November 3, 2010

Election 2010, States: GOP Gains Governorships; Prop 24 Defeated in California

Voters reject tax questions and using business to balance state budgets

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Advisors and their clients in the midterm election focused on races for the U.S. Senate and House of Representatives, of course, but issues like taxes and budgets weighed on their minds as well, and the results from Tuesday present some interesting developments on the state level.

In a televised interview on Election Night, Haley Barbour, the Republican Party chairman in the 1990s and now two-term governor of Mississippi, predicted that the GOP election landslide would result in the states having a bigger voice in Washington and taking more of a leadership role in practicing fiscal restraint.

“The American people want control of spending to reduce deficits,” Barbour said, noting that he has cut spending by 13% over the past two years in Mississippi. “The federal government must understand that spending can be cut a considerable amount without the public knowing the difference on services…You’ve just got to manage better.”

Moreover, Barbour told Brian Williams of NBC News, “There’s going to be a really strong relationship between the 30-something Republican governors and Republicans in Congress,” suggesting that like-minded and like-managed states would lead the way in the new political landscape after the Nov. 2 midterm elections.

To be sure, those state leaders will play a key role in the redistricting that will follow upon the 2010 U.S. Census data. The New York Times reports that governors will have a say in congressional redistricting in at least 36 states, and in 39 states they will have a role in state redistricting.

David Tittsworth (left), who spent years on Capitol Hill before becoming executive director of the Investment Adviser Association (IAA), said the “big deal” on Republicans gaining so many governorships will be the effect on redistricting, though he doesn’t think the states will have a big effect on the congressional legislative agenda.

Many states are fiscal basket cases, of course, including but not limited to big states with many wealthy people—and thus many advisors—such as California, Illinois, New Jersey and New York. (In a Nov. 3 op-ed in The Wall Street Journal, financial services advisor Meredith Whitney detailed

how the federal government is already subsidizing many states’ budgets, especially through the use of Build America Bonds.)

Here’s a look at how state elections played out in the midterm elections, in which Republicans gained control of the U.S. House and picked up at least six senatorships from the Democrats—not enough for a majority, much less a veto-proof majority.

Governors’ Races

Heading into Nov. 2, Democrats held 26 governorships, Republicans 24. There were 37 governors’ races in the midterm election; 24 of them did not feature an incumbent. Following the election, Republicans are likely to hold 29 governors’ seats and Democrats only 20. In the nation’s smallest state, Rhode Island, independent candidate Lincoln Chafee, who left the Republican Party in 2007, has claimed victory in the race while his three opponents have conceded.

Among the high-profile states where the governor’s mansion will see a shift from a Democratic resident to a Republican one are: Iowa (which handed Barack Obama his breakthrough caucus victory during the 2008 presidential race), Michigan, Ohio, Pennsylvania, Tennessee and Wisconsin.

Public Questions

California. The headline races of interest to advisors, who often wish for more business-like behavior from their elected officials, may have been the senator’s race

 

in California, where Carly Fiorina, the former Hewlett Packard CEO, lost in a tight race to Democratic incumbent Barbara Boxer, or even newly elected Gov. Jerry Brown’s return to Sacramento after defeating his Republican opponent and another businessperson in the governor’s race, Meg Whitman, the former CEO of eBay.

But a bigger issue for all Californians was Proposition 24, also known as the “Tax Fairness Act,” which was defeated Tuesday. Prop 24 was seen as a referendum on legislation passed in 2009 by the California legislature that cut corporate taxes. Voters slapped down the proposition, designed to help the cash-strapped state balance its budget, sending a message that the state’s financial troubles should not weigh upon businesses.

Washington. The high-profile public question, Initiative 1098, for Washington state voters was whether a surtax should be placed on the top 1.2% of earners, which proponents such as Bill Gates Jr. and Sr. said would generate more than $10 billion over five years primarily for education and health care. Washington hasn’t had a state income tax since 1933. However, state voters sent Initiative 1098 to defeat, with 65% of voters saying no.

New Jersey. In a state with deep budget woes where newish Republican Gov. Chris Christie has gained notice from slashing spending and taking on entrenched power bases like the teachers’ unions, over 80% of voters overwhelmingly approved an amendment to the state constitution that essentially prohibits the state from raiding its state employees’ pension fund for anything other than employee benefits.

Florida. Voters in Florida grappled with seven major measures added to the state’s Nov. 2 ballot. Among those measures, Floridians said yes to telling Congress that it should add an amendment to the U.S. Constitution requiring a balanced federal budget. They also approved a property-tax exemption for active-duty military or reserve members, and they repealed public financing for statewide candidates who agree to spending limits. But Florida voters said no to requiring voter approval of all changes to local government land-use plans.

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