Revenge of the over-regulated

SEATTLE—In 1980 CNN launched on cable, Pac-Man hit the arcades, and moviegoers learned that Darth Vader was Luke Skywalker’s father.

That was also the last year a Republican became Washington state’s governor. That election occurred so long ago that most Washingtonians probably don’t even remember his name (John D. Spellman, who lost his reelection bid four years later). Ask Washingtonians about 1980 and they mention Mount St. Helens, which erupted 96 miles south of Seattle.

Now after seven election cycles and four straight Democratic governors, state Attorney General Rob McKenna, 50, is seeking to end the nation’s longest string of Democratic governors.

It’s easy to dismiss his bid. President Obama holds a lead of at least 16 percentage points over Mitt Romney in state polling on the presidential race. Both of Washington’s U.S. senators are Democrats. Despite this history, most pollsters say McKenna’s race against Democrat Jay Inslee, a former U.S. congressman, is a tossup. Seven of the other 10 states with gubernatorial races this year also have seats held by Democrats, and Republicans are on the offensive.

The governor’s races in New Hampshire and Montana are tossups, Republican Pat McCrory has a double-digit lead in North Carolina, and incumbent Democratic governors running for reelection in Missouri and West Virginia are facing competitive challengers. In New Hampshire, North Carolina, and Washington, incumbent Democrats chose to step down rather than run for reelection.

Washington’s McKenna exemplifies the conditions favoring Republicans. The state’s 8.6 percent unemployment rate is the nation’s 15th worst. When the federal Bureau of Labor Statistics includes those who are underemployed or have given up looking for work, the rate jumps to 17 percent. Washington’s voters are asking the same question as voters in other states: How can the gubernatorial candidate get people back to work?

McKenna says three decades worth of state regulations have buried Washington businesses. At a recent campaign appearance at a high-rise building in downtown Seattle, he told business leaders he understands their pain: “Every day you get up and work hard to make your company successful and every day someone is trying to eat your lunch. … That’s the essence of competition.”

Early in 2012, while many focused on presidential primaries, McKenna held more than a dozen small business forums around Washington. The nearly 500 business leaders he met gave him the same feedback: Rising healthcare costs combined with government regulations were making it too expensive to grow their businesses and hire more employees.

During the past three years, Washington state officials have adopted more than 4,000 new permanent business regulations. Business owners in Washington must navigate more than 100,000 requirements, according to the Washington Policy Center. Overall, the regulations fill 32 phone-book-sized volumes that stacked together are more than 5 feet tall. The state auditor released a report this fall faulting the state’s 26 regulatory agencies for not streamlining a “dense regulatory environment” that hampers small businesses the most.

McKenna’s Democratic challenger Jay Inslee is promising to focus on job creation. His stump speeches offer a top-down, government-centered approach. He would create new government departments, including an Economic Competitiveness and Development office with a cabinet-level director. His plan to get the government more active in clean energy and shipbuilding industries includes establishing new state agencies focused on biofuels and marine innovation.

McKenna and other GOP gubernatorial candidates around the country are attacking this pervasive government-first attitude and finding receptive audiences. “If you are in a room with a group of business leaders and you say the magic words ‘Washington State Department of Labor & Industries’ their temperature goes through the roof,” said Paul Guppy, a vice president at the Washington Policy Center.

McKenna pledges to conduct a government-wide review of state regulations, arguing that government regulators have an incentive to fight for outdated, onerous rules that give them job security. McKenna also touts a tax break for 118,000 small businesses that would save them a combined $250 million a year. With Washington one of just four states that do not open up their worker’s compensation system to private competition, McKenna vows to break up the government’s insurance monopoly and let employers choose between state-run and private options.

A new poll by the National Association of Manufacturers and the National Federation of Independent Business found that 69 percent of small business owners and manufacturers say regulatory policies have hurt American small businesses and manufacturers. Other Republican candidates are echoing the call for regulatory reform. “We need to find a way to get government to work with people, rather than be a barrier,” said Republican Rick Hill during the first gubernatorial debate in Montana.

“Some of the help businesses need is for us to get the heck out of the way,” Pat McCrory, the Republican vying for the governorship of North Carolina, said at a Sept. 25 campaign stop in Alamance County. “We’re going to start looking at businesses as customers of government, not adversaries.”

Virginia Gov. Bob McDonnell’s track record is giving Republican challengers hope and ammunition. McDonnell assumed office in 2010 facing a $6 billion state budget deficit. He turned that deficit into a $404 million surplus in his first year. Focusing on government efficiency rather than tax increases, McDonnell helped Virginia’s state budget return to levels enjoyed before the current nationwide recession.

This summer Virginia posted its third straight budget surplus—$448.5 million this fiscal year—largely from the $319 million saved by state agencies operating below their budgeted levels. The previous fiscal year Virginia had a $544.8 million surplus. Unemployment in the state has fallen from 7.2 percent when McDonnell took office to 5.6 percent today.

With McDonnell serving as the chairman of the Republican Governors Association, campaigns around the country are retelling Virginia’s budget story. “For too long, elected officials from both parties have overpromised and overspent,” McDonnell says. “We are committed to a culture of fiscal responsibility and restraint in state government. We have made some very tough choices. We have reduced spending, not raised taxes, and focused government on its core functions.”

In Washington, the mood of the voters toward state government began to change in 2004 when it appeared that Republican Dino Rossi had broken the Democratic stranglehold on the governor’s office. Rossi won the initial automated count and recount, but Democrat Christine Gregoire became the winner after the Washington State Democratic Party paid for a second recount done by hand. Rossi lost that final recount by just 129 votes out of nearly 3 million votes cast.

Gregoire secured reelection in 2008—a year that saw disgruntled voters give Democrats control of the White House and greater power in Congress. But Washington voters kept edging closer toward fiscal conservatism on a state level: Voters in 2010 rejected by 30 percentage points a ballot proposal to impose a 5 percent tax on income over $200,000 and a 9 percent tax on income over $500,000.

Washington Democrats on this November’s ballot are counting on an Obama bounce, but McKenna, in winning nearly 60 percent of the vote during his reelection as attorney general, was the only candidate to outperform Obama statewide in 2008.

After taking 11 governorships away from Democrats in 2010, Republican governors lead 29 states. With the GOP competitive in at least four states where Democrats are now in charge, the nation could see nearly two-thirds of all the governorships held by the GOP after this election. That would be the largest number of Republican governors in the country since 1921.

The Republican Governors Association raised a record $14.8 million in the third quarter of this year, giving it a total of $88 million for this election, double its 2008 fundraising pace. The group has already invested $6 million in Washington where McKenna hopes to accomplish what hasn’t been done since the year the upstart U.S. Olympic hockey team upset the powerhouse Soviet Union.