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Voters `Ripe for Change' Signal Republicans to Add 6 Governors

Republicans are poised to win the most governorships since 1994 as candidates including Pennsylvania’s Tom Corbett, Michigan’s Rick Snyder and Ohio’s John Kasich seize on the faltering economy and persistent unemployment in bids to take over Democrat-led states.

The party may gain six or more seats in the 37 elections on Nov. 2, polls show, including in states held by Democrats such as Illinois, Oklahoma, New Mexico and Wisconsin. That would be the most Republican wins in 16 years, giving the party 30 of the 50 statehouses, according to the National Governors Association, and toppling the Democrats’ 26-24 majority.

The gains would strengthen Republicans before the 2012 presidential election, give them greater sway over the once-a- decade redrawing of congressional districts and shape states’ efforts to escape the recession’s lingering financial strains.

“The conditions are ripe for a change in parties because of the distress in the unemployment rate and the economic recovery being slow,” said Richard Ciccarone, a managing director of McDonnell Investment Management in Oak Brook, Illinois, which holds more than $7 billion of municipal bonds.

Republicans are emphasizing economic growth that slowed to a 1.7 percent annual rate in the second quarter from 5 percent at the end of 2009 and the cost of President Barack Obama’s programs, such as the health-care overhaul and $787 billion economic stimulus. With unemployment stuck near 10 percent for a year, Obama’s quarterly job-approval rating is the lowest of his presidency, Gallup Inc. said Oct. 21.

“The political climate is dominated by the economy,” said Nathan Gonzales, who tracks state races for the Rothenberg Political Report and estimates that Republicans may pick up as many as seven governorships. “That’s where Democrats are getting hurt.”

Shrunken Budgets

The economy’s malaise has shriveled state budgets, with tax revenue less than before the financial crisis worsened in 2008. States have projected $112 billion of deficits for the 2012 fiscal year, according to the Center on Budget Policy and Priorities, a researcher in Washington.

Funds from Obama’s economic stimulus plan of 2009, which helped states balance budgets, are set to end by mid-2011. To compensate, officials may have to raise taxes, fire workers and slice deeper into spending on schools, the poor and public-works projects. Republican victories could presage more severe cuts.

“You’ll see an inclination to reduce spending as opposed to increase taxes,” said former Utah Governor Michael Leavitt, a Republican who led that state from 1993 to 2003. “There will be a certain amount of pain from that, but their constituents may be more inclined to support that approach.”

Taxes Versus Cuts

In Illinois, where a projected $13 billion deficit amounts to more than half the state’s budget, Republican Bill Brady led Democrat Pat Quinn, who became governor last year when Rod Blagojevich was indicted for corruption, by 44 percent to 40 percent in a Mason-Dixon poll released Oct. 24. Brady has pledged not to raise taxes, as Quinn previously proposed, and wants instead to cut spending by 10 percent across all programs, including schools.

Republicans are ahead elsewhere in the Midwest. In Michigan, Snyder, former president of computer company Gateway Inc., outpolled Lansing Mayor Virg Bernero by 54 percent to 34 percent in an Oct. 19 Rasmussen survey. He would replace Jennifer Granholm, a Democrat who took office in 2003.

In Ohio, Kasich, a former congressman and Lehman Brothers Holdings Inc. banker, led 51 percent to 41 percent over Democratic incumbent Ted Strickland in an Oct. 19 Quinnipiac University poll.

Hard Time

“There have been a lot of economic problems in the state of Ohio for a long time, but the recession was particularly severe,” said John Green, the director of the Bliss Institute of Applied Politics at the University of Akron. “That’s really what’s giving Governor Strickland a hard time.”

In Pennsylvania, Republican Attorney General Corbett led Democrat Dan Onorato, chief executive of Allegheny County, by 49 percent to 44 percent, according to an Oct. 22 Quinnipiac survey. They’re vying to replace Democrat Ed Rendell.

Democrats are faring better in three of the four most- populous states. New York Attorney General Andrew Cuomo has widened his advantage over Republican Carl Paladino to 60 percent of the vote versus 37 percent, according to an Oct. 22 Marist College poll, suggesting his party will retain the third- biggest state.

Back in Power

In California, the most-populous state, former Governor Jerry Brown, a Democrat, leads ex-EBay Inc. Chief Executive Officer Meg Whitman by 13 percentage points in a poll released Oct. 24 by the University of Southern California and the Los Angeles Times. That potentially puts Democrats back in power after two terms under Republican Arnold Schwarzenegger.

In Florida, where former Republican Governor Charlie Crist switched to an independent to run for Senate, a Quinnipiac survey this month put Democrat Alex Sink, the state’s finance chief, in a statistical tie with Republican Rick Scott. She had trailed the former health-care executive since the August primary in the fourth-largest state.

“They’re hoping to win in two of the big states like California and Florida to give them something to hang on the wall after the election,” Gonzales, the forecaster with the Rothenberg report, said of the Democrats.

The party will be hurt by the loss of incumbents barred from re-election, he said. Among them are governors of Tennessee, Wyoming and Oklahoma, where Gonzales and other forecasters predict Republican victories. Only 14 incumbents are running in the 37 elections, according to the National Governors Association.

Flood of Cash

Republicans have also benefitted from a flood of cash. The party’s governors association raised $31 million from July through September, outpacing the Democratic group 3-to-1, Internal Revenue Service filings show. They’ve funneled some of the money into states that helped tip the 2008 election in Obama’s favor, such as Florida and Michigan.

“When Obama is mapping his re-election in 2012, that’s going to be a major difference he’s going to have to contend with,” said Mike Schrimpf, a spokesman for the Republican Governors Association.

Republicans’ personal wealth has also played a role. In California, Whitman has spent $141.5 million of her own money, the most personal funds ever used by a U.S. politician running for office. Florida’s Scott, former chairman and chief executive officer of Columbia HCA Healthcare Corp., and his wife have contributed $56.5 million to his campaign.

There’s no guarantee a shift to Republican control will remedy states’ budget problems, said Ciccarone, the investor with McDonnell.

Price of Risk

When Schwarzenegger rose to power in 2003 in the midst of a California fiscal crisis, he was cheered by investors, who pushed down the extra yield they demand for the risk of the state’s bonds. As the governor clashed with the Democratic- controlled legislature, the difference between California 10- year yields and those of top-rated borrowers soared more than 10 times from July 2006 through July 2009, to as much as 1.7 percentage points.

A “honeymoon-type of rally” ends if a state legislature opposes the programs of a new governor, said Ciccarone, who wouldn’t reveal his preference in the Illinois election.

“Then their ability to change may be modest,” he said. “You may not get the kind of dramatic change you need in the most hard-pressed states.”

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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