The reform-minded conservative

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By Frank Donatelli

Imagine a two-term Republican governor from a state carried by Barack Obama who turned an $800 million deficit into a $1.2 billion surplus by cutting overhead and bringing sound business principles to his state's government even as he provided new health benefits for poor citizens. Imagine no longer. Indiana Gov. Mitch Daniels accomplished this and more, and he did it all while enacting the biggest tax cut in state history.

Despite a long career in public service, Mr. Daniels is not nearly as well-known as some of his colleagues. He worked for several years on Capitol Hill as chief aide to Sen. Richard G. Lugar and served former President Ronald Reagan as political director. After a 15-year stint in private business, Mr. Daniels became former President George W. Bush's director of the Office of Management and Budget and then won back-to-back gubernatorial races in 2004 and 2008 in Indiana. His second victory was won with the biggest vote total of any candidate for any office in state history.

Despite his relatively low public profile, Mr. Daniels has been a successful, reform-minded, conservative governor. He took office in 2005 with a huge deficit and state spending growing at an unsustainable 6 percent rate.

But Mr. Daniels is not one to kick the can down the road. He immediately went to work finding savings wherever he could. Cost-cutting and businesslike practices cured the state's operational deficit, but Indiana, like virtually every other state, also faced a huge shortfall in capital infrastructure funds. Mr. Daniels tackled that with the largest public-private partnership in U.S. history, a lease of the Indiana Toll Road, which brought the state nearly $4 billion for investment in transportation plus billions more to modernize the Toll Road itself.

In an interview, Mr. Daniels explained the impediments to conservative reform. "One is the public-sector employee unions who benefit from higher government spending and oppose pro-taxpayer reforms such as contracting for basic services."

There is also the need to convince employees and state legislators who are often "far more comfortable with preserving the way things have always been rather than seeing what we could do to make things better."

Mr. Daniels also reformed health care in Indiana, including organizing at no public expense a program that connected 250,000 low-income people with free or heavily discounted drug programs. His Healthy Indiana Plan is on its way to providing 130,000 more families with low-cost health insurance in a consumerist, Health Savings Account-like format.

Mr. Daniels continues to play Cassandra with his warnings about the continuing financial crunch states will face in coming years. As he recently wrote in the Wall Street Journal, "We're facing a near permanent reduction in state revenues that will require us to reduce the size and scope of our state governments."

Mr. Daniels says sales-tax revenues will not increase nearly as fast as in previous recoveries and that states will not be able to count on huge revenue increases from high-income earners to finance ever-higher government expenditures. Always the reformer, though, he notes, "This gives us another opportunity to show Americans the virtues of smaller, more effective government."

On the national level, Mr. Daniels believes the time is right for Republicans to make a fresh appeal to young voters (he won the youth vote by wide margins in both his races). "Our deficit levels threaten the well-being of the next generation," he said ominously. "We are stealing from our sons and daughters."

He also believes Americans are ready for a frank discussion about the real role of government, "Are we a nation of free individuals who take responsibility for our own actions, or should we just forfeit freedom and turn everything over to the federal government?"

Here he pivots to what really drives his governing style, "We need to be talking not about ideology, but practical results. Government should do fewer things than it tries to do today, everything, but we should make sure that it does the very best job possible on its core responsibilities. I am interested first and foremost in what works and what improves the lives of the citizens of my state. We always have to be on the side of change. We intend to be the drivers of change right up until my final day as governor of Indiana."

Frank Donatelli is chairman of GOPAC, the center for training and electing the next generation of Republican leaders.