Public pension reform. State liabilities for pension funds have reached an astounding $5.2 trillion, with an additional $3 trillion shortfall. Many states provide inflation-protected, guaranteed benefits to government workers who retire as early as age 55. However, private-sector workers, who pay for this, have not done so well. Millions have lost jobs, and virtually all have seen their 401(k)’s shrink.
We need some tough reforms to control public pension costs, including changing the defined-benefit plans into defined-contribution plans, barring part-time government workers from receiving full benefits and ensuring that all enrollees contribute to their own retirement and health care plans. Republicans should follow the courageous example of New Jersey Gov. Chris Christie, who is seeking to bring these soaring costs under control.
Growth-oriented economic policies. While federal policies delay job growth, states can create more business-friendly environments to encourage private-sector job creation and economic growth. The quickest and most effective way for governors to boost their economies would be to reduce state income and investment income tax rates and to provide state tax credits so employers and small businesses can hire workers and expand. These governors could also provide more certainty for business on regulations and fees.
In addition, states must limit the destructive effects of Obamacare. Increased federal mandates have already caused premium hikes, averaging 9 percent for small businesses and individuals. States should look to scale back their own health care mandates to help moderate these costs to business.
Zero-based budgeting. States should conduct top-down assessments of every taxpayer dollar spent, to identify areas of waste, duplication and inefficiency. Just this year, Gov. Bob McDonnell of Virginia avoided a tax increase and balanced the budget by subjecting every state department and agency to strict scrutiny and performance reviews.
Many government departments and structures are badly outdated, incapable of delivering essential services efficiently. Each governor should consider setting up blue-ribbon commissions to conduct top-down reviews of state and local government programs and expenditures and then recommend solutions. States must be creative in delivering health care services through Medicaid, a program whose costs are scheduled to explode in the wake of Obamacare. Mandating the use of generic drugs, whenever possible, and creating health savings accounts, as proposed by Gov. Mitch Daniels of Indiana, could help moderate state health care costs.
Educational excellence. Even as state spending on education increases, student and teacher performance lags. States need to regain control from the U.S. Department of Education and demand better performance at the local level. School curricula should be redesigned to create a stronger connection between education and the skills needed for employment. States must also create an environment that allows parents to choose among competing educational opportunities. Charter schools, vouchers and other competition-focused programs are among the best ways to guarantee greater accountability and better-performing students.
Here's what I'd add:
De-unionize the public sector. The traditional rationales for unions--unsafe working conditions, exploitation of surplus unskilled labor, and so forth--don't apply to the public sector. On the other hand, the collective force of big labor special interests is pushing state budgets to the brink of insolvency. In addition to the unfunded liabilities of public pensions noted above, union heft pushes up government worker compensation and benefits, advocates for more workers than needed, and blocks cost savers like privatization and contracting.
Tort reform for civil litigation. Not the Texas variety with arbitrary caps on punative damages. I'm talking about limiting jurisdiction shopping to either the location of the alleged injury or the residence of the plaintiff, Daubert rules for the admissability of expert testimony, and "loser-pays" rules. "Loser pays" simply means that whoever loses pays the court costs and the other side's attorney's fees in addition to whatever damages might be awarded. Pretty much all other developed countries do this, but we don't have a good example here in the U.S., although some states dabble in it. One of the keys to making it work abroad is tort insurance, so if you have a good case but lose, you're only out the risk-rated premium. The plaintiff's attorney often pays for the tort insurance anyway abroad.
Education reform. Increasing choices for students can take many forms. Many states do not allow private or home schooled kids to participate in extracurricular activities at public schools even though their parents pay property taxes just like everyone else. That should change. Education tax credits are a great way to leverage additional private investment in education, taking the burden off taxpayers for expanding and running expensive public school systems, while also increasing choices for parents. Even letting families easily choose among public schools instead of being assigned to them could do some good.
Focus on core functions. State governments do many things that could be done at least as well in the private sector or that ought not be done at all. State and local policymakers should scour their budgets and lawbooks for things to put on the old chopping block. If there isn't a compelling reason why the relevant level of government must do something, then it probably shouldn't.
Much more could and should be done, of course, including in health care, transportation, taxes and spending policy, government transparency, privacy, criminal justice, and on and on. This is a historic moment, one that is ripe with the possibility of reform. It would be a shame to waste it.
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