Does small government work at the state level?
Bobby Jindal stepped down as Louisiana’s governor in January, and local and national coverage of his eight-year tenure would make you think that he had wrecked the state, leaving its finances in shambles and its public services reduced to Somalia-like levels. At first glance, Jindal’s low approval ratings and the desperate wails of his Democratic successor over the condition of the state’s budget seem to support this view. Closer examination, however, reveals a very different picture: Jindal took on the enormous challenge of cutting government in a state that is culturally deep-red but economically populist, and he paid a great political cost for his efforts. The lessons for conservatives are sobering: Reform is hard to pursue, easy to resist, and frequently thankless. The path to smaller government requires persistence, backbone, and a willingness to accept compromises and a lot of defeats.
Like many Republican governors, Jindal came to office committed to four fiscal goals: lowering taxes, shrinking government, making government programs financially accountable, and improving the state’s business climate so that the private sector could grow as the public sector shrank. Unlike some others, he meant it. Over eight years, he cut government at least as much as any American leader has done this century. Even before adjusting for inflation, state spending declined despite the post-Katrina rebuilding surge. The discretionary portion of the budget contracted. Jindal slashed state payrolls by 30,000 permanent employees (a third of the state work force), reduced the state’s vehicle fleet, and privatized state hospitals, group homes, and prisons. He directed his staff not to try to “bat a thousand,” in the belief that if they weren’t losing any battles, they weren’t being ambitious enough. That’s a recipe for maximizing the return on your political capital — but also for using it up. After eight years, legislators and voters alike were exhausted by the pace of reform, and even the state’s Republicans found Jindal a convenient scapegoat.
Many criticisms of Jindal’s record are simply disagreements with his small-government goals. His detractors frequently charged him with irresponsible management of state finances, arguing that large tax and spending cuts were unsustainable. Louisiana’s bond ratings suggest otherwise. Rating agencies are nonpartisan and are paid to answer one question only: Can the government pay its bills? During the eight years of Jindal’s tenure, Louisiana’s credit rating was upgraded eight times and never downgraded. Year after year, the media trumpeted budget “crises” and “deficits,” yet the professionals never thought the state’s credit was in trouble.
Jindal explains the disconnect to me by saying that the annual budget “crisis” was the inevitable result of a legislature that didn’t want to cut spending and a governor who wouldn’t raise taxes. Both sides needed the threat of impending fiscal doom: legislators to convince their constituents that tax hikes were their only choice, Jindal to force them to accept spending restraint.
To understand Jindal’s predicament, it helps to understand how Louisiana’s budget works. Projected spending starts with state agencies’ wish lists, which form the basis for an initial spending plan that arrives in the legislature. This plan almost inevitably projects a billion-dollar-plus deficit, which the media dutifully report as evidence of looming fiscal ruin.
Somehow, without significant tax cuts, Jindal’s Louisiana passed a nominally balanced budget by the statutory deadline every year and ended up paying its bills on time. In another state, that might have been the end of the process, but not in Louisiana. State law gives the governor some power to rebalance the books on a running basis if, as they often do, the budget’s projections prove unrealistically optimistic. Jindal frequently resorted to this authority to make politically painful cuts after the legislature had adjourned, leaving legislators free to direct irate constituents to him.
There were lots of cuts to be made, too. Only about $8 billion, a third of state spending, is in the budget’s “general fund,” which is mostly used to pay for higher education and health care. The rest — including primary and secondary education — is protected by state law, separately funded by over 100 dedicated revenue streams that add up to about $1 billion, or both. This design is meant to ensure that any cuts fall first on health care and universities. The separate streams ensure that even when the state is solvent overall, the governor must “sweep” funds out of dedicated accounts with surpluses to shore up the general fund. The media almost always reported Jindal’s sweeps as “raids” and “gimmicks” intended to paper over some fundamental inadequacy in the budget.
Jindal’s battles to reform government services also provoked resistance and comically dishonest criticism. Claims that Jindal had taken a buzzsaw to funding for the state’s universities focused only on direct funding, ignoring capital investments and enormous increases to the state’s “TOPS” scholarship fund, for college applicants with at least a 2.5 GPA and a score of 20 on the ACT. Scholarship funding soared from $118 million in 2008–09 to nearly $300 million in 2015–16, offsetting the bulk of direct-funding cuts.
Jindal’s budgetary restructuring aimed to make the state’s higher-education institutions more accountable. Universities’ funding levels would depend on their enrollments, and their admission standards would also be raised; in return, they would have more leeway to raise tuition. The goal was to boost university-graduation rates while guiding less academically inclined students toward two-year colleges that cost less and from which they would have better odds of graduating. Accountability had consequences: Graduation rates rose as expected; Louisiana State University, the crown jewel of the system, saw its total budget increase; and enrollment increased by more than 50 percent at two-year colleges, while enrollment growth stagnated at four-year institutions. Naturally, the universities resented these disruptive reforms.
Louisiana has 14 state universities, more than much larger states, and Jindal also tried to eliminate redundancies among them. In 2011, he proposed combining the mostly white University of New Orleans with the historically black Southern University of New Orleans. The schools are just two blocks apart and owe their separate existences to the legacy of segregation. SUNO graduated around 8 percent of its students at the time — one of the worst rates in the nation — and the merger would have saved money. But it sparked protests and a complaint to the Justice Department, and fell one vote short in the legislature.
Critics contend that Jindal shortchanged the state of needed revenue by signing a huge tax cut in 2008 and allowing a “temporary” cigarette surcharge to expire in 2011. Jindal’s successor, John Bel Edwards, claimed that he needed $836 million in new taxes, yet somehow found room to ask the legislature for $2 billion in new spending; he ended up signing a two-year, $1.5 billion sales-tax hike, while the legislature rejected most of the new spending.
Edwards blamed Jindal for every difficult budgetary decision along the way, but Jindal remains unapologetic about holding the line on taxes: “There’s always plenty of money in Baton Rouge,” he says.
A more defensible criticism of Jindal’s time in office is that the state handed out too many tax breaks to businesses. Louisiana’s corporate tax often nets as little as $60 million in revenue on $3 billion a year in collections, round-tripping the rest back to favored businesses. A February 2016 estimate showed the state refunding $229 million more than it had taken in: The government was actually losing money collecting taxes. At the root of the problem are a slew of wasteful, crony-capitalist giveaways in the tax code. One particularly egregious example, a state credit for local taxes on business inventories, costs Louisiana hundreds of millions of dollars each year: Local governments conspire with businesses to collect excessive assessments, knowing that the businesses will ultimately be repaid by the state while the local authorities keep the original assessment.
Jindal concedes that the state’s corporate-tax system is riddled with giveaways. He belatedly tried and failed in 2015 to eliminate a number of the refundable tax credits that give net handouts to businesses. In retrospect, he says, he wishes he had been able to eliminate the credits that aren’t a net benefit for businesses, as well, but doing so without simultaneously lowering tax rates would have amounted to a crushing tax hike. His refusal to allow such an outcome and the legislature’s refusal to cut taxes ultimately combined to doom any chance at broader reform of the state’s tax code.
In the long run, the health of the government depends on the health of the state’s economy. Jindal points with pride to rising per capita income, the end of a decades-long trend of outmigration, and other signs that Louisiana’s economy prospered on his watch as the government tightened its belt. Both are still too dependent on volatile oil and gas prices — their decline is one reason the state’s economy slowed in 2015 — but even after recent booms, the energy sector is closer to 30 percent of the state’s economy than to the 40 percent it was a few decades ago. Jindal often faced culture shock when trying to persuade legislators to see the government as the servant of the state’s economy rather than vice versa. His 2013 effort to replace the state income tax with a pro-growth, Texas-style sales tax failed in part because legislators couldn’t understand why anyone would propose to overhaul the tax system if the goal wasn’t to collect more revenue.
Louisiana had long been dominated by free-spending but socially conservative Democrats: In 2008, only three legislators out of 132 in the Democrat-controlled legislature voted against a Democrat-proposed bill to let public schools teach “creation science.” As voters grew culturally alienated from national Democrats and many legislators switched parties — on Jindal’s watch, the state elected its first Republican legislative majorities since Reconstruction — both groups retained their big-government economic populism. Jindal has no regrets about expanding the tent. He notes that Republican majorities helped him pass school choice and other reforms and that true realignment can take a generation. But even before Donald Trump won Louisiana’s primary in March 2016, Jindal had learned that “an R next to your name doesn’t always mean [you’re] fiscally conservative.” Many legislators who used to come home to break ground on new government projects found it harder to sell abstractions such as an improved business climate — and easy to blame the wonky, fast-talking governor for the loss of cushy government jobs and the disruption of sleepy academic sinecures.
“In theory, there is a lot of demand for smaller government,” Jindal muses today. “In practice . . .”
– Mr. McLaughlin is an attorney in New York City.