So What About Romney’s Fiscal Conservatism?

A couple of readers suggested that I am being unfair in only being critical of Ron Paul’s fiscal policy and that I should give all the Republican candidates a go-over. That’s a fair point. I did analyze their fiscal platforms this past summer, but the field has changed since then, as has the venue. Unlike the Daily Caller where I published my previous article on the subject, this blog is not under the political thumb of the Republican party establishment.

Of the two front runners that emerged in Iowa, Mitt Romney is the one with the clearest fiscal record: as governor he negotiated and signed budgets and thereby created a fiscal policy paper trail for himself. So let us take a look at where he comes from.

Before we do that, though, for full disclosure let me mention that I do support Mitt Romney. I think he would make a competent, capable and overall reliable president. He is a skilled executive, he is a patriot and I am convinced that he, personally, would rather have a conservative Congress to work with than a Democrat one. But if for some reason there would be a Democrat majority during his presidency, he would work with them like he did in Massachusetts: to slow down the march to the left and get as many reasonably good ideas in there as he can.

Being a fiscal conservative is not an on-and-off switch. It is a scale that starts with moderates like John Boehner and ends with die-hard minimalists like Ron Paul. Mitt Romney’s personal convictions appear to be relatively close to Boehner, but unlike the House Speaker, Governor Romney is intelligent enough to know that the country needs – and wants – more fiscal conservatism. He will be more comfortable working with a fiscally conservative Congress than a fiscally liberal one.

With that said, let’s go back and review state spending in Massachusetts back in the days when Romney was governor.

When Romney took office in 2003 the state of Massachusetts was spending $26.1 billion in one year. The breakdown between the three different funds was: $19.4 billion in General Funds, $4.3 billion in Federal Funds and $0.8 billion in Other Funds. The state also issued $1.6 billion in bonds.

When he left office in 2007, things had changed a bit. Total spending was now $41.8 billion, up 60 percent over 2003. the General Fund was $27.8 billion, up 42 percent. Other Funds had exploded to $9.9 billion, an increase of 1,100 percent in four years.

This looks like a fiscally reckless spending spree worthy of an Obama-style liberal. And, technically speaking, it is, and Governor Romney will at some point have to defend the fact that his state budget could grow 14.1 percent per year during his four years in office. When he does, he will have to account for the items that are behind this huge increase in spending. Let’s go through them.

To begin with, it is important to note that the bulk of the spending increase took place in Romney’s second year in office. In 2005 total state spending increased from $25.7 billion to $38 billion. This increase is in large part due to a 687 percent increase in Other Funds spending. In theory, this fund accounts for the state operations that are paid for with fees; in practice, Other Funds has become a conglomerate of spending items that, sometimes, legislators want to stash away from the public view. Reporters and interested members of the general public tend to focus their attention on the General Fund.

The gigantic expansion in Other Funds under Romney is in part traceable back to expansion in spending (in all likelihood construction projects) at schools, state universities and in infrastructure.  But these items only account for half of the enormous growth in Other Funds spending. The rest falls under the category of “All Other Expenditures” which include primarily SCHIP (“Medicaid for Kids”), health programs for the mentally ill and developmentally disabled, public health programs, economic development, housing and state funds for local governments.

A closer look at exactly where the Other Funds increase went would require a study that this blog does not lend itself to. But since the programs that fall under the category that caused a $9 billion state spending increase are mostly entitlement programs and corporate welfare (economic development) it is time that Romney explained his thinking behind this kind of irresponsibly large spending spree.

There is another oddity in his fiscal track record from Massachusetts. He signed budgets that expanded Medicaid by 8.6 percent per year, slightly faster than the national average growth in Medicaid spending. This was before his Romneycare reform was launched. (I analyzed Romneycare in my 2007 book on health reform and came very close in predicting its increased burden on taxpayers.) The increase in Medicaid spendnig could be a harbinger of that reform, or it could be read as an indicator of a spend-as-usual attitude. However, if the governor was working on his comprehensive health reform at that time, it is entirely possible that he was hoping that Medicaid costs would be brought down as as result of his reform and therefore did not merit much stand-alone attention.

If this was his thinking, then he has reasons to be disappointed. In 2009, Medicaid spending was 15 percent higher in Massachusetts. This only two years after his reform was launched and two years after he left office. In 2011, Massachusetts Medicaid is a staggering 38 percent more costly to taxpayers than it was in 2007.

While some of this cost increase is attributable to the recession, a large part of it has to do with the way Romneycare is set up. a study of Census Health Insurance data reveals that the drastic drop in the rate of uninsured under Romneycare is almost perfectly matched by an increase in Medicaid enrollment. In other words, we have good reasons to believe that Romney’s health care reform brought health insurance to more Massachusetts residents simply by growing tax-paid health insurance.

Romney would be well advised to elaborate on his thinking behind this aspect of his reform. It is a good sign that he repeatedly pledges to repeal Obamacare, but what does he want instead?

All told, the fiscal story of Mitt Romney’s gubernatorial tenure is a mixed one. From a strict fiscally conservative perspective he would get an F- for having grown total spending by 60 percent in four years (42 percent in the General Fund). But given the fact that he was working with one of the most left-leaning state legislatures in the country, and given that he was planning and pushing his health reform (like it or not), it is fair to remove some of the responsibility for that increase from his shoulders.

The overarching question that Romney should answer is: how much of this huge spending increase under his time as Governor is attributable to him compromising with Democrats – i.e., giving up his fiscally conservative values?

All of the 60 percent? If so, how reliable is he as a negotiator with spendoholics in the U.S. Congress?

A small part of the 60 percent? If so, how fiscally conservative is he really?

Mitt Romney will make a good president. But whether or not he will make a great one depends on his answers to these questions.