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AMERICAN ENTERPRISE INSTITUTE
REINVENTING MICHIGAN: GOVERNOR RICK
SNYDER’S MODEL FOR GROWING THE
GREAT LAKES STATE’S ECONOMY
KEYNOTE ADDRESS:
RICK SNYDER, GOVERNOR OF MICHIGAN
MODERATOR:
TIMOTHY P. CARNEY, AEI
PANELISTS:
HALEY R. BARBOUR, COFOUNDER OF BGR GROUP,
FORMER GOVERNOR OF MISSISSIPPI
MICHAEL D. LAFAIVE, MACKINAC CENTER
GROVER G. NORQUIST, AMERICANS FOR TAX REFORM
1:15 PM – 3:30 PM
THURSDAY, SEPTEMBER 26, 2013
EVENT PAGE: http://www.aei.org/events/2013/09/26/reinventing-michigan-
governor-rick-snyders-model-for-growing-the-great-lakes-states-economy/
TRANSCRIPT PROVIDED BY:
DC Transcription – www.dctmr.com
ARTHUR BROOKS: Gentlemen, can you take your seats? Let’s get started.
Good afternoon, ladies and gentlemen. I’m Arthur Brooks, president of the American
Enterprise Institute and I’m delighted to welcome you to this event entitled “Reinventing
Michigan,” featuring the governor of that great state, Rick Snyder.
We’ll follow Governor Snyder’s address with a panel on this topic and I’m going
to let the convener of that panel introduce the panelists, but I advise – I will ask you all to
stick around. You’re going to enjoy it and you’ll – you know who is being featured on
that panel, so you’ll know that it’s going to be – have a high entertainment caution.
In the meantime, we’re looking forward to hearing from Governor Snyder, who
was elected in 2010. Governor Snyder had an interesting background. He was never
elected – was never an elected official before he came from the back of the pack and won
the election. And his pitch to becoming governor was a little like offering spinach over
dessert to your kids. He said basically, look, the state is hurting. We have to do some
tough things. I’m not going to give you handouts. This is not going to be just a bunch of
favors and fun. We have to do hard things to make the state come back. And his citizens
voted for him – now, his campaign slogan was a little unconventional. He’s the only
serving – or he’s the only CPA who was currently serving as a governor. And he called
himself one tough nerd in the election and that sold. The citizens of Michigan elected one
tough nerd.
Anybody who’s had an opportunity to hear Governor Snyder knows that he’s
passionate about the problems facing the state and how to fix them. He values fairness.
He cares about compassion for poor people. He’s relentlessly positive. He’s looking for
common ground with everybody. And as such, I dare say, he serves as a model for what
we could be doing right here in Washington, D.C. As I said before, please stick around
for the panel on reinventing Michigan.
And with that, Governor Snyder, welcome to AEI. (Applause.)
GOVERNOR RICK SNYDER: Thank you. Thank you, Arthur. Well, thanks. It’s
great to be with you today and I’m glad to be having an opportunity. I’ve been looking
forward to this.
Let me set the stage on Michigan to sort of set the groundwork. Michigan, in our
history, was that one point, if you go back – you’ve got to go back about 100 years, but if
you go back to the first half of the last century, Michigan was the innovation, the
entrepreneurship, and manufacturing center of the United States and the world – not just
our country, but we dominated the world in innovation and entrepreneurship.
Think about that: it was bigger than Silicon Valley by far in terms of the things
that went on.
During that same time period, there’s a period where Detroit was the wealthiest
city in the United States in terms of per capita wealth. What a success. You wonder how
we got where we’re at. Well, the issue was is we were too successful. We built huge
corporations that went on to global success in many areas in our state. It wasn’t just the
auto industry. We did it in serial furniture, chemicals, the list went on.
We’re so successful we got complacent and content. We spent time fighting with
one another, being divisive among ourselves, to say how do we keep this good thing
going? And what was the net result? We ended up at the bottom of the United States. To
the degree 2008-2009 was bad for the country, that whole decade is where Michigan was
at.
We led the country in unemployment. In 2009, we were over 14 percent. We had
that title for a number of years. In terms of personal income and wealth, in 1999, we were
17th
in per capita income. By 2009 we were 40th
. It’s probably one of the largest drops in
wealth of any instance in the history of the United States.
We’re the only state in the nation that lost population in the census for 2010. We
went backwards. That’s ugly, folks. We were a broken state. We had a broken
government.
To give you an idea about how people looked at our future, one of the things that
got my attention, I got elected as governor. And they have this thing called “New
Governor School,” believe it or not. At the NGA – Haley knows about this, he helped
teach us these things. So they had New Governor School. I come back from a break one
time. There’s a folder on my chair. And so I sort of watch the other new governors open
their folders, wondering what’s going on. So I say, OK, I’m going to open mine because I
saw some smiles. I saw some grins, stuff like that. So I picked up my folder and what it
was was from Moody Analytics. It was an analysis of your state. And then, the upper left
hand corner, in reverse colorization, because they want to make sure you’re literate or
you at least see this one number, so it was white on black background, it was a forecast
for your expected job growth from 2009 through 2014, and how you’d rank of the states.
Guess what my number was – 50.
I have to be honest. There’re a couple of territories and a couple of other groups,
so there were – there was a lower number, but my number was 50. And when I saw that, I
didn’t get upset. I didn’t get mad. I just said this is not going to happen. This is just
unacceptable.
And I only have two charts I keep up on my wall. I have a corkboard in my office.
That’s one of them. So every day I go to work, I can look at that report and swear that’s
not going to happen. And it’s not happening.
So the question is what do you do. I ran against a lot of well-meaning, actually
very competent career politicians in the political world. But they wanted to fix Michigan.
That wasn’t good enough. It’s time to reinvent Michigan; again, start a new era where we
can build on the strengths that we historically had, that entrepreneurial passion, that
ability to make products, to innovate, and get back to those fundamentals, and to do it
again. That’s why I ran for office – to build a place for the future.
And I defined my legacy right at the start. I said, I want to be measured on two
things. One, did I do what I said I was going to do. And two, did I build a long-term
foundation for success. That had nothing to do with Rick Snyder ever being governor, but
something better, smarter people could come and build on and keep going for a long
time.
In terms of what I ran on, I ran on two premises. One, better jobs and a future for
our kids because we’ve had way too many kids grow up in Michigan that had to leave
because there wasn’t opportunity.
Now, this is where it starts getting a little different because you might have
expected a lot of those. One of the things I thought really needed to happen is we had to
redefine the role of the public sector. Because when you talk about more and better jobs,
the first thing I always start with is – is it’s not government’s job to hire people. That’s
actually something we need to be concerned about. I’d be terrified if everybody in the
state of Michigan worked for the state of Michigan. That would be truly scary. So our
role is to create that environment for success to happen, to create the environment to let
job creation happen through free enterprise, and to really work.
The other part that went with it, though, is to define why government exists in the
context compared to “too often in the political world.” “Too often in the political world”
is still going on way too much. People view government as a place that takes money and
spends money. I learned that first-person when I first got elected because I had a lot of
people come up to me during those first few weeks, and after the first words out of their
mouth were “hi, how are you,” they’d say “we need money” or we “want money.”
I never said it because I’m a very positive person, but I looked at them and I say,
what do I look like, an ATM machine here? (Laughter.)
So I defined government. And it’s about being a customer service organization.
Our customers are the citizens and organizations in our state. And we’re here to give
them efficient, effective, and accountable government – customer service.
One of the big picture ways, and I know this is an aspiration, but I believe it,
longer term, I would really like people to step back and say they felt they bought the right
amount of government. It’s not about no government. It’s about we’re a unique provider
of education, public safety – again, there are some choices, but we’re a big provider of
those things. And shouldn’t it be a case where you feel good that compared to all your
other shopping choices, you bought the right amount of government? So that’s how we
approach things about delivering a service like that.
The other thing that I do that I think is relatively unique is an attitude, an
approach to how we do things. It’s called relentless positive action, which means no
blame, no credit, no fighting. I don’t fight with anyone. I haven’t fought with anyone
since I’ve been in office because fighting, blame has no value.
Have you ever seen blaming someone solve a problem? It doesn’t. It’s a singular
focus, much like an entrepreneur, on solutions to say here’s a problem. Here’s a solution.
And most of the time I ran as a nerd, it’s common sense. There are common sense
solutions and pursue those one after another in a relentless fashion. So that’s the
operating philosophy. That’s how we operate. And it works.
To give you some illustration, I’m going to do some of these fairly quickly. We
had a broken tax system because you were interested to, say, how we’re creating a
business environment for – (inaudible) – fast. We had the dumbest tax in the United
States, the Michigan Business Tax. And I think you can – you’ve got some Michiganders
here. You can ask them. And when I ran, I had some of the great people say they wanted
a cut. We had a surcharge. They said we’ll cut the surcharge or we’ll cut it half. And my
view was – my public answer is if you take dumb and divide it by two, it’s still dumb.
We eliminated the Michigan Business Tax. And this is why we had $1.5 billion
deficit, got rid of the Michigan Business Tax. Since then, we’re eliminating personal
property tax in our state. We’re going systematically through our taxes saying how can
we make them simple, fair, and efficient.
I did put in a corporate income tax to replace the MBT. How did I view it? What
was my instruction to our team? Is to take federal taxable income time 6 percent, write a
check, go run your business. Now, it wasn’t quite that easy because of the federal
government, all the goofy depreciation rules. But we simplified the system by 70 percent
in terms of the paperwork and got rid of pretty much most of the credits, the deductions,
just made it absolutely as simple as possible.
And one other thing that was really important to me is we got rid of most of the
business incentives, the business credits in our tax. This tax was like Swiss cheese. It was
fundamentally unfair. And so sometimes I get a look to say we were trying to buy
businesses into our state by giving out these big tax credit programs to get people to come
to Michigan. I don’t think that’s right because that’s not fair. You’re not creating a level
playing field, the fair competitive playing field. And in fact, you’re disadvantaging
people that have been in your state doing business for how many years.
I think too often in our country, states and places have gotten too dependent on
that. I’ve actually joked – and it’s not a joke – I call it the heroin drip of government is
giving out tax credits. And we needed to get away from that.
So we haven’t been able to make the whole transition because, again, we need to
be competitive, but we’ve done it a whole different way. So instead of using tax credits
that are hidden that you didn’t know what they were, we now appropriate dollars. We
actually will do grants or loans so it’s transparent. Everyone can see. And we’re only
giving out a fraction of what we did in tax credits. Big improvement. Because one thing I
was interested in, when I came into office and I told you about I had $1.5 billion deficit,
that didn’t include the impact of tax credits that I was going to have to pay that had been
given out in how many years before. I started in the hole, minus $500 million every year
on the first four years in office with my budget because of tax cuts. That’s not a great
way to operate. So we’ve cleaned all that up.
Now, we’ve gone through systematically and done unemployment insurance
reform. We were in a penalty because we owed lots of money. We’re going to save
Michigan businesses over $1 billion over the next few years by reforms that we’ve done
there.
Workers compensation, we’ve come down 7 percent each of the three years I’ve
been in office in terms of our premiums. Regulatory environment, we went out and got
industries involved. We actually got people that were on the other side of the issue –
consumer groups, all kinds of groups, environmental groups – to be part of this in
different areas to say let’s do regulatory reform.
We’ve gotten rid of over 1,300 rules and regulations, dramatic changes there. And
more important than just getting rid of the regulations is the attitude because the real
issue is too often people will be treated as someone to be penalized instead of as a
customer. So the goal is to say we need you to comply because it’s important, but how do
we help you be successful at the same time? And so we’re making that transition.
So we’re going through a whole list of different things like that in so many
different areas. A couple of other business areas I’ll mention to you, though, they get
overlooked, not enough focus, that I view as a huge priority now and I hope for quite a
few more years in terms of what we need to do in Michigan that I want to work on is
talent. We’ve got a broken talent system in our country about connecting people from the
private sector with where the jobs are and the educational sector. And we’re going to lead
the country in what I call talent in the three Cs: collaborating with the private sector,
creating with the education sector, and connecting those worlds. And we’ve got great
programs to do that.
We just launched a program called MAT2, Michigan Advanced Technician
Training because of huge opportunities in the skilled trades. So this is a program.
Someone will apply. They’ll get admitted to. They’ll be paid while they’re working.
They’ll work. They’ll get a community college degree after three years. They’ve got a
guaranteed job when they complete the program and they have a work commitment for
two years. It’s a cool opportunity.
Basically, what we did is we went to Germany, stole their apprenticeship
program, and brought it back to Michigan and modified it. So talent is a huge
opportunity.
One other way we’re doing economic development to, again, get away from the
old ways of sort of trying to buy people in our state rather than recognizing the answers
to have Michigan companies grow and flourish, I want to focus on gardening instead of
hunting. So how do you help people garden in our state? We call it Pure Michigan
Business Connect. We started two years ago with two companies, two of our big utilities.
We talked to them to say don’t give any special deals. We’ll help administer the program.
We’ll help coordinate the program, but it’s up to you to make sound business decisions
about what you do. But we ask them to buy more from Michigan suppliers. And they’re
big buyers. So they said – they each made a commitment year one to say together they
would buy a half of billion dollars more from Michigan after a five-year period. So their
annual buy-in would go up by a half of billion dollars after five years.
You know what happened when we kicked off the program? It worked. I knew it
would work. So just two years later, this May, we had a new announcement from those
two companies. You know what they came out and said? Their goal now is $2 billion. It’s
gone up by four X, just good old-fashioned good neighbor policy. That’s cool in terms of
showing results. And for every $200,000, there’s a job. So we’re talking tens of
thousands of jobs. That’s how you bring things back.
So we’re doing all these things. And in terms of said it, did it, just in terms of
quick results in terms of Michigan, we’ve – our employment rate’s down 5 percentage
points, more than that. Our personal income, we’ve come up five states. We’re growing
again in population. You might see it in terms of housing. Housing market’s hot in a lot
of places in Michigan.
Now, we have one big area we’re working on and I’m going to make a quick
comment or two, is Detroit. And two things I want to take – have you take with you about
Detroit. First of all, when you hear about the bankruptcy in Detroit, it’s not a new
problem. It’s a solution to 60 years of problems. This is saying enough is enough. It’s
going to get turned around with respect to the government of the city of Detroit.
The second thing to take with you is the comeback of Detroit has already been
going on for several years. Most people don’t know that in terms of the midtown,
downtown excitement. There’s been over $10 billion invested in downtown Detroit.
There’s been over 12,000 jobs they have moved into downtown Detroit. We have a
housing shortage in downtown and midtown Detroit because so many young people are
moving there. There’s no more places for them to live. The problem has been the city
government and the lack of provision of adequate services.
These were all done while Detroit’s all messed up in terms of city government.
Think about the opportunity as we turn this around. Detroit is going to become one of the
great value places in the United States and in the world in the next few years.
So don’t get depressed about it. Look at it as an opportunity. So that’s exciting.
And then, finally, to put it in perspective, besides all that, I’m proud to be saying what
we’re doing. We put together a list, when I said did we say we’re going to do something
and did we do it. This is 2011 and 2012. That’s not a bad list of the kinds of things we’ve
been doing. So I gave you just a small snapshot, less than 10 percent, less than 5 percent
of a lot of the major accomplishments in our state in the last two and a half years.
So I’m proud to say Michigan is the comeback state. It’s not about me. This is
about going back to how I started. We had a state of the most creative people you could
find that were too successful and they fought too much with one another.
Our state became too negative. It spent too much time looking in the rearview
mirror and was too divisive. So I view my biggest role as not changing a lot of regulation,
which we’ve done a lot of, but to bring back a new culture, bring back that old culture.
It’s about being positive. It’s about being forward-looking, believing our best days are
ahead of us, and they are. And about being inclusive; again, not fighting, but embracing
one another, recognizing we don’t agree necessarily in a lot of things, like one big family.
I use the analogy. I feel I operate as if I’m sitting at a kitchen table with 10 million people
around it.
So we may have a lot of differences, but we find ways to work together and win
together.
So thank you for the opportunity to share that and I’d love to take some questions.
(Applause.)
MR. BROOKS: Ladies and gentlemen, we have time for some questions for the
governor. If you’d like to ask your question, please put your hand up. Someone with the
microphone will come to you. The only ground rules are, please stand up when you’re
going to speak, say who you are and what organizations you’re with, and ask the
governor your question.
So we have a microphone right here. Why don’t you go right to the back, this
gentleman on the side had his hand up first?
Q: Hi, my name is Michael Steger. I’m originally from Kalamazoo, Michigan.
I’m also with the LaRouchePAC Policy Committee.
I applaud your efforts because I think a lot of them, the German apprentice
program, have been very – are worthwhile endeavors. However, I think the practical
approach that you’re taking will ultimately fail. I think the reason why is because what’s
not addressed is the paradigm change away from an industrial orientation of production
throughout the entire country, which Michigan led, as you referenced, oriented towards a
financial kind of scheme, financial emphasis without the entire national economy. And
because of that, you see the bankruptcy of Detroit reflects that specifically, the derivative
swaps, all of these characteristics, and the debt services we pay are probably the biggest
tax burden in this country to actual industrial growth seconded probably by the
environmental regulations.
So how are you going to address and why don’t you address more of the question
of why aren’t we as a nation committed to the industrial production – nuclear power
plants, high speed rail systems, these have proven effective. Even the “New York Times”
had to admit that the high-speed rail in China is creating huge expansive growth in China.
We’re not doing that here. Michigan plants could be retooled, producing those today, and
that would be an effective growth policy to take Michigan back to the highest per capita
income in physical terms that we used – once used to have.
GOV. SNYDER: I appreciate the question. You had two or three pieces of that, so
I’m going to grab one piece and I’ll come back to the bigger point you made here. You
talked about debt in particular.
We’re managing our debt the way it should be managed, like a family, in
Michigan. When I took office – again, you have the bankruptcy question of the city of
Detroit. Well, I’m the token CPA governor in the United States. So hopefully, you can
see this is in my DNA. There’s only been three in the history of the United States, by the
way. We need more CPA governors, when you go back to your respective states or
voting places. One of the first things we did is the political world gets too focused on the
short-term. So we’ve been forecasting out 30 and 40 years since the time I took office.
And we’ve done liability reforms. We’ve taken $20 billion of about $60 billion off the
books between either forward-looking reforms or payment plans in place.
And we’ve put payment plans in place to pay down our long-term debt and in a
very responsible fashion. We have rock solid budgeting to the point where I’ve made the
joke and it’s not a joke that if you want a really sweet job, you should run for governor of
Michigan in 2038. (Laughter.) The past would have been dealt with. You got a bright
future. You can just move forward. So that’s on the debt side.
With respect to industrial policy and such, I very much am proactive on
manufacturing and the automotive industry in Michigan. I’m a huge advocate of it. I just
gave a major speech to the auto industry saying I’m rooting for you and I’m pushing
policies to help you. What I would say is – is we need to be really careful. They are not
separate worlds. When you look at where the world’s going and where the world’s been,
there’s a lot of coalescence and interaction that you shouldn’t underestimate. Why do I
say that? I’ll give you one illustration of what we’re going to keep seeing in the future.
If you go to a car today, a car is not nearly – not merely a mechanical collection.
The IT in a car today can match almost anything you can think of in terms of
sophistication requirements. So the IT world, the auto world are the same world in terms
of many cases. And if you want to be at the forefront of these things, you need to be
there. In fact, I’m proud to say Michigan is leading the world in the connected vehicle
project, which is basically someday we’re going to have smart cars. You can see already
the intelligence in your car in terms of lane avoidance issues, you know, all the safety
features you have, that’s only going to keep getting more and more prevalent.
We’re going to have cars talking to one another to deal with traffic issues. That’s
the kind of long-term issues we need to be thinking about, and that’s not separating the
manufacturing world from information technology or even the finance world. There’s a
tremendous amount of convergence and we need to be smart about not walking away
from one or the other, but understanding how to balance those and to say in the context of
a global economy my goal is to make Michigan – the made in Michigan a special
moniker for anything in North America, whether it’s manufactured, grown, thought up, or
invented.
MR. BROOKS: Right here. Michael Barone from AEI. Another Michigander
displaced in Washington, D.C.
Q: Yeah. And I grew up north of Canada. Michael Barone of AEI and the
“Washington Examiner.” Governor, you made some controversial decisions on a couple
of issues, which got different sets of people around your 10 million-person kitchen table
angry on right-to-work law and Medicaid. Could you give us your thinking on those
issues? What led you to make the decisions you did?
GOV. SNYDER: Sure. Right-to-work, I prefer freedom to work, was relatively
straightforward. I knew it’d be a big controversy, but it was about worker freedom. It’s
about standing up for hardworking Michigan people to say they should have a choice.
To be blunt, I never viewed it as an anti-union item because I view it as is people
should be free to join a union. I think unions could provide a great thing. The question is
do the workers see value in what the services are being offered, and if they do, they
should join.
And so I really put it in that context, one. And secondly, I believe it will create
jobs in our state. I looked at the experience of Indiana and we’ve seen it. We haven’t seen
it in terms of specific projects fully developed yet, but the pipeline of people looking at
Michigan has dramatically increased because we’re a freedom to work state now. So it
will bring jobs.
On the second one, on Healthy Michigan, because it’s not the generic Medicaid
expansion. I would not have supported that. We made a Michigan version that
emphasizes things that I think are critically important, such as personal responsibility and
wellness to get people involved in their health care and giving them incentives to
participate in the process.
The reason I did support it a couplefold. One is – is I don’t think it’s right. We’ve
had a system for a long time, where we have lower income, but hardworking people that
were having to go to the ER for their health care. There’re people literally dying from
that. And we have an opportunity to have a better life because they can get primary care.
I’ll give you one illustration. There’s a gentleman I met in Grand Rapids. This is a
hardworking guy. He kept on holding a job. He would go out and get a job. He would
work. And he’d get sick. And he’d lose his job. He’d have to quit or just lose his job.
Well, he’d recover to some degree after resting and stuff, and then he’d go get another
job. Well, it happened again. And he’d gone through this cycle how many times? Until he
finally got so sick he ended up in the ER because he refused to go to the ER because he
knew he couldn’t pay. What happened? He was an undiagnosed diabetic. All he needed
was some insulin, basic treatment. This guy could have held one job then entire period.
He could have had a family. He could have had a life. He didn’t have that opportunity
because of the system.
The second thing is – is I believe it’s a question of who writes the checks, but in
my view, there’s an opportunity to save money if the program was run right. And we’ve
got a good track record in Michigan and you add Healthy Michigan on top because we
pay for the uncompensated care through our insurance premiums. And let me ask you
this. What’s cheaper or what’s more expensive, going to an ER and all the aftercare of
that, or going to a physician and getting treated in a preventative fashion? This is
fundamentally lots of money if it’s done right.
So my view is instead of getting caught up in all the Affordable Care Act, which I
don’t like – I don’t like the Affordable Care Act. I had a situation where I’ve got a bunch
of lemons, I’m going to make lemonade. Put it in a simple sense. There’s an opportunity
to do something good here.
MR. BROOKS: We’re going over to this side, then we’re going to come back
over here. OK. So why don’t we take – right at your table, governor.
GOV. SNYDER: Yeah. Hi.
Q: I’m David Fenstermaker –
MR. BROOKS: One second, we got a microphone coming.
Q: David Fenstermaker. I’m a new resident of Petoskey.
GOV. SNYDER: Oh, great.
Q: But I still have a house here. But I want to say, first of all, it’s been refreshing
having you changing the rules and the laws. I would ask you two questions. One, do you
have further tax laws that you plan on modifying, reforming, and specifically looking at
the state property tax and how it’s structured?
And then, secondly, is there a way for people to volunteer in terms of your
looking for innovation and things like that, for people who have businesses that can get
involved? Is there any sort of outlet for that kind of thing in your plans?
GOV. SNYDER: Yeah – no, I appreciate those and it’s great to have you be one
of my customers. I like that. Thank you. (Laughter.) Petoskey is one of the most beautiful
areas. If you’re in Michigan, you should go look it up. (Laughter.) You’d be very
impressed.
In terms of your question, in terms of tax reform, we’re always looking at
different ideas on tax reform. To put it in context, property tax reform, we’re really doing
the personal property tax piece for industrial equipment right now. So that’s the project
over the next year or so. So to the degree I would continue in office, which I haven’t
formally announced, but I have a high degree of interest in – (laughter) – including –
there are even ads up this week on that topic. You can see that there could be things we
need to look at because there’re some fundamental challenges with how our property
taxes are done in the state of Michigan and the areas of reform.
On the second piece, in terms of innovators volunteering, absolutely. We’re
excited for that in terms of people getting involved. And what we’ve done is the
Michigan Economic Development Corporation is a great place to go. But in your area,
you’ve got great things up in the whole bay area there that I would recommend, would be
happy to connect you at the local level because I think that’s where you could find some
really cool opportunities for innovation.
And one of the nice things is – is for quality of life, the part of Michigan he’s
talking about, he’s up in the Lower Peninsula, in the northwestern quadrant. The lakes
there are incredible. The one line I will give you for all the people on the coast, my
favorite T-shirt this summer was – you could go on a shop and see – you could buy a T-
shirt that said “Great Lakes – Unsalted and Shark-Free.” (Laughter.) It’s a wonderful
place for quality of life and with broadband and connectivity, you could run any business
there.
MR. BROOKS: We come to learn that the innovative part of Michigan is also
called the “Bay Area.” (Laughter.) Yes, sir.
Q: Thank you. Barry Wood, an economics columnist. I heard you last week speak
about your trip to China in which people ask you about Detroit. So many people here
have read the “New York Times” this morning about Detroit. I want to ask you in that
context of the pensions that was on page one of the “Times.” How long is this process
going to drag on, do you think? And what are the big financial issues that you as a CPA
see ahead that are going to be really tough getting through this bankruptcy?
GOV. SNYDER: Yeah, there’re a number of issues in terms of the whole process.
The process is actually going fairly quickly, very fast for traditional bankruptcies. Our
goal is to be done by next fall in terms of timetable. And the judge actually came up and
is going faster than our proposed timetable.
So this is something that there will be major resolution, I would hope, within a
year to this situation. So that’s lightning fast compared to the other bankruptcies.
Because, again, I think we have the best people involved in the process in terms of Kevin
Orr and the people participating.
This is going through – and this is something I wish we could have avoided. But
it’s something now there – we’re going to do it well and we’re going to do it right.
In terms of major issues, I didn’t happen to see the article because I was flying
here, yet. So I haven’t had a chance to see that particular one today. But the big issues are
pension liability. And one thing I’ll mention to you. To the degree the pensions were
funded, they’re not part of the bankruptcy. And there is significant funding in the pension
plans for police and fire in particular, less or so for general retirees.
It’s really the unfunded piece of the obligation that’s in bankruptcy. So when you
hear about cents on the dollar, that’s only with respect to that other piece. There’ll be – I
can’t tell you it’s a great number, but there will be significant payments made to retirees,
period, because there’s a big funded piece.
Post-retiree medical is the difficult issue. Again, that’s one question of are there
alternatives and options for health care for them to look at and be part of that process, and
then general obligation bonds are part of this process, along with unsecured creditors.
So that’s why I would have preferred to stay out of bankruptcy in many respects
is there was more flexibility to work with people and negotiate things. What I found,
though, is we’re just getting sued by everybody. I mean, we’re getting sued a lot.
So it really became a case that we tried to work in good faith and the answer in a
number of cases were lawsuits. So that’s – in many respects, that’s what helped put us in
the bankruptcy courts because now it’s in a federally structured process that we don’t
have as much say in, in terms of following through.
So you’ll have major issues like pension retiree, the DIA is a big issue. Again, the
intention isn’t to sell our – but again, that’s going to be a big topic that people are talking
about already.
MR. BROOKS: We have time for one more question. So we’re going to go to this
side of the room. Ma’am. Right here at this table.
Q: Kate Zickel, Voice of Russia. Thank you so much for speaking today. I
actually graduated from Hillsdale College in your state, so thank you. I just wanted to
know briefly if you could speak to how you plan on addressing the housing issues in
Detroit.
GOV. SNYDER: Yeah, which housing issue? (Laughter.)
Q: Specifically the issue of homelessness and how so many people are losing their
homes over the last year or so.
GOV. SNYDER: Yeah, one of the big issues is some of that stabilized –
(inaudible). It’s really a huge blight issue in terms of turning neighborhoods around. We
have a lot of housing stock that’s available. So one of the things we’re doing is trying to
follow a rational plan to say how do we, you know, take down structures that are
inappropriate? How do we make sure we have opportunities for people looking for
housing because you can find very affordable housing to a degree you’ve never seen? I
mean, literally where you can buy a house for hundreds of dollars, a nice house. It would
amaze you.
So we’re working through that process now. The good part is, as a governor of the
state of Michigan, I view it as not my role to figure out every answer, but to follow a plan
that was done by the city. And the city, to their credit, with the Kresge Foundation’s
support, had done kind of a master plan for the future of the city of Detroit called the
Detroit City Future Plan. So that’s a big piece of it, that there’s a roadmap that’s really
well thought out, that had broad community support to say this neighborhood can be
mainly turned back to green space. This neighborhood can be really supported and be
higher density. This is lower density. And then we’re overlaying the blight efforts and the
other efforts to help with housing, all in the context of saying how do we support a plan
that was supported by Detroiters that makes a lot of common sense.
And I’ll just go back to the last one, because we’re still on Detroit in some ways,
the overriding issue in Detroit is not dealing with the debt. We want to deal with the debt
and that will get dealt with. But one positive of Chapter 9 versus Chapter 11 in particular
is the key focus is on better services to citizens. And so that’s my primary guide going to
either – whether it’d be housing or these financial questions is what’s in the best interest
of the 700,000 people of the city of Detroit now and for the long-term to make sure they
get better service. Because the key answer in Detroit is growing Detroit. That’s the
solution. We have to grow the city in a positive, constructive way. And these other things
are issues that need to be dealt with, but that’s the most important topic.
MR. BROOKS: We’re going to take a five-minute break before we convene our
all-star panel with Halley Barbour, Grover Norquist, Michael D. LaFaive, and Tim
Carney. But please join me in thanking Governor Snyder.
(Applause.)
TIMOTHY CARNEY: Thank you everybody for coming and thank you for
sticking around. I think this panel promises to be exciting. I’m Tim Carney. I am a
visiting fellow here at the American Enterprise Institute and a senior political columnist
at the “Washington Examiner.” So I’m a double colleague of Michael Barone in that
regard.
What I do here at AEI is run the Culture of Competition initiative. We have a
series of panels, mostly, some other events and writings, talking about how the pursuit of
profit, which is something a lot of, you know, free-market conservatives, Republicans,
centrists, all applaud that. Pursuit of profit is a different thing when done in the context of
free and open competition as opposed to when done in the context of government
intervention, lobbying, and cronyism. And we’ve had a series of panels discussing that.
Here we’re talking about competition on two levels: businesses competing inside
states and states competing for businesses. The term “pro-business” and “free market,”
people used to think they meant the same thing. I think it’s pretty clear they don’t right
now.
So what are the differences? How are states to go for business? Governor Snyder
discussed a little bit how he’s trying to chase after businesses and be more pro-business,
sometimes more pro-free market, sometimes not.
We – what we’ve got here to discuss this, I think, is a – an excellent panel. You
guys, if you picked up the paper, you have extended biographies of them, but I’ll just sort
of briefly tell you who they are in case you forgot some of the details.
We’re very proud to have the cofounder of the Caucus Room restaurant here,
Haley Barbour, who also is a former two-term governor of Mississippi and a founder of
BGR, formerly Barbour Griffith & Rogers, lobbying firm, communications firm, and an
investment firm, too. He was Ronald Reagan’s political director among a bunch of other
things, including the chairman of the Republican National Committee.
We have from Michigan Mike LaFaive, who’s the director – who directs fiscal
policy at the Mackinac Center, which is a free market think tank in Michigan.
And we also have Washington’s funniest celebrity Grover Norquist, who last
night, pulled in that title at the improv – he did not win the headlines, the headlines went
to the guy getting punched in the face by a different comedian. You should check it out.
Who did not win. Grover, in addition to being funny, is the founder and president of ATR
and the co-author of three books.
So the way I’d like to do things at the Culture of Competition events is rather than
have speeches and then some Q&A, is try to engage in conversation. So since we have a
Michigander up here to directly follow Governor Snyder, I’d like to ask you, Mike, what
else do the people in this room – what should they know about the governor’s business
policy.
MICHAEL LAFAIVE: Well, I think they should know that a fair field and no
favors can work as a broad economic development tool. When the governor took over
and eliminated the complicated and hated Michigan Business Tax, he eliminated about 50
credits, exemptions, and deductions along with it, in the hope of creating a fair field for
businesses to compete in. And he briefly touched upon that fact.
Then he went further and changed the regulatory structure, including passing a
right-to-work law, and in ways that he had – did not have a chance to detail. These
changes, I viewed as being positively Hayekian, really. He’s devolving the decision
making power, empowering individuals to maximize their own self-interest in – and then
over time they would benefit the state of Michigan as a whole.
MR. CARNEY: Grover, more generally, what is the right way for states to be pro-
business? What mistakes do you see them making?
GROVER NORQUIST: Look, I passed out this chart, which explains the next 10
years of American politics. But what it is, it’s the red states – 25 red states have
Republican governor, Republican House and Senate. There’re 165 million people living
in them. So half the country lives in states with complete Republican control shortly after
the “New York Times” announced the Republican Party had ceased to exist in the
country. And 13 blue states, run by Democrats completely, have 81 million people. So
half as many live in blue states.
I think when you look at what’s – and then there’s a divide. They’re going in very
different directions. The red states tend to cut taxes. The blue states are raising taxes,
rather than reforming pension systems. You’re seeing North Carolina just began to move
stating the policy to abolish their state income tax. Louisiana is – keeps trying – keeps
announcing their plan is to abolish the state income tax, arguing about how to do it.
Oklahoma’s reducing their income taxes. Kansas is on a stated path of abolition of the
state income tax.
So I think probably the most important thing you can do in your state is get rid of
the income tax. But all the steps in that direction are helpful. But what some sides had
said states that cut taxes are actually better off than states that have lower taxes that are
raising them because people looking to move to your state are planning to be there for
five, 10, 20 years, and they look at awful lot at the direction that the state is moving at,
not just where it is right now.
So North Carolina says we’re going to get rid of our income tax. They didn’t do it
this year. They got 25 percent of it. But they’ve made the case we’re actually going to do
this over time.
I think getting rid of the state income tax is probably the most important thing you
can do. Moving in that direction is the second most important thing you can do. All taxes
are raised to the breaking point, to where politicians’ careers are broken. So if you have
three taxes – property taxes, sales, and income taxes – all three will be raised to the
breaking point. If you only have two, those two are raised to the breaking point. So the
number of broad based taxes also tells you how heavily the state’s going to be taxed.
MR. CARNEY: Governor Barbour, in Mississippi, you use things like the
Mississippi Development Authority, incentives, tax credits for businesses to bring them
in. Is this – does this violate the sort of Republican teachings of free enterprise, limited
government?
GOVERNOR HALEY BARBOUR: We don’t have these at the Caucus Room.
The – we’re in a part of the country where there’s tremendous amount of competition for
economic development projects. And we’d love to not ever have to give anybody any
incentives, but we set out the goal nine years ago of replacing lower skilled, lower paying
jobs with higher skilled, higher paying jobs.
When I was some of these young people’s age, people came to Mississippi
looking for strong backs and low wages. And in the post-war era, that was – we made
apparel. Textiles was high-end manufacturing in Mississippi in those days, and then after
that, furniture. And so we’ve tried to replace those with higher skilled, higher paying jobs
– automotive, aerospace, energy. And often in those kind of projects, incentives are part
of what is being considered.
Sometimes, we’ll have a project that’s got 300 sites that they’re looking at, 30
states sometimes, many states almost every time. So one thing you do learn, first of all,
quality of your workforce has more to do with whether or not you could land a project
that you want than incentives.
Secondly, logistics matters more than incentives. The ability to move and the cost
of moving, both your feedstock and your finished products, as well as to some degree
workforce, by the way. And maybe incentives would be third or fourth. But that’s the
way we look at it. We’re a state that we did the first industrial revenue bonds in the
United States in the mid-1930s. We have been in the business of incenting businesses to
come to Mississippi for 15 years before I was born. And we have continued to do that.
We try to do it in a reasonable way. We try to do it in a fair way. We’re not investment
bankers. Sometimes, we made bad choices. But generally, it has helped us do what we
tried to do.
I’ll just give you one little statistic that I think is important. When I went out of
office, we were at the tail end of a recession. You know, Wall Street may think this
recession’s over; on Main Street it’s very hard to tell the difference between the recession
and the recovery. In fact, for the middle class, they have lost more income during the
recovery than they lost during the recession, which is true in my state.
I made that point for this. Although were about 2 percent fewer people employed
in Mississippi at the end of the last year than when I became governor, per capita income
went up 34.2 percent. And that is because we had some success replacing lower skilled,
lower paying jobs with higher skilled, higher paying jobs. And part of it – incentives play
a role there.
MR. CARNEY: Do either of you have a response? I mean, if – did Governor
Barbour succeed by, you know, bringing in businesses with tax credits and incentives?
And if he did, then maybe that’s a right thing for every state.
MR. NORQUIST: If that worked, Detroit could do it. If that worked, New York
could do it. I think that people moving to Mississippi are probably more interested in
improvements on tort law and the sense that other places they could invest have labor
laws that – Mississippi is a right-to-work state – other states have worse labor laws,
worse regulatory regimes and will make you power your plant with windmills.
MS. LAFAIVE: The economic development literature that’s been produced over
decades on incentives say at best it’s a zero sum game and probably negative in some
cases. In Michigan, we’ve done two statistical studies on our state’s primary business
incentive program and found actually an association between the program and losses of
manufacturing jobs.
I don’t think that that’s – the evidence that’s been produced by scholars over the
decades should just be set aside. I think these ultimately amount to political development
programs, not economic ones. They give the political class the opportunity to host
ribbon-cutting ceremonies and say, see what we’ve done to save your job or create your
job, when in fact on net balance it’s a zero-sum game or a net loser.
GOV. BARBOUR: I’d just make the comment for – I really enjoyed Governor
Snyder, what he said, and he’s smart. He is one tough nerd. But he made a point. Detroit
was the richest city in the United States in the 20th
century. Jackson, Mississippi wasn’t.
Mississippi has been the poorest state in the United States since 1870. In every census
since the end of the Civil War, it had the lowest per capita income in the United States.
So that’s why during the depths of the Depression there were no Republicans, or all the
Republicans would fit the trunk of a car, which is where they would have been put if
they’d been discovered. (Laughter.) That’s why we did industrial revenue bonds. We’ve
been a capital poor state forever.
But Grover makes a very powerful point. Rational, predictable regulation. Our
environment – our economic – I mean, our environmental people are not trying to figure
out how to say no. They want to create jobs in environmentally appropriate way. And
they’ll work with Toyota. They’ll work with GE or they’ll work with Severstal to try to
get their program where it is environmentally responsible.
But at the end of the day, as I say, somewhere in the pecking order, incentives can
be the difference in competing with Alabama or Tennessee or Arkansas or Georgia by
our experience. May not – Michigan – as the governor said, all states are different.
Michigan’s idea of health care reform and Mississippi’s idea of health care reform would
also be different.
MR. CARNEY: Grover.
MR. NORQUIST: You can change the laws in the state or you can change the
lawmakers. It is in terms of encouraging people to come to state, invest, create jobs. You
can either change the laws. You can change the lawmakers, which helps change the laws.
Or you can change the electorate. And that’s one of the things the governor was talking
about is changing the actual electorate. Bertolt Brecht, the leftist-center playwright, who,
when he looked at the East German workers’ revolt in 1953 against the Communist Party,
said what we need to do is elect a new people because he wasn’t willing to suggest that
communist government had failed. They needed a new people.
The red states and the blue states are busy electing new people by their policies.
California is convincing a million people in the last decade to leave. The kinds of people
that they’re high tax rates get to leave, changes the electorate in the state – one that’s
more amenable to Governor Brown.
And the states that are passing significant school choice measures are actually
changing the nature of the electorate; 200,000-300,000 people in Arizona now have an
opportunity for a school voucher or scholarship, OK? Single-mother with $5,000 for each
of her four kids in her pocket is a different human being than the one who gets a note
from the school superintendent telling her which public school she’s going to go to. It’s
just a different person.
And so the red states and the blue states can actually write laws to change the
nature of the people that are in those states. So 9.3 million Americans with concealed
carry permits, it’s a different person than the guy who says, well, you know, if there’s a
problem, the government will come and draw a chalk line around me, and that will be
very helpful. (Laughter.) It’s just not the same person, OK? It’s a different person. The 2
million home schoolers are different voters, different people. You will never take that
away from them.
And when you make it easier for people to be entrepreneurs and start business,
you change the nature of who’s in the state and what they’re doing. So the states are
actually – you can change the electorate. You can change the lawmakers. You can change
the laws. The long-term thing, to change the electorate, gives you different lawmakers,
gives you different laws.
Right now, we’re in the middle. We’ve changed the lawmakers, not yet the
electorate.
MR. CARNEY: So that’s where the home schooling, gun owning, self-employed
person is going to go, so one of those states you’re describing. But where did Boeing go?
Boeing chose Illinois over Rick Perry’s Texas. And Rick Perry’s Texas had lower taxes
and lower regulation. And as you know, GreenTech Automotive chose Mississippi over
Virginia. And now the chamber of commerce in Fairfax just endorsed Terry McAuliffe
today over Ken Cuccinelli.
So if we’re saying, you know, listen to the people. If we listen to the businesses,
they sound like they want the handouts and the incentives.
MS. LAFAIVE: But at what cost to those individuals who have to pay full freight
to ensure that there’s tax dollars available to refund a refundable tax credit system or give
cash credits. If you rob a lot of Peters to pay one corporate Paul, you’re just moving
resources that they could use to create jobs as well.
GOV. BARBOUR: Reagan used to say it was like sitting around the dinner table
and everybody put up $20 and gave it to the guy at the head of the table and he’d turn
around and gave one of them – all but one of the $20 bills. He kept the $20, go around the
table about four or five times, and got to head of the table. The government’s doing pretty
good. You’d think that’s the theory that we’re talking about here, but it’s really not.
I have to just say as an aside because of GreenTech. They’ve not received any
incentives from Mississippi. They have an agreement to receive incentives, but they
haven’t raised the money to build the plant for which the incentive would be. The county
has, but not much reported, the county is building a 2,500-acre industrial park. And
GreenTech will be on 100 acres of it, 4 percent. And so the county has gone ahead and
started putting in infrastructure and – but it’s – but you know, they got to get ready to sell
the other 96 percent of the park. And none of that – that would all happen if there were no
GreenTech.
I just don’t want you all to think we’re – to get incentives in my state, there are
requirements and people have to meet the requirements beforehand, if that’s the way it’s
set up, and that one was in that regard. But I couldn’t – couldn’t help but you’re right. If
you run your incentive program like you’re just handing out money in the car game.
MR. CARNEY: We’re going to – in a minute, I want questions from the
audience, so take a second to think about it. But just one last question for everybody up
here for now, which is this. The – a few different things we haven’t talked about yet. One
is what a lot of liberal or center-left or center people would talk about for pro basis, more
money on public education, more money on higher education, more money on
infrastructure and public transit. The other is tort reform or right-to-work. So each of you,
you know, one or all of those, I’d like to hear your comments and your experiences and
your thoughts with that.
GOV. BARBOUR: Well, first of all, my first year we passed what the “Wall
Street Journal” called the most comprehensive tort reform any state passed in one year.
And it has made a big difference. Toyota said publicly they would have not considered
Mississippi if we had not passed tort reform. And some other companies say that
privately. So it really does matter.
Right-to-work matters. And I like, again, Governor Snyder. It’s the freedom to
choose whether you want to belong to a union or not. We have unions. And they’re legal
and people are perfectly – it’s up to them and the company. But we have a very, very tiny
union workforce private sector and government employees. So those things do – those
things do make a difference. And I said earlier, logistics is one of the real drivers of site
selection. So if – you know, we’re blessed. We’ve got a great location. We’ve got two
ports on the Gulf of Mexico. We got two huge waterways – the Mississippi River and the
Tennessee Tombigbee Valley. We’ve got a gigantic railhead at Memphis, which is
capped on North Mississippi. And so that’s – that makes a big difference.
So I’m not – we ought not to ever have a transportation infrastructure program
like in the first year of this administration, where the money was essentially wasted on
the idea that the economic benefit was building the roads. Well, the economic benefit is
having the infrastructure that you need 30, 40, 50 years down the road, so you can build
an economy around it. So it was just backwards. But don’t underestimate the importance
of infrastructure for being able to be a profitable county.
MR. CARNEY: Grover.
MR. NORQUIST: One does often get, when you’re talking about let’s reduce
taxes or do tort reform to encourage job growth, advocates of larger governments say, no,
no, we’ll take same resources and put them into public education. And I didn’t ask –
mention to the governor of Michigan, but both my parents and my brother were
beneficiaries of the University of Michigan. They went to the University of Michigan and
Michigan taxpayers were kind enough to massively subsidize their education. And then,
they left. They went somewhere else.
We used to get this from – before North Dakota decided to become Kuwait, they
used to spend – (laughter) – a lot of time, then they poured money into the – into North
Dakota’s university and everybody left because there weren’t any jobs because at 8
percent income tax, next to South Dakota, with the much nicer weather and no income
tax at all. And they couldn’t figure out why creating all these guys with Ph.D.s in North
Dakota wasn’t creating Silicon Valley.
So it is fascinating to see people argue that if you pay the teachers more there’d be
jobs. And it’s not necessarily what happens. There may be jobs somewhere else for them.
MS. LAFAIVE: Passage of the right-to-work law in Michigan might be one of the
most consequential policies adopted in the state. It might rival the governor’s recent tax
reforms. As luck would have it, just last month, my colleague Michael Hicks and I
published a study on right-to-work and economic development. We created this big
statistical model and swept in about 64 years’ worth of data and tried to measure the
impact that right-to-work has on economic wellbeing in the states that adopt it. And over
that big sweep, we found that it adds about 0.8 percentage points in terms of personal
income growth that is permanent and average going forward. That may not sound like
much, but if your state was going to have a 2 percentage point growth rate, that makes it
2.8 percentage points. So 40 percent change in the rate of growth simply from adopting a
right-to-work law.
We also broke the data down into three sets and we found in the latter 20-23 years
or so that the impact of a right-to-work law does lessen. It moderates a bit. But it’s still
significant and valuable.
One of the metrics we tried to measure was population changes. In the latter
years, we found that it can add about 0.5 percentage point growth to a state’s growth rate
in terms of its population. For a state like Michigan, that’s very valuable. In the (odds ?),
we were the only state in the union to lose population on net balance. So we think that the
governor’s passage of right-to-work is going to have a fairly profound impact on the
state’s economic wellbeing over time.
MR. CARNEY: All right. From the audience, what – I’m looking for any
questions we have out there. Yes.
Q: Hi, Peter McCaffrey from the Frontier Center in Western Canada. Right-to-
work’s come up quite a lot today and in general I think it’s fantastic and much better than
what a lot of states have had before those laws have been passed. But there’s one hiccup
which I have an issue in if I understand it correctly applies in most right-to-work states
now. And that is that a private business owner cannot choose to only hire union
employees if he wishes to. Am I correct in that? And that to me seems like a bit of a – bit
of an odd situation. I can understand, for say, a federal or a state employer, they should
be neutral and allow anyone to join. But it seems to me, if a private employer wants to
only hire union workers because he finds it easier to deal with the union and he thinks
they provide good sources for – (inaudible) – and he actually believes that his members
are better off with that, then he should be free to do that as well.
So do you have any thoughts on that?
GOV. BARBOUR: Right-to-work is in our constitution in Mississippi, so it’s
more than the law. But that is not the case in Mississippi. For instance, when Toyota built
their new plant there, they had an agreement with the unions, a project labor agreement.
The problem they had is they couldn’t find enough union labor. But any one of those
companies was welcome to hire all union workers if they could find them. So I’m – I
don’t believe in my state that that is the law. Perhaps other states have right-to-work laws
that prohibit the employer voluntarily hiring all union labor, but I’m not aware of.
MR. CARNEY: And I understand the question, in some ways a limit on private
right to contract – that if you wanted to make it a condition of employment, you know,
conservatives often end up saying, well, if, you know, if you want to make it a condition
of employment that somebody do X and it’s your property, you should be allowed to do
that. In this case, for whatever reason – and I have the same concerns. And the answer I
was given when I talked to Mitch Daniels’ people about this was, well, if it weren’t for
the federal laws – I guess it’s the Wagner Act – that basically force you to accept
unionization, then maybe that would be a more valid argument.
MR. NORQUIST: When, I was younger I remember libertarians staying up late at
night having this argument. And –
MR. CARNEY: They still do.
MR. NORQUIST: Yes. OK. (Laughs.) I’m not staying up at night with them
anymore actually. But look, you’re trying to dismantle the Wagner Act. If you abolish the
Wagner Act and the federal government said we’re not in the business of managing other
people’s contracts at all, that solves the problem. Do you roll back part of the abuses of
the Wagner Act, even though it doesn’t solve all the world’s problems and all violation of
freedom of contract or do you fail to do that, so is it perfect? No. Is it better than living
under the Wagner Act unamended? Yes.
Q: Hi, Will Freeland, I’m with American Legislative Exchange Council, also a
Michigan citizen. I had a quick question mostly for former Governor Barbour. My
question – I was thinking about these tax incentives, one way of thinking about it. If
you’re going to say as a state we need to raise X amount of revenue. This is our budget
for the coming year. If you’re looping some groups out for some firms, then you got to
raise the average rate on every other business up to raise that same level of revenue. So it
seems like, you know, to give raise – a given number – if you accept that dynamics that if
we’re going to raise X and then we’re going to loop some people out, that means the rate
has to go up on everyone that we don’t, given exemption from the code, then aren’t we
saying a lot of the businesses that might be the next big thing in the state, we’re giving
them high tax rates and the incumbent firms, the big firms, we’re giving them lower
rates? It just seems like a little bit too centralized of a plan. I wonder what your thoughts
and how you approach that is?
GOV. BARBOUR: Well, first of all, let me say, incentives that we give in
Mississippi often are not just tax credits. They are infrastructure, cost money. General
public’s got to pay for it. It is – it may be all – there’s a variety of things from highways
to drainage to pipelines to whatever it makes to do that. So know that there are
expenditures as well as tax credits.
Secondly, you should understand, we’re also the first state in the country to have a
sales tax, 1935. And for the whole time we’ve had a sales tax, there’s been a list of
exemptions as long as my arm. And every time we tried to have a session of the
legislature to reduce the exemptions, we always ended up getting more. (Laughter.) And
it’s just – but that is a total reality. And your point is exactly right that if the tax is the
broadest, then it can be the lowest. So true, a lot of states do it because they think that in
the occasion that economic growth, the job creation gives more to the treasury and gives
more to the public than the other way around.
Now, but nobody can argue with the logic of what you’re saying. Of course,
(that’s right?) and so it gets to be a decision and it can become a corrupt decision. It can
become all kind of decisions. But there is a decision to be made. Is this in the state’s best
interest? Is this in the area’s best interest? Because often the tax breaks are from the
counties, not from the state.
MS. LAFAIVE: In Michigan, I think Governor Engler was widely opposed to
these incentives, even as senate majority leader. He spent a long time opposing these
targeted incentives. And he did so as governor and even went to other governors and
saying, hey, let’s – let’s stop this war between the states. It’s killing us. And then he lost a
Willow Run plant to Texas. He had no –
MR. CARNEY: In Mississippi, “War Between the States” means something else,
by the way.
MS. LAFAIVE: Yes, yes, I should have added economic war between the states.
(Laughter.) And he lost a Willow Run auto manufacturing plant to the state of Texas and
then did an about-face and jumped into the incentive game with both feet.
MR. CARNEY: Is there anything on that that – I’ll come back to questions here,
but this is something I’ve been thinking about for a while. Is there any way we could do
some big multilateral disarmament thing? I mean, if you look at this map, you got – you
got Snyder, Pence, Kasich, Walker, all up there around those unsalted shark-free Great
Lakes. I mean, what if they – and Pennsylvania has a Republican governor for now. What
if they got together and said we’re going to build down our incentives. I mean, the
Congress would have to approve any multi-state pact.
But when I talked to Bob McDonnell about this, he said, well, I don’t want to
have these incentives, but Mary O’Malley has them and Bev Perdue has them and that’s
the only reason I have them. Slightly different answer than yours. But is that part of your
reason for doing them is because otherwise Bobby Jindal will steal jobs from you?
GOV. BARBOUR: We’re doing it to compete generally with other Southern
states. But let me say. There is a feeling or there once was a feeling that the South needed
to do it to attract the jobs from the industrial North. Again, when I was as young as
Grover, the people came to Mississippi looking for strong backs and low wages. They –
we did not have the labor force to attract high skilled, high paying jobs. And that’s where
the incentives got started.
Today, we’re competing with each other. I mean, the new automotive zone in the
United States is the Southern automotive zone, you know, runs all the way across the
South, from BMW to the Toyota plant in San Antonio. That would have never happened
without incentives because the industrial Midwest would have got all the jobs in 1950. So
I mean, that’s just – that’s what you run into, the mentality.
MR. NORQUIST: There’s a piece to the puzzle. I don’t know whether it’s the
silver bullet that you’re looking for. Forty-three states have something called the gift ban.
Thirty-eight have stronger ones, 43 total. And that means the government is not allowed
to give gifts to corporations. This is interpreted in Arizona, where they’ve had the most
success – I was on the phone this morning with the Arizona Goldwater Institute, which
litigated this. And they said giving a bunch of cash to a guy who’s developing a shopping
center was a gift, went up to the Supreme Court of Arizona. And they said, yes, our
reading of the corporate gift ban – you may not give gifts to corporations – says you can’t
do that, OK? They did say they didn’t consider – the court did not consider tax –
nonrefundable tax credits to be a gift. But that is the beginning of saying something there.
So what’s interesting – and I had them email to me the list of the 43 and how
strong they are. And this is actually something I want to look at to see whether this might
be the beginning of a campaign for mutual disarmament. I mean, it is one of those things
that I won’t do it if you won’t do it. Do you really trust them? Is there some other way?
And again, it’s not just cash. It’s building a road somewhere. I’m from Massachusetts
prior to immigrating to the country. And the – there – a town would say we’ll put a
policeman where your workers come in and out, so that people can get to work, OK? And
so it was a cop there all the time. And that was part of getting, you know, a shopping
center or a business located there. So is that corporate welfare, you know? How does that
count in this sort of competition?
MR. CARNEY: And on that front, yeah, there is a lot of sort of muddled things.
There’s this one Wal-Mart distribution center in Florida where it was eminent domain
and then Wal-Mart got the land for free. And then there was a road paved. And it’s a
public road. I’ve driven on it. It’s got street signs and all that stuff. But the road is
basically a driveway. It only goes to Wal-Mart. I think there’s one holdout guy who lives
in a trailer behind the – in the woods behind the Wal-Mart distribution center who’s also
benefited from it. So there we go. It’s not just the big guys win.
MR. NORQUIST: He might tell his friends, look at my driveway.
MR. CARNEY: And – but it’s – and then all sorts of other sort of public
improvements and things that were, you know, on the borderline between a good
infrastructure and paving Wal-Mart’s driveway. So I think it’s a really tricky question to
work through those. And maybe a gift ban that’s broader than just direct handouts, but
you know, doesn’t have to sweep in anything, would at least be a big improvement.
MR. NORQUIST: If you think your only arrow is a subsidy, then you use it. But
as we look at more and more states and Mississippi making tremendous steps forward on
tort reform, Texas making similar progress on tort reform, labor law changes. Then
maybe the governor will say, well, I’ve got eight projects I can work on, and
unemployment insurance and subsidies are one of them. So that may be the way to make
them a smaller problem.
MR. CARNEY: All right. Any more questions from out there? OK, because I do
have another question here that I was – I’m glad I get a chance to ask. The – Governor
Snyder has not sworn off all favors for businesses, has he?
MS. LAFAIVE: No. No, he’s not. He’s actually replaced the Michigan Economic
Growth Authority, which is our primary business incentive program with his own
program, which is reportedly smaller and involves cash grants instead of tax credits or
refundable subsidies. We’re doing a current tally on them right now and the number –
first number we got was very interesting. The first two years of Governor Granholm’s
governorship, she issued 64 deals using the MEGA program. The first two years of
Governor Snyder’s governorship, he used the MEGA program before it was put down
and the followed up with his own program, and he has some 90-plus deals.
So he’s actually done more deals than Governor Granholm and they’re reportedly
smaller, but we haven’t worked out the numbers yet. Some of them might actually be –
end up being bigger.
With the cash issue, this is actually coming full circle. They actually went to the
MEGA program, a business tax credit because people complained that cash grants was
more clearly a robbing of Peter to pay Paul and blatantly unfair. That’s why they went to
the tax credits. And now we’ve come full circle and we’re back to cash grants.
MR. CARNEY: But that’s – part of his argument was that it was more
transparent.
MS. LAFAIVE: In other words, it is more clearly robbing Peter to pay Paul.
MR. CARNEY: Maybe that’s better than a disguised robbing Peter to pay Paul.
MS. LAFAIVE: And he wins that transparency argument. However, it’s still
infected with the same problems that the larger economic development programs run by
the previous two governors are infected with.
MR. CARNEY: Yeah, I know. And Grover, I want to turn this to you with a
question, which is I’ve talked to conservative lawmakers, who – you know, there was
some vote coming up for a Lockheed-specific tax break in Maryland. It was Montgomery
or PG County. And I talked to a conservative Republican, say, lawmaker, and I said, isn’t
this ridiculous? He said, yeah, it’s ridiculous and I’m going to vote for it. I said, why.
And he said, any chance I have to reduce anybody’s taxes, I’m going to take. So you’ve
thought a lot about these weeds, so what are your view on that?
MR. NORQUIST: Well, there’s a difference –
MR. CARNEY: Your mike –
MR. NORQUIST: Thanks. There’s a difference between failing to take
somebody’s money and technically all tax cuts are good tax cuts. What Mae West said
about sex is true about tax cuts. All tax cuts are good tax cuts, even the bad ones. But I do
think broad based rate reduction is just always to be preferred to more narrow tax cuts
because the government isn’t in the business of deciding who’s going to win.
GOV. BARBOUR: Just one point I think about what they’re doing in Michigan.
One of the other advantages to cash grants is that they’re budgetarily immediate. And so
many states, including mine, have got problems with the fact our pitching plan, you
know, we’ve got all of these responsibilities that are in front of us that we don’t know
how big they are and they’re very hidden and they’re very hard for the public to
understand. So I mean, I give him credit not only for transparent, but also fund the damn
thing right now, instead of pretending you’re not ever going to have to pay it.
MS. LAFAIVE: I applaud him for the same thing. I’m sorry. I didn’t mean to
interrupt you. I applaud him for the same thing. He campaigned on that actually, wanting
to know what this was going to cost them because the previous subsidy schemes didn’t
really – were practically open ended. You could come in with – to make a film and get a
42 percent refundable tax credit that could – that had no limit, whatever they wanted – if
they wanted to do another “Titanic” and make it in Detroit, we’d be on the hook for that
into the future. So I applaud Governor Snyder for doing that. But these programs have
been proven empirically not to work. And even just having a rent-seeking apparatus, a
place where you encourage people to come and ask for favors, harms economic growth
according to at least one study done Harold Bloom at the General Accountability Office.
MR. NORQUIST: There’s one model to look at, because if you’re looking at it it
seems intractable. How do you fix it? We did feel the same way about earmarks three or
four years ago. You just said there’s no way you could get congressmen and senators not
to lust after earmarks. The idea of bringing money back to your district – I’ve never
understood. Hey, I’m your friend. I brought money back and I gave it to someone who
lives near you. I’m your friend. Somebody near you won the lottery. Hey, what about
me?
But there is this sense that somehow you bring this money back to the district and
that therefore it must be a good idea. Earmarks were very popular. They were a sign of
whether – of a congressman’s manhood that if you didn’t have earmarks, there’s
something wrong with you. You weren’t able – were you not powerful enough to get the
earmark? Do your other friends not like you in Congress? And yet, it went from the kind
of thing politicians bragged about – I have brought many earmarks back and put in their
ads – to something that – the idea that you brought it, you did an earmark was considered
a dirty thing.
And that – I don’t quite know how you make that, but that was over the course of
one year that that shifted dramatically in the House and the Senate. Whether there’s any
way to have similar attitude towards targeted tax breaks rather than broad ones, or
targeted subsidies rather broader reforms that have tracked all business, I don’t know.
MR. CARNEY: I’d throw this to Haley with a quick anecdote. I was sitting in a
bar in New Orleans with my friend Dave Freddoso and a governor ad went up on the TV.
This was in 2007, I guess. And it was Bobby Jindal calling someone else corrupt or
someone else calling Bobby Jindal – there were four guys in there. The word “corrupt”
was thrown out. And the bartender looks at it and turns to the other clientele and says, I
don’t give a flying flip who’s corrupt as long as they bring in the money. And the bar
erupted into cheers. And yeah – I mean, maybe some political cultures that’s impossible.
GOV. BARBOUR: Well, we live across the river from Louisiana. We understand
them. (Laughter.) Look, let’s think about earmarks a little bit different way because we
don’t much like bureaucrats in the Obama administration decide how to spend our
highway money. We rather Senator Cochran have some influence over where the money
goes that’s going to be given out by NIH for cancer research. And that is the alternative.
Somebody’s going to decide where to spend that money. And to the degree that earmarks
are adding money, then people got a legitimate complaint. But to the degree that they are
directing the money that’s going to be spent, then I would rather have an elected official,
who is accountable to the public, do that than somebody that we’ll never see or hear
from. And that’s – that’s the other side of the argument. I can’t say that Grover and I’ve
agreed on most everything for the last 30 years, but that is a not irrational side of the
argument.
MR. NORQUIST: No, it’s not. I’m not sure we disagree at the end of the day. I
too would agree that you don’t want some bureaucrat in Washington making decision
about how to build roads in the states. But the solution to that is not to have an elected
politician from Alaska down writing the rules about Alaska and other states’ stuff. But
saying to the states, we’re not going to have a federal gasoline tax because we’ve built
the federal highway system. We’re going to let the states have taxes. We’re going to get
rid of the gas tax. You have your own gas tax. You build the roads. You know better than
some bureaucrat, either Bush’s or Obama’s bureaucrat at the Department of
Transportation.
So you can have the local control. I just think you do it by having the guys who
raise the taxes spend the money on the roads in the state, rather than send it to
Washington and then ask – because the congressmen and senators would literally give
them like $14 million – unless you’re on the committee, then you got $60 million – $14
million in earmarks. So you get to touch some of that money, but that’s a fraction of what
they steal and put in the New York subway system and the D.C. subway system.
So the rake-off is much higher. So I think if you let the states steal their own
money and then spend it, it’s much better than running it through Washington, D.C., and
pretending that a Republican congressman is going to fight for a piece of the pie, whereas
the Obama bureaucrat gets to hand it out to (pals?) and stuff like that.
So I’m not sure we’re disagreeing. You do want the local control. I think the way
to get the local control is to have local control of the – (inaudible).
MR. CARNEY: I want to try to move back just for one quick question before
going back to the audience. One of the arguments against earmarks had to do with – and
you hinted at this with the state level money – was sort of breeding this culture of
cronyism in which businesses start investing more in politics – not that there’s anything
wrong with lobbyists – but that businesses start investing more in politics and maybe less
in business, in R&D, and that that corrupts both the political system and the business
system. Even if it’s not corruption in the sense of quid pro quos, it’s corruption in
drawing these businesses away from the – you know, creating value and the governments
away from serving the public interest.
So that’s a question, especially, I guess for Mike and Governor Barbour. Mike.
MS. LAFAIVE: With all the incentives involved, you’re really creating a culture
of political capitalism rather than market capitalism. And as part of that, because there’s
so much money involved, you see people trying to game the system legally and illegally.
There was so much money being given out during the Granholm years when the
economy of Michigan was suffering like no other that everyone was getting in line for
them. They actually granted a MEGA tax credit to a convicted felon just out on parole.
He was not legally allowed to hold a credit card, but they gave him a tax credit deal to
build some business he invented in the room he rented in a trailer park. And that was just
one of the examples that we’d come across during this.
Again, these programs are inherently corrupting.
MR. CARNEY: I don’t have a problem with that convicted guy. I think Jesus
would have give him a tax credit, too, but – Haley, Governor Barbour, what do you
think?
GOV. BARBOUR: Well, the good news, he probably wouldn’t have made much
money, so the tax credit wasn’t going to be a big drain. It’s – you know – you can take
the issue – you can take the position that anything that is political is corruptible. I don’t
happen to believe that. I happen to believe most people in this business, Democrats as
well as Republicans, try to end up at the end of the day doing what they think is right and
in the best interest of their constituents. And I don’t think being for your constituents is
corrupt. Maybe wrong. I mean, you make the wrong the decision, but when businesses
lobby to keep taxes low, Grover and I are for that. When they lobby to raise taxes, we’re
against that. But that doesn’t make lobbying inherently good or bad. In fact, in this town,
you will talk to members and they will tell you that they benefit and their staff benefits
from hearing from a lot of different people on different sides of the issue that they
wouldn’t otherwise hear from.
And so, you know, I don’t begrudge the Sierra Club or any of these left-wing
groups their chance to tell their side of the story. But the better thing for us is to do a
better job, so they lose. (Laughter.)
MR. NORQUIST: One of the things that it does – getting to earmarks, when you
talk to congressmen when they show up, they’ll say nobody told me that half of my job
was responding to local schools wanting earmarks for different stuff. And so not doing
earmarks – Boehner never did earmarks, and he had a lot of free time and he got himself
elected speaker. People only have so much bandwidth and the amount of staff time and
personal time in earmarks is very large. And the kind of earmarks the federal government
hands out all go to nonprofits and government entities to hire Democrats. And so I think
there’s a problem there.
The other part is earmarks are used by leadership to buy votes that a congressman
wouldn’t otherwise pass. So earmarks for Democrats to get them to vote for free trade
agreements are a good idea. Earmarks to get Republicans to vote for stupid tax increase
or to vote for Ford rather than Reagan in 1976 – those are a bad idea.
So earmarks get Republicans to vote against their interests and Democrats to vote
against their interests. And it’s bad for Republican souls – and Democrats don’t have
souls, so it’s not quite the same problem there.
But I’m in favor of earmarks only for Democrats because we need them on the
free trade votes and there’s no other way to get them. And I’m against them for
Republicans because they get bought to do bad things with earmarks.
MR. CARNEY: That’s a great novel – (audio break) – questions from the crowd.
Yes, ma’am, right behind you, mike.
Q: So while we’re on the subject of politics and the business role in politics. I’m
Rachel Bale (sp) with the Center for Public Integrity. So for Mr. Norquist, how has your
fundraising for Americans for Tax Reform changed in the years following the Citizens
United decision? And I would pose the same question to you, Governor Barbour, with
regard to how has the Republican Governors Association’s fundraising tactics changed in
those years.
MR. NORQUIST: Citizens United allows people to spend (c)(4) money
advocating to vote for a candidate, as opposed to just saying issues. So what Americans
for Tax Reform used to do is say taxes are bad. They kill jobs. Mary over here wants to
raise your taxes, just thought you ought to know. So you weren’t allowed to say vote
against Mary. Citizens United now allows you to say “and vote against Mary.”
I’m not sure there’s a big difference on my issue on taxes because it’s fairly clear.
Other people who have to hide their issue and the labor unions want to beat someone and
they run an ad about something else, that’s more difficult for them. They have to say vote
against Fred. They can’t use their issue. But for the taxpayers, it’s fairly easy. Everybody
whose vote I would like to influence wants lower taxes. I don’t have to sell them on that.
I’ve got an audience of 60 percent of the electorate that’s already there. So I just say this
person wants to raise your taxes, thought you ought to know. I could always do that as a
(c)(4). Now, I could also say – and by the way, vote for or against Fred.
So I’m not – I don’t see it on the tax issue. Other issue groups might see a
difference.
GOV. BARBOUR: Of course, not much change at all for Republican governors
because they’re not covered by the federal election law. You know, they’re – each state
has its own different election laws for – campaign finance laws, I guess I should say. So
the governors are not much affected by it beyond the kind of environmental shift among
donors. Donors get accustomed to be able to give to these (c)(4)s or whatever. And they
become more willing to give corporate money to the RGA, which can accept corporate
money because – (inaudible) – of the states –
MR. CARNEY: But could accept corporate money even before Citizens United.
GOV. BARBOUR: That’s correct. But they’re – the attitude of a lot of general
counsels in corporations would say, we better, you know, yeah, it’s legal over there, but
we – you know, we don’t do that and the board doesn’t like it.
Well, the more it becomes legal in – to other groups, then the more people
become accustomed to making that decision, but that’s a pretty small change for the
Republican governors. I mean, what happens to the Republican governors raise money is
went from 22 to 30. That makes people happy that they gave.
MR. CARNEY: More questions. Let’s go right up here.
Q: Elizabeth Graham (sp). I’m a consultant. I think this question may be for you,
Michael, possibly for you, Tim. Governor Snyder said that he encouraged or requested
that the two major utilities in Michigan focus on buying Michigan – is that – did I
understand that correctly, first of all?
MS. LAFAIVE: Buy Michigan –
Q: Yes, thank you. And I thought I heard him say that he did not offer any form of
incentive. He simply said we’ll facilitate it. I understood that correctly, as well?
MS. LAFAIVE: I heard that as well.
Q: Thank you. What incentive did the corporations then have to potentially buy
more expensive products and could you address that? I was very interested and I didn’t
have an opportunity to ask him. Thank you.
MS. LAFAIVE: Yeah, I wondered the same thing when I heard him bring that up.
Very likely, we’re being asked by a political person to make purchases that might be
more expensive than they could get elsewhere. And I consider that to be a bad business
decision and wrote that down here as well.
So I don’t know if there was anything dangled out there or if there wasn’t a
suggestion that there could be a quid pro quo or something negative could happen if they
didn’t, but it’s something that I’d like to investigate myself.
MR. CARNEY: Grover?
MR. NORQUIST: Utilities often are compensated and allowed to set up their
rates on a cost-plus basis. So if your new generator costs twice as much because it had to
be built in Kalamazoo – in Michigan, rather than someplace else, you still get your 7-8
percent on the larger investment base. That may make it easier for people to make bad
decisions.
MR. CARNEY: Things built in Kalamazoo – (audio break) – down as the New
York Yankees about – (inaudible).
GOV. BARBOUR: But don’t rule out the possibility that they are only buying
Michigan when they can get the price right. I mean, we have some big companies in my
state that made an effort to start trying to buy locally if they could. Chevron’s biggest
refinery in North America is at Pascagoula, Mississippi. And when they had a new
manager come in and who made the decision where possible, we’re going to buy locally,
God, it was like a – it was a big, big deal in the community.
One of the things that we asked – that I asked them to do as governor; they
refined 330,000 barrels of oil a day. None produced in Mississippi. I asked them to look
at oil – at a particular oil field that we had already researched that it looked like it was a
good match for the Mexican and Gulf of Mexico oil. They took a lot of time. I’m sure
they spent a lot of money, but today they refine 10,000 barrels a day in that 330 that
comes from Mississippi and they make money on it.
So it is not necessarily that somebody’s doing you a favor or spending more.
Sometimes it’s just that they – that is good business for that they’d just never thought
about it.
MR. NORQUIST: They also maybe just be making a list of things they buy
locally and nobody had ever asked them to put together the list. And then they project
forward. We’re going to be doing more of this. I think it’s wise, small p politics to do
that.
MR. CARNEY: Other questions. Yes, sir.
Q: Thank you. My name is Maurice McTeague. I’m at the Mercatus Center and
before that, I was in New Zealand. What I want to ask you about is did we learn anything
today about getting reforms done because as I listened to Governor Snyder, I thought the
most remarkable thing was that we were actually seeing leadership. And what he did in
Michigan were things that were improbable. And if he counted up the votes before he
started on most of those reforms, he wouldn’t have done any of them. And it sounds to
me like he’s not finished yet.
So would you like to make some comments on issues of leadership? What kind of
political support they win, their ability to be able to get things done? Because I think
what we’ve seen in recent decades has been a dearth of leadership rather than the other
way around.
MS. LAFAIVE: Governor Snyder financed his own campaign. He was his own
man from day one and made it clear that he would be. And then, once he was elected, he
let the chips fall where they may. He also has some terrific advisers who’ve been in
Lansing a long time and share his vision. You could see how he absolutely abhors losing,
too. He lost the first Medicaid expansion vote, had to fly back from Israel, cancel a trip –
a business trip out there, to come back and win – ultimately win that Medicaid vote. And
that’s what he does. And he’s had to pigeonhole. He does what he thinks is right and he’ll
make the tough calls.
We disagree with some of those tough calls. The legislature did not cooperate
with him on building a bridge to Canada. And so he used this interlocal agreement to run
a circle around them and complete the deal with Canada.
I’m, you know, not sold either way on whether building the extra bridge is
worthwhile economically, but he very clearly had no intention of losing what he set out to
do.
MR. NORQUIST: Politics is a team sport. If you’re the governor of Michigan and
you have a Republican House, a Republican Senate, and a think tank like Mackinaw, it’s
a little easier to get things done than if you’re the governor of Nevada, Republican
governor of Nevada, with a legislature that’s trying to kill you or, you know, poor
Romney, who was governor of Massachusetts and the legislature was 82 percent
Democrat the whole time.
So yes, his leadership has been very helpful. Governors can stop stuff. They can
fail to do stuff. He has both pushed, but you’ve also had with him a broader movement
that has a Republican – a Reagan Republican House, Senate, think tanks, and that makes
it an easier combination.
GOV. BARBOUR: You know, I used to tell Trent Lott, who was from my home
state, and – the difference between governors and senators is senators talk about doing
things and governors do things. (Laughter.) And we did tort reform. I did it with a
Democratic House and a Democratic Senate, majorities on both sides. It was bloody,
gory. But there’s no question to do hard things, somebody’s got to lead.
And that’s one of the problems we have in our country today. You know, we need
a president who’s a leader. And I think about Ronald Reagan. I was – I got to run the
political office in the White House for Ronald Reagan, pretty heady stuff for a boy from
Yazoo City, Mississippi. But Reagan had a Democratic House every day he was
president. But he’d learned how to lead. He’d learned how to negotiate, learned to
compromise on everything. But he still led effectively so that we could pass the Reagan
economic plan, Social Security reform, immigration reform, the 1986 Tax reform.
Amidst those four – because they were all complicated and controversial.
And Bill Clinton was the same way. Bill Clinton’s best days as president when he
had a Republican Congress, doing the welfare reform, the first balanced budget in a
generation. He had three balanced budgets in a row. Your point is the right point.
Somebody’s got to lead and legislatures, by their nature, cannot lead, whether it’s a
Republican legislature or Democratic legislature. The governors got to lead. And my
hat’s off to Governor Snyder.
MR. NORQUIST: Just counterexample is North Carolina, where they’ve been
making tremendous progress on a whole series of issues over the objections of the
governor. And the legislature actually got it all done and the legislature – and the
governor slowed stuff down. Not on everything, but the legislature actually led there.
They had the agenda because they’ve been bottled up with a D governor and so it was
ready to go.
And perhaps even faster, the Republican governor shows up and goes, OK, now,
what are going to do, and all the stuff piles on his desk because it’d all been passed
several times before, and the Democratic governor didn’t want it. So there are times when
a legislature can get bottled up and be ready to move even faster than the chief executive
officer.
MR. CARNEY: Up here.
Q: Thank you. John Graham, senior fellow at the National Center for Policy
Analysis. The governor said that the bankruptcy of Detroit was a solution to a problem
that had been bubbling for decades and I wonder if that has national repercussions. I
mean, if Detroit had gone bankrupt in 2010, I can envision Congress would have had
some massive bailout and Stockton, California and who knows how many other
jurisdictions would have jumped onboard. The fact that Detroit has been hived off and
blocked off, you know, if Los Angeles is coming next year, is this a positive sign for
national crisis at the local level?
MR. NORQUIST: Look, we dodged a huge bullet. What Obama might have done
when he walked in would have been to nationalize the unfunded liabilities of all the state
pensions by insuring them, OK? Wouldn’t have shown up on the books and you’d have
had Arnold Schwarzenegger standing next to them and all these Republican governors,
right, thank you, thank you, thank you. And it could have passed. It could have passed
with the super-majorities they had the House and the Senate.
Instead, he did this other stuff, which was vaguely destructive, but not what
national – because then, all of a sudden, everybody had been reasonable on their pensions
would have no reason to be reasonable at all. You’d have nationalized the workforce of
20 million state and local workers and made them all dependent on Washington and
they’re willing to pay their pensions.
When they missed that opportunity and failed and a number of states began to
make the painful – New Jersey and Michigan and Utah, Louisiana moved towards
defined contribution pensions away from defined benefit, you now have enough states
that have made enough progress on those pension issues that when California goes can
you bail us out or Detroit says how about bailing us out, no, no. When enough were in
enough trouble, they’d have gone, oh, we’re not Detroit, but why don’t we help Detroit
out, meaning and me next.
So I think we missed that. We dodged that bullet. Detroit – nobody’s life is a
complete waste. Some people serve as bad examples. OK, Detroit gets to do that. It’s not
something that we’re going to do for everybody, which could have happened very early
in this administration.
MS. LAFAIVE: There’s another lesson to be learned with Detroit, and that’s the
value and quality of the emergency manager laws that exist in various states. I think it
was the Manhattan Institute ranked Michigan’s as the best among the states that do have
emergency manager laws. When?
MR. NORQUIST: How long ago?
MS. LAFAIVE: Right after Snyder took office, he upgraded the emergency
manager law. Previous one had existed since 1990, but it wasn’t very effective. What has
been done just up the road from Detroit in Pontiac is miraculous. They had – they went
from having 700 city employees to having 20. Their budget is half the size it was before
the emergency manager took over. They had something like 85 health care plans for
current and – current workers and retirees. Now they have one, saving millions.
They’ve contracted out and sold off assets and basically revolutionized the city’s
finances, and that could happen in the city of Detroit, not only with Kevin Orr, who’s
working under the emergency manager law, but with the bankruptcy judge as well.
GOV. BARBOUR: I do worry about states. You know, it’s – today, it is
considered unconstitutional for a state to declare bankruptcy, but we got some states that
are in real, serious trouble financially. I look at Illinois. I mean, they don’t pay their bills
in money. I mean because they’re in such bad shape, they sometimes give out script.
That’s just – so that bothers me.
I look at my state, which is a very conservative state. And our pension fund’s
about 60-percent funded, where 15 years ago, it was like 88-percent funded. And bad –
everybody’s got bad pension decisions that are not being addressed aggressively enough.
I couldn’t get my legislature to go nearly as far as they should have. They did some
things, but I’m like Grover. We stepped over one snake when they – when they were –
the first two years. I just worry that we got more down the road.
MR. CARNEY: I just want to ask a couple of questions, again, trying to drill
down, refine some of the points about business incentives and that sort of thing here.
Seems to me that some business incentives are worse ideas than others. I was saying,
these Hollywood film incentives must be particularly inefficient because half the states
are giving them out. So the price for these things must be getting bid up, but also maybe
on a state-by-state basis. Maybe it has to do with if you are starting off with a worse
economic position like Mississippi, that’s different from if you’re in a position like Iowa
or Wisconsin. So if you guys were to say what are some general rules about here’s the
incentives that are destructive, here’re incentives that are tolerable, here are incentives
that are good?
MS. LAFAIVE: I would argue that there’s no targeted incentive that is better off
than a broad based policy. So I think they all come with their various costs and benefits.
But I actually like a tax credit that is not refundable over a cash payment because they
have to, quote, unquote “earn” their credit and it’s really just, you know, avoiding a
future higher tax bill rather than receiving cash from their neighbor.
MR. CARNEY: That’s the opposite of Snyder’s viewpoint.
MS. LAFAIVE: That’s right. That’s exactly correct.
MR. CARNEY: Do you have any thoughts on which are dumber than others or –
MR. NORQUIST: Obviously transparent, broad based, and I would include – I
think tort reform is one of the most important things you can do to attract businesses. I
think voter ID helps because it gives you more hones elections. I mean, everything that
gives you more stability and more rule of law and a more sense that the governing of the
state is going to be more honest and clear, transparency – the first I saw it was Perry of
Texas put all of the spending of the governor’s office online, all the checks, all the
contracts.
And then Susan Combs, the comptroller, did it for the whole state. And 20-plus
states have now done fairly good transparency, so you can see all the expenditures. That
sort of thing is a big help. And transparency – and they’ve been going after some of them
to try and get more clear transparency on these deals for businesses. That may help. It’s
not saying you can’t do it. Make it transparent. Then people could look at it and say, well,
that was a really good idea or hey, that was the guy’s cousin.
MR. CARNEY: It seems to me that technologically there shouldn’t be any barrier
to me as a reporter sort of knowing everybody who’s applied for one of these things and
seeing, you know, then the – who’s getting them, when they’re getting them. I should be
able to sign up for an email list for who just got an incentive from Mississippi.
GOV. BARBOUR: As long as you put that in the past tense – remember, this is
about competition. And we were picked by Toyota for the most sought after economic
development project in the United States in 2007. The “Wall Street Journal” said it was
between Chattanooga, Tennessee, and Marion, Arkansas. The Japanese had asked us to
keep it a secret. We did. But if that had gotten out before we were chosen, I mean, we’ve
had to – you know – who knows? I mean, this – we’re talking about a competition and
negotiation. That’s – so I disagree with you on that. But I will tell you the stupid
incentive is for the state to raise income taxes and then go give existing businesses tax
breaks against the new income tax, which Illinois is the most bizarre, stupid thing.
I mean, you could maybe make a case to raise your taxes and then somebody
who’s coming to town and bringing some new jobs, but to go just excuse people from
this, that’s a –I put that on – I bid that down as the dumbest.
MS. LAFAIVE: I just wanted to add. Many of these economic development
agencies make keeping information out of reporters’ hands an art form because all too
often they know that a reasonable analysis will show that programs are not as advertised.
MR. CARNEY: We’re going to wrap up just a tiny bit early. The governor’s got
another thing to do. But let me just ask, just very quickly to you , to all of you, how
hopeful are you that states will move towards a system of, you know, lower, broader rates
and regulations and fewer special credits and handouts?
GOV. BARBOUR: I’m very hopeful because it’s happening. I mean, Grover
talked about it. You look at these states with Republican governors (thoroughly ?) and
you’re just seeing over and over and over and over again that that’s exactly where they’re
heading.
MR. NORQUIST: That’s what they’re focused on. They’re focused on the broad
based ones, and the more those succeed, the smaller some sort of subsidy looms in a
company’s decision making. The idea that you won’t get sued for $1 billion is a bigger
deal perhaps than here’s $20 million to come into the state. That organized labor can’t
pick your pocket, you know, that the environmentalists aren’t going to close you down,
all those things. You take those off the table, you’ve really got a much more attractive
situation.
MR. CARNEY: The lower your tax rate, the less valuable the carve out is, the tax
carve out.
MS. LAFAIVE: I wanted to add, I think Governor Snyder on balance is doing
great work. He’s lowering the price of investing in Michigan, and it’s going to pay
dividends. It’ll take 10 years before we can empirically tease out the exact impact, but
time will pass and we’ll measure it.
MR. CARNEY: All right. Thank you everybody for coming, and let’s thank our
panelists. (Applause.)
(END)