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RevenuepouredintostategovernmentsastheU.S. economy expanded between 2003 and 2007,promptingthenation’sgovernorstoexpandstatebudgetsandoffertheoccasionaltaxcut.Butnow thattheeconomyhasslowedandrevenuegrowthis down, governors are taking various actions tocloserisingbudgetdeficits.This ninth biennial fiscal report card exam-ines the tax and spending decisions made by thegovernors since 2003. It uses statistical data tograde the governors on their taxing and spend-ing records—governors who have cut taxes andspending the most receive the highest grades,whilethose whohave increased taxesandspend-ing the most receive the lowest grades.Three governors were awarded an “A” in thisreportcard—CharlieCristofFlorida,MarkSanfordof South Carolina, and Joe Manchin of West Virginia. Eight governors were awarded an “F”—Martin O’Malley of Maryland, Ted Kulongoski of Oregon,RodBlagojevichofIllinois,ChetCulverof Iowa, Jon Corzine of New Jersey, Bob Riley of Ala-bama, Jodi Rell of Connecticut, and C. L. “Butch”OtterofIdaho.Republican governors, on average, receivedslightly higher grades than Democratic gover-nors. More importantly, there has been a disap-pointing lack of major spending reforms amonggovernors of both parties in recent years. Statetax policies have also been uninspiring. Most taxcuts pursued by the governors have been smalland targeted breaks, not broad-based rate cutsthat can foster economic growth.Fiscalpoliciesneedtobeimprovedifthestatesare to meet the huge challenges ahead. Medicaidcostscontinuetorise,statedebtissoaring,andthepension and health care plans of state workershave huge funding gaps. At the same time, risinginternationaltaxcompetitionmakesitimperativethat states cut tax rates to attract jobs and invest-ment. Governors don’t have an easy job, but they do need to pursue more aggressive fiscal reformsto meet the challenges of an increasingly compet-itiveeconomy.
 Fiscal Policy Report Card on America’s Governors: 2008
byChrisEdwards
_____________________________________________________________________________________________________
Chris Edwards is director of tax policy studies at the Cato Institute and coauthor of 
Global Tax Revolution
(2008).
Executive Summary 
No. 624 October 20, 2008
 
Introduction
Governors play a key role in the fiscal poli-cymaking of state governments. They proposebudgets,recommendtaxchanges,andsignrev-enue and spending changes into law. Duringbooms when revenues are rising rapidly, they can cut tax rates to sustain economic growth,or they can use surpluses to expand govern-mentprograms.Duringslowdownswhenbud-get deficits appear, governors can restrainspendingortheycanincreasetaxratestofundcontinuedprogramgrowth.Thisreportcardcoverstheperiodfrom2003to2008,andthusincludesperiodsofbotheco-nomic growth and slowdown.
1
State tax rev-enues increased at an average annual rate of about 6.5 percent between 2003 and 2008.
2
State general fund spending rose at an averageannualrateofabout6.2percent between2003and 2008.
3
However, with the slowing U.S.economy, spending growth is expected to bemuchlowerin2009,asshowninFigure1.Of the 50 current governors, the largestgroup took office in 2003, and most of theresttookofficein2005and2007.Thisreportratesthegovernorsontheirtaxandspendingactions back to 2003, or to their first year inofficeafter2003.Thereportexcludesthegov-ernorsofKentucky,Louisiana,andNewYorkbecausetheyenteredofficejustthisyear.And,as in prior report cards, the governor of  Alaska was excluded because of peculiaritiesin that state’s budget that make interstatecomparisonsproblematic.The report card grades the governors ontheir fiscal performance from a limited-gov-ernmentperspective.Thegovernorsreceivingan “A” are those who cut taxes and spendingthe most, while the governors receiving an“F” raised taxes and spending the most. Thegrading mechanism is based on seven vari-ables, including two spending variables, onerevenue variable, and four tax rate variables.Taxandspendingdataforthereportcamefrom the National Association of StateBudget Officers, the National Conference of State Legislatures, the Tax Foundation, thebudget agencies of particular states, andnews articles in
State Tax Notes
and
www.stateline.org 
.
2
State tax revenuesincreased at anaverage annualrate of about6.5 percentbetween 2003and 2008.
$508$523$554$599$653$693$686$300$400$500$600$7002003200420052006200720082009
Figure 1State General Fund Spending
Source: National Association of State Budget Officers, “The Fiscal Survey of States,” June 2008, and prior issues.Fiscal years. Fiscal 2008 and 2009 are NASBO estimates.
   B   i   l   l   i  o  n  s  o   f   D  o   l   l  a  r  s
 
The following section reviews the recordsofthehighest-scoringandlowest-scoringgov-ernors, and then discusses some interestingpatternsthatemergedfromtheanalysis.Afterthat, the outlook for state fiscal policy is dis-cussed, focusing on the coming crisis in statedebt and unfunded obligations. Appendix Adiscusses the report card methodology, and Appendix B provides a brief summary of thefiscalrecordofeachgovernor.
MainResults
Table 1 presents the overall grades for thegovernors. Scores ranging from 0 to 100 werecalculatedforeachgovernorbasedonseventax-and-spending variables, and then those scoreswereconvertedtothelettergradesAtoF.
Highest-ScoringGovernors
The highest-scoring governors are thosethat proposed or signed into law major taxcuts,recommendedbudgetrestraint,andkeptspending growth to a minimum. Here are thethreegovernorswhoreceivedagradeofA:
•
Charlie Crist of Florida has helped pushthrough major property tax cuts in hisyear and a half in office. He signed intolawameasurethatrequiredlocalgovern-ments to roll back a portion of recentproperty tax increases, while cappingfuture tax increases for some types of property. Crist also supported a success-ful ballot measure that expanded home-stead exemptions and established otherproperty tax breaks. These relief mea-sures are complex and they create somedistortions,buttheywillsaveFloridatax-payers billions of dollars.
4
On spending,Governor Crist has promoted restraint—his two budgets have proposed roughly flatspendingandhehasnothesitatedin vetoingwastefulporkprojects.
•
Mark Sanford of South Carolina is a strong supporter of spending restraintand pro-growth tax cuts. He has pushedfor income tax rate cuts, and the legisla-tureagreedin2005tocutthesmallbusi-nesstaxratefrom7percentto5percent.In2007Sanfordsignedintolawsalestaxcuts and further income tax cuts. Thisyear, the governor has proposed cuttingincome taxes through an optional 3.4percentflattax.Sanford’sproposedbud-gets have been frugal, and he has vetoedhundredsofcostlyspendingbills.Hehasalso pushed for the state to adopt a legalcaponannualbudgetgrowth.
•
Joe Manchin of West Virginia has con-centrated on cutting business taxes tohelp boost investment in his state. In2006, Manchin approved reductions inthe business franchise and corporateincome taxes. In 2007, he cut the fran-chise tax further. In 2008, Manchinsigned into law a repeal of the businessfranchise tax and a reduction in the cor-porateincometaxrate.Manchinalsohasanexcellentspendingrecord,andrecom-mends cuts to the overall general fundbudgetmostyears.
Lowest-ScoringGovernors
The lowest-scoring governors are thosethat have increased taxes and spending themost.Duringboomyears,theyexpandedpro-grams with gusto, and when budget deficitsappeared they raised taxes to avoid having tomake spending trade-offs. Here are the eightgovernorswhoreceivedagradeofF:
•
The lowest-scoring governor, MartinO’Malley of Maryland, spearheaded thepassage of a $1.4 billion tax increase in2007, which was unique in its large sizeand scope. It increased the corporate taxrate,thetoppersonalincometaxrate,thesalestaxrate,andthecigarettetaxrate.Italso expanded the sales tax base andraised taxes on vehicles. This enormousincrease will hit Marylanders directly inthe pocketbook, and indirectly throughslowereconomicgrowthovertime.
•
Ted Kulongoski of Oregon has beenrelentless in his advocacy of tax increasessincecomingtoofficein2003.Inhisfirst
3
Mark Sanfordof SouthCarolina is astrong supporterof spendingrestraint andpro-growth taxcuts.
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