From CQ Weekly,
Jan. 1, 2007

Matters of State

I found a recent article in Forbes somewhat amusing, given that business magazine's strong pro- market and anti-government viewpoint. "Watch the States" the headline blared, with a subhead reading: "Even if Washington is gridlocked, Schwarzenegger and other governors will deliver plenty of action on the big government front."

Forbes usually focuses its wrath on Washington when covering "the big government front." But it's hard to argue with the analysis in this article. In the next two years, it reads, the "real action will be at the state level, already a hotbed of interventionism that is likely to grow more so now that Washington is split and Democrats have firmer control in state capitals."

So what can we expect to see happening out there in the interventionist hotbed that might influence the debate—if you can call it that—in Washington? Here are six candidates for mega-issues, many of them intertwined, that we will see addressed one way or another in different states:

· Taxes: At least a dozen states, and probably more, are moving toward what could be significant rewrites of their tax codes. The immediate catalyst is sticker shock from property tax bills because of soaring assessments; but many economists and good-government types sense an opportunity to accomplish what they have been advocating for years: aligning tax codes more closely with how and where the economy has been growing to professions and services. Watch what Michigan does to replace its single business tax, which has been repealed.

· Competitiveness: Closely related to taxation is the growing concern among governors and legislators about whether their states are able to compete successfully in the global economy. Call it economic development or something else, two areas predominate: preparing a qualified workforce and providing adequate infrastructure. Those categories take in a variety of issues, from pre-school through graduate and adult education to transportation funding—issues that involve a lot of money and some tough questions, like how to measure success and how to fund the growing bill for roads and mass transit. Watch for how the states lobby the new Congress on the reauthorization of the No Child Left Behind Law, due this fall. And see if the trend in selling off key infrastructure to private companies to fund new roads and maintenance continues.

· Health Care: The centerpiece issue here is what to do about the uninsured, and states will probably continue to peck away at the problem following passage of a compulsory plan in Massachusetts. But there is a lot more at stake here. States will have to continue making progress in reducing Medicaid costs (at what price to lower-income recipients isn't clear) if they are to remain fiscally healthy, because the growth in that program is now crowding out education and infrastructure—the key components of a competitiveness strategy. Finally, a coming change in accounting rules is forcing state and local governments to acknowledge soaring medical bills for retirees. And containing the rising costs of prescription drugs is a sensitive political issue. Watch what happens in California, Minnesota, Maryland and a number of other states to see if we continue inching ever closer to some form of universal health care.

· The Middle Class: Lou Dobbs is on to something. The perception that the middle class is losing ground is gaining resonance. Congress has not raised the federal minimum wage for a decade; but 29 states have, either through legislation or referendum, and the trend is toward indexing the new minimums for inflation. Washington also hasn't done anything about illegal immigration; but the states have, and the trend line here is toward more restrictions on social services and education. Watch to see whether the White House and Congress can strike a deal on new federal laws in either area. If they can't, more states will act on both.

· Security and Privacy: There is plenty of tension here between Congress and the states on a range of issues involving responsibility and authority, but one stands out immediately: the so-called Real ID law, which was slipped into an unrelated emergency Defense spending bill in 2005 with no hearings. In effect, it transferred responsibility for establishing what amounts to a national identification card from the federal to state governments, forcing the license renewals of all 245 million drivers over the next five years, using newly verified supporting documents to establish identity. The states complain that the feds are mandating something they can't do so fast without providing funding, which they estimate at more than $11 billion. Watch to see if the Homeland Security Department delays the first round of deadlines for compliance.

· Energy and Environment: The focal point here is global warming, and the stakes for the utility, automobile, petroleum and other industries are enormous. California is the key rogue state, but it has lots of company, as almost half the states (and scores of cities) have taken some form of action, either through legislation or by referendum. More activity is probable in 2007. Watch for some decisions by the Supreme Court on how far the states can go in circumventing Washington.

Peter Harkness is editor and publisher of Governing.

Previous columns:
· All politics is local
· Shifting electorate
· Real ID reality check

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