Kay Ivey gets a ‘D’ in report card stacking up U.S. governors’ fiscal policies
Gov. Kay Ivey’s years-long support of an increased gas tax in Alabama landed her in the bottom tier of a new report grading states’ top-level leaders on their fiscal policies. The Cato Institute, a public policy organization focused on limited government, recently released its 2022 Fiscal Policy Report Card on America’s Governors. Co-authors Chris Edwards and Ilana Blumsack gave Ivey, who is seeking a second full term in office this fall, a score of “D.” In their analysis of Ivey’s fiscal performance throughout her first full term in office, Edwards and Blumsack elaborated on why they gave the governor a low score. “Running for a full term in office in 2018, Ivey said she opposed tax increases,” Edwards and Blumsack wrote. “Nonetheless, she has raised some taxes, including the gas tax by 10 cents per gallon in 2019 and an assessment on nursing home facilities in 2020.” In their report, the authors did note some of Ivey’s more recent tax-cutting overtures in her run-up to reelection and against the backdrop of inflation. “Ivey switched direction recently and approved modest tax cuts, including raising the standard deduction, exempting $6,000 of retirement income from taxes, increasing an adoption credit, and exempting small businesses from the business privilege tax,” Edwards and Blumsack wrote. Early this year, during the most recent legislative session, Ivey also touted her support of House Bill 231, which she signed into law in February. “I am proud to sign this needed tax relief into law so that money will return directly into the hands of hardworking Alabamians,” Ivey said in the news release. Ivey’s support of a gas tax, and her denial of cutting it back this spring, has been a source of criticism since she first signed the legislation into law in 2019. Proceeds from portions of the increased gas tax have been poured into Ivey’s 2019 Rebuild Alabama Act, which required the state’s Department of Transportation to annually allocate $10 million from excised gas taxes. “Since becoming governor, with the support of Rebuild Alabama, we have embarked on more than 1,500 new road and bridge projects worth more than $5 billion,” Ivey said in March. “We certainly have more work in front of us, and I am proud to continue those efforts today.” While the Cato Institute’s newest report did not have a clear-cut partisan divide in the granular state-by-state rankings, there was a prevailing theme. The top-performing governors in this year’s report were Republican, while the lowest-scoring leaders were Democrats. “The results are data-driven. They account for tax and spending actions that affect short-term budgets in the states,” Edwards and Blumsack said of their methodology. “But they do not account for longer-term or structural changes that governors may make, such as reforms to state pension plans.” Five governors, all Republican, received an “A” in this year’s Cato Institute report: Doug Ducey of Arizona; Brad Little of Idaho; Kim Reynolds of Iowa; Pete Ricketts of Nebraska; and Chris Sununu of New Hampshire. On the bottom end, eight Democrat governors received an “F” in the Cato Institute’s analysis of their fiscal policies: Kate Brown of Oregon; Jay Inslee of Washington; Phil Murphy of New Jersey; Gavin Newsom of California; J.B. Pritzker of Illinois; Tim Walz of Minnesota; Gretchen Whitmer of Michigan; and Tom Wolf of Pennsylvania. Republished with the permission of The Center Square.
Dan Sutter: State and local barriers to entrepreneurship
State and local governments lure businesses with incentive packages. Yet these governments impose rules stifling entrepreneurs starting new businesses, forgetting that Amazon, offered multi-billion dollar deals for its HQ2, started out of Jeff Bezos’s garage. A new Cato Institute study, “Entrepreneurs and Regulations” by Chris Edwards, details the state and local government burdens on startups. Elected officials should carefully weigh these policies’ benefits against the burdens. The administration of many rules can be significantly improved. How do regulations harm small businesses? First, many compliance burdens occur at startup. While every added employee or business location involves compliance, many licenses, permits, and inspections must be obtained before opening. One study found that regulatory costs per employee were 29 percent higher for small versus large businesses. Startups also employ more lower-wage workers: weekly earnings at small firms were half the average for the largest firms. Increases in minimum wages and mandated employee benefits hit small businesses harder. Large businesses have more political influence and can reduce the burden of new regulations on themselves or obtain exemptions to rules. Businesses that do not yet exist cannot influence regulation. Startups have very tight margins and cannot afford extra costs. Entrepreneurs typically invest their life savings, borrow from friends and family, and earn little initially. One study found that half of tech company founders made less than $6 an hour during the first year. Alcohol licenses illustrate another type of burden. Eighteen states limit the number of alcohol permits; the existing permits can be sold, with prices often exceeding $250,000. Chain restaurants can more easily afford this cost than a chef opening her first restaurant. “Entrepreneurs and Regulations” offers a new measure of state policy burdens, called the Entrepreneurial Regulatory Barriers Index. The index includes 13 measures across four areas: small business owners’ perceptions of the burden of regulations, occupational licensing, entry barriers (like Certificate of Need laws), and policy-created costs. The best states for startups are Georgia, South Dakota, and North Dakota; California, New Jersey, and Connecticut are the worst. Alabama ranks 29th, a little lower than in other small business policy indexes. The Pacific Research Institute and Small Business and Entrepreneurship Council rank Alabama 15th and 11th, respectively. Alabama’s climate for startups is not horrible but could be better. Local governments may impose even greater burdens, as Mr. Edwards details. Consider the sheer number of rules. In New York City, small businesses are subject to 6,000 regulations, while 15 city agencies issue over 250 licenses and permits. Delays are common. Honolulu is supposed to issue small commercial building permits in 14 days but takes on average over 150. Entrepreneurs often must pay rent while waiting for approvals. In addition to delay is uncertainty, which economic research consistently shows reduces business investment. Many city offices offer no way to track the progress of applications, so entrepreneurs cannot know when or if permission to open will be granted. Government rules, frequently zoning laws, hamper home-based businesses. Zoning historically kept businesses and industry out of residential areas. Yet, the internet allows businesses to be run unobtrusively from home, keeping costs low while entrepreneurs explore the potential for their product or service. Complaints by neighbors typically trigger zoning enforcement, highlighting the often unpredictable impact of rules on new businesses. The Alabama legislature helped home-based businesses this year with a “cottage foods” bill. The law lifts a cap on the value of annual sales, increases the range of foods people can make at home and allows internet sales. Alabamians can now more fully participate in America’s cottage food boom. State and local governments might have to sustain business over the next several years. The Biden administration is clearly very pro-regulation. As Mr. Edwards writes, “whatever happens in Washington, state and local governments can do much to improve the entrepreneurial climate by repealing low-value and harmful regulations.” Regulatory reform can help grow Alabama’s economy. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
