Bennett and said of his first educational mission, “I would organize it as teacher quality. This means paying the best teachers more, paying the teachers in the most important subjects more. Or at least have the freedom to do that. And teachers earning job security because the kids learn, not because they’ve been around for years. Pure seniority doesn’t work. We have teachers of the year who get laid off.”
The State Board of Education has changed the ways schools will be graded, going to an A through F format. Daniels said it would not be fair to hold schools accountable without taking down “all sorts of mandates and handcuffs, whether it’s by statute or regulation.”
The governor said he wanted to “take the lid off charter schools” so they don’t struggle. This would mean ending a six-month delay in payments from the state. He added that school corporations won’t sell or give charter schools empty school buildings that taxpayers have already paid for. “We’ll address that and give them a fair shake,” he said. “I’m going to propose that Indiana students can graduate in less than 12 years,” Daniels said, adding that he’s been approached by scores of students who tell him they had amassed enough credit hours to have graduated one or two semesters earlier. He said seniors frequently tell him “I’m cruising” at a cost of between $8,000 and $10,000 per year to taxpayers. He said the state had “accidentally” created a competitive environment between public schools when the state assumed all K-12 school funding, taking it off the property tax rolls. “There are now billboards where schools are saying, ‘Check out our test scores.’”
“We should say schools can’t charge tuition,” Daniels said, suggesting that if an Indianapolis Public School student wants to enroll at Ben Davis, “there will be more freedom and more options.” Essentially, the money should follow the student.
The session was marred by a five-week walkout by House Democrats over proposed Right-to-Work legislation, which Speaker Bosma scrapped, and then the education reforms that Daniels and the GOP refused to budge from. But unlike his bombastic 2005 rhetoric, the governor was almost sanguine. He refused to send the Indiana State Police to round up absent Democrats. Instead, he exhibited calm and strength and simply wore the Democrats down. In doing so, he signed new legislation that would assess $1,000-a-day fines for any legislator with more than three days of unexcused absences.
The legislature also passed the automatic tax refund, which would be changed in the 2012 session.
Indeed, when Daniels gathered with legislative leaders on a post-sine die presser, there was a celebratory aspect to the education reforms that Democrat State Rep. Ed DeLaney characterized as an “assault on public education.” Daniels was in the midst of rampant speculation he was about to enter the 2012 Republican presidential race. The education reforms were seen as a policy slingshot that would thrust him into the national orbit. But by month’s end, Daniels said he had been out-voted by his family on the presidential run. Daniels was now entering fully into the twilight of his elected career.
2012: Right-to-Work
This was to be the session when Daniels could make a final thrust with the Kernan-Shepard reforms. But on Organization Day, Bosma and Senate President Pro Tempore David Long announced that Right-to-Work would be their top priority. And for good reason: They had been team players for Daniels for seven years. They had restive conservative parts of their caucuses that might rebel if Right-to-Work wasn’t the top priority. And Daniels continued to be stung by the Great Recession that was keeping a high jobless rate. Daniels would say at the end of 2011 that he needed “every tool” for job creation and he changed his stance on Right-to-Work.
There were more House Democratic walkouts, but the anti-bolt legislation created more fissures inside the Democratic caucus, and Daniels was able to sign the legislation before the Feb. 5 NFL Super Bowl. After that, the General Assembly seemed exhausted. Daniels didn’t hit the road to push government reforms. Instead, his final session tied up some significant loose ends. There would be a decade long phaseout of the inheritance tax.
His goal of an automatic tax refund for Hoosiers was modified at a higher threshold than originally written. And he signed into law the first statewide smoking ban, though it exempted taverns and casinos. Of the full-day kindergarten legislation, he called it the “completion of this administration’s eight-year quest to bring full-day kindergarten to every Indiana family. It will be universally available without any additional charges. Virtually every Indiana family that wants that full-day experience for their 5-year-old will have it.” With kindergarten, Daniels was able to accomplish what had only been a goal of Gov. O’Bannon.
And it came about because the state found an extra $320 million in deposited funds that never made it into the general fund. That paved the way for full day kindergarten and increased payments to the Indiana State Fair disaster victims.
As for the inheritance tax repeal, Daniels said, “Never again, we hope, will a farm or a small business in our state have to change hands just because someone can’t afford the inheritance tax otherwise.”
There were a couple of minor strides on government reform as he signed bills that outlawed conflict of interest (police and firefighters serving on city or county councils and approving their own salaries) and many forms of nepotism. But the township government remained mostly intact, county government stayed almost entirely in its 19th Century form with three commissioners and a defused bureaucracy spread out across courthouse fiefdoms. Indiana cities and towns witnessed the General Assembly becoming “Indiana’s city council” with the tax caps prompting funding challenges and the local government reforms slowly coming about.
He acknowledged last December that he was surprised the caps had not spurred more consolidation. Of the two bills he signed this past week, Daniels said, “This really modernizes Indiana state government in a way that’s overdue and there’s more to do, honestly. At least we’ve maintained some forward momentum and I hope that people will pick up the Kernan-Shepard report in the future and keep going.”
Epilogue
By any standard, Daniels will likely be seen as one of Indiana’s strongest governors, joining the pantheon of Oliver P. Morton, Thomas R. Marshall, Paul McNutt and Otis “Doc” Bowen as governors who were willing to use political capital to change the way state government operates and how Hoosiers are taxed, educated, governed and pursue their happiness.
But it will be well after Daniels leaves office that we’ll know whether the education reforms have really improved graduation rates and workforce preparedness, or whether the state’s transportation system will become the prolific jobs magnet.