The Obama campaign has recently resorted to a peculiar tactic: putting forth the current president as a paragon of fiscal conservatism and deriding Mitt Romney as a profligate executive. The source of this criticism suffices to discredit it, but the details of Romney’s fiscal record add to the evidence in Romney’s favor. They stand in stark contrast to President Obama’s meager accomplishments these last three and half years.
When Mitt Romney took office as governor of Massachusetts in 2003, the recent recession had hit Massachusetts particularly hard, leaving the state’s budget in tatters. But the governor faced a deep-blue wastrel of a legislature that expected more government whenever it pleased.
His predecessor had left him, even after huge tax hikes, a $450–$600 million budget deficit remaining in the fiscal year. Knowing that the legislature would push for tax increases instead of spending cuts, Romney won more expansive “9C” budgetary powers from the legislature, enabling him to make midyear reductions in areas that previous governors couldn’t touch, such as Massachusetts’s $5.5 billion in local-government aid.
#ad#Then, in Romney’s first full fiscal year, he faced a $3 billion deficit (based on projected spending growth). For 2004, Romney proposed $22.8 billion in spending, a real decrease from his predecessor’s $23.5 billion proposal in 2003 (which required an increase in the capital-gains tax rate).
By contrast, in Barack Obama’s first full fiscal year in office, he faced a projected deficit of $1.186 trillion. His 2010 budget, rather than beginning to close that gap, instead expanded it, running a deficit of $1.29 trillion, which increased the federal debt by 12 percent of GDP in one year (despite revenues that were greater than expected).
In order to close the gap, Romney made cuts in almost all areas of state government. He cut health-care spending, closed obsolete state offices, and consolidated redundant departments and cabinet agencies. However, facing a huge deficit, a veto-proof legislature, and billions in mandatory spending, Governor Romney also had to raise some revenues. He did so mostly by increasing fees, rather than tax rates, to the tune of $501 million. As an Urban Institute study puts it, “There was no new borrowing, pension recapitalization, or securitizing of tobacco revenues — which the administration disdained as ‘fiscal gimmicks.’”
Many of the increases were merely sensible: for instance, raising greens fees at state golf courses and charging higher rents for highway billboards, prices that hadn’t changed in years. Some of these fees, as critics on the right and left have argued, of course fell on the ordinary, middle-class taxpayers (golfers are people, too), but such is the case for any form of government-revenue increase, especially at the state level, where taxes tend to be flatter.
Many anti-tax zealots, including Romney’s Republican-primary opponents, have also criticized fee hikes as back-door tax increases, but they are preferable to tax-rate increases. Fee hikes work far better than increases in income-tax or corporate-tax rates because they don’t distort incentives as significantly, and they pose less of a threat to businesses that are assessing a return on investing in the state. Romney also closed a variety of business-tax loopholes in order to raise revenues — again, a method much preferable to raising marginal rates. It’s worth comparing how Romney managed his budget crisis with the methods favored recently in California and Illinois: Tax rates have increased substantially in these two states, scaring away investors while barely improving the states’ fiscal picture.
Romney’s record of fiscal discipline continued throughout his tenure as governor. After his cuts for FY 2003, government spending did rise eventually, though he managed to cut it again in real terms from 2004 to 2005. Between 2004 and 2006, in fact, Massachusetts’s economy rebounded so energetically that even in years when the state increased spending, it also ran a surplus, allowing the state to shore up its “rainy day” stabilization fund, a key element of state fiscal stability.
The orthodox fiscal-conservative Club for Growth has criticized Romney for “loosening the purse strings” after the 2003 budget crisis had been resolved. However, this spending was the result of the rapidly improving revenue situation: In a nod to the happy days, the legislature overrode even more of Romney’s spending vetoes than they had before. Overall, Club for Growth praises Romney for enforcing “much-needed fiscal discipline,” keeping the rate of spending growth to 2.22 percent, well below the benchmark of population growth plus inflation.
#page#The Obama campaign has also attempted to assail Romney’s record on Massachusetts’s debt burden: “Massachusetts’s long-term debt increased by 16.4 percent or $2.6 billion over four years. His legacy was that Massachusetts had the highest per capita debt for any state in the nation by the end of his tenure.” Let’s put aside that this criticism comes from a president who has, in three years, increased the federal government’s debt by about 50 percent, or almost $5 trillion. In fact, while Obama’s tenure has seen the federal debt increase from 60 percent to 100 percent of GDP, Massachusetts’s debt burden barely budged, rising from 16.3 percent to 19.4.
#ad#Romney did add to Massachusetts’s debt, thanks to the weak economy and profligate legislative spending. But it’s simply false to assert that he inherited a healthy state and turned it into an invalid. Romney took over the reins of America’s second-most indebted state, and he left it the most indebted — but with a restrained budget and $2.2 billion in its stabilization fund (up from about $500 million when Romney took office).
Further, Massachusetts’s state debt, thanks to decades of profligate governments, is very nearly an intractable problem. Unlike most states, the Massachusetts state government issues a significant amount of debt on behalf of local governments, a policy that’s arguably reasonable so long as the state government maintains its ability to borrow more cheaply than local governments, as Massachusetts did during Romney’s tenure.
Moreover, much of the Bay State’s debt burden isn’t the result of spending that Romney or any other governor could afford to rein in; it’s the aftermath of the Big Dig boondoggle. Most of the overruns for the infamous Boston public-works project fell upon the state government, rather than the federal government, which originally provided much of the funding. This has burdened the state with huge amounts of very long-term debt and interest payments of more than $100 million per year.
Romney, to the extent possible in Massachusetts, also attempted to tackle the state’s long-term fiscal problems: He fought tooth and nail to raise the amount that state employees had to pay toward their health-care benefits, eventually prevailing; he also updated Massachusetts’s welfare system to follow Clinton’s welfare reforms, which a series of waivers had allowed the Bay State to ignore.
The contrast between the two executives is perhaps starkest when you consider this: President Obama oversaw the first credit-rating downgrade in the history of the United States, to AA+, while Governor Romney convinced the three ratings agencies to lift his state’s credit rating one notch, to AA, citing a basically balanced budget, stronger revenues, and a larger stabilization fund. (Further, and thanks in part to the fiscal reserves Romney set aside, his successor, Deval Patrick, has seen the state’s credit rating raised to AA+.)
A downgrade is not necessarily a fiscal death knell; since the federal government’s downgrade, yields on federal bonds have fallen rather than risen. But that is due to a range of exogenous factors, unrelated to this president’s fiscal plans, or lack thereof. Ratings agencies assess the size and trajectory of a government’s obligations and its ability to meet them. President Obama has been found wanting in this respect, to America’s detriment; Mitt Romney proved himself capable of such discipline, to the Bay State’s benefit.
— Patrick Brennan is a William F. Buckley Fellow at the National Review Institute.