The Corner

Must-Read Case Study of Government Gone Wild: Ohio Edition

How did the State of Ohio go from being one of America’s top economies to an economic basket case? Entrenched special interests, wrong priorities, lack of accountability, and the slow death of federalism: These are only a few of the factors identified by Matt Mayer — the president of Opportunity Ohio and a visiting fellow at the Heritage Foundation — in his new book Taxpayers Don’t Stand a Chance: Why Battleground Ohio Loses No Matter Who Wins (and What to Do About it)

Reading this book, we learn that at the core of Ohio’s problem is the fact that the system rewards special interests, whether Republicans or Democrats are in power in the state. Mayer, for instance, gives a detailed account of how the statehouse rammed through Ohio’s pro-union collective-bargaining law under the legendary Speaker Riffe and Governor Celeste in 1983, and explains the unintended consequences of the bill, its economic distortions, and the way it weakened subsequent politicians who were either unable or unwilling to curtail the vast privileges granted in the measure.

Unfortunately, the lack of action and refusals to reform the system continue even under Republican leadership. Take Governor Kasich. He came into office facing a $8 billion budget deficit, compensation packages of state-government workers exceeding private-sector ones by 28 percent, incredibly high taxes, and a poor business climate (Ohio’s tax climate ranks 39th in the country — with individual income taxes ranking 42nd, corporate income taxes ranking 22nd, and property taxes ranking 33rd). And yet under his leadership, nothing has changed. He failed to reduce the base pay of state workers or address existing personnel costs. In fact, he even negotiated new contracts with the government unions that increased compensation costs by $21 million per year.

#more#Even worse, one of Kasich’s signature policies is shaping up to be a perfect example of cronyism. The plan, as explained by Tory Newmyer over at CNN Money, “calls for aggressive government intervention in the market. The idea is to use public funds to support a handpicked list of tradable industries that already have a foothold in the state.” He continues:

It’s an approach Kasich has been developing since his 2010 campaign for the office. Through loans, targeted tax breaks, and investments in workforce training and infrastructure, Kasich and his team hope to accelerate the so-called reshoring trend that is already bringing manufacturing jobs back to the U.S. If it sounds like industrial policy — in which the state chooses private-sector winners and losers, an approach conservative economists deride as anti-free market — that’s largely because it is.

I have written about Kasich’s misguided plan here, but Mayer does a very good job explaining very well how these idiotic and already-tried ideas only manage to destroy further the private sector they are meant to help, and expand the power of the statehouse. But there is much more in the book, including a list of issues raised and actions taken by Ohio politicians that focus on the wrong problems — which is a problem when you have only limited resources to go around.

No book about Ohio would be complete without talking about Ohio’s public-school districts. And Mayer is a great guide to the Ohio public-school districts’ nightmare. Here is a tidbit :

Based on the most recent financial data submitted by the school districts to the Ohio Department of Education in May 2012, Ohio’s school districts will require nearly $2.2 billion in addition property tax revenue. Even with that additional tax burden, the school districts still project a statewide deficit of roughly $2.8 billion in 2016, which is $4.8 billion lower than the October 2010 deficit projections. The $4.8 billion additional deficit literally disappeared.

You will find much more in this book, including a wise debunking of the starve-the-beast approach to budgeting. This is an unfortunate road often pursued by conservatives, who hope that lower revenue will force the government to cut spending. In reality, he explains, when lawmakers reduce a specific tax in the belief that it will shrink government, they simply end up causing deficit spending at the federal level, or they find other sources of revenue at the state and local levels. 

Moreover, this book, while about Ohio, is really a great story about what’s happening in most states around the country. I really highly recommend it.

Incidentally, Matt Mayer has also many other impressive accomplishments under his belt. When I first met him, he and I fought a lot and weren’t the best of friends. At the time, he was the “grant czar” over at the Department of Homeland Security. Our fights mainly revolved around DHS’s emergency-grant allocations. But even when I didn’t agree with him, I thought he was annoyingly reasonable for a government official. In fact, I even had to write several positive op-eds about some of his proposed reforms that would have better allocated the money for these emergency grants.

Also, until recently, and maybe more impressively I think, he was the president of an Ohio think tank called the Buckeye Institute. Among other things, Mayer is responsible for closing a large budget gap left by his predecessors and for putting the Institute on the map at the state and national level. Indeed, the Institute is now the go-to source for free-market information and insight in Ohio.

More substantively, under Mayer leadership the Buckeye Institute has blazed a path of data-driven, game-changing policy proposals on collective bargaining, criminal justice, Medicaid, government pensions, government consolidation, and state and local taxes. Their July 2010 study “The Grand Bargain Is Dead” and February 2011 report “Six Principles for Fixing Ohio” sparked Ohio’s new attention to collective-bargaining reform. Also, there is no doubt that their very important October 2010 “Dipped in Gold” and December 2011 “Hanging by a Thread” pension reports have now been driving debate on government-pension reform in Ohio for months.

Come on, Ohio, you have everything you need to rediscover your greatness, if only you choose to.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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