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2013 45: 127 originally published online 12 March 2013Administration & Society George E. Hale

1977-1985Issues'': A Case Study of Delaware Governor Pete du Pont State Budgets, Governors, and Their Influence on ''Big-Picture

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© 2013 SAGE Publications DOI: 10.1177/0095399713479437

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Article

State Budgets, Governors, and Their Influence on “Big-Picture Issues”: A Case Study of Delaware Governor Pete du Pont 1977-1985

George E. Hale1

Abstract Studies of state budgeting focus on gubernatorial power primarily by examining executive influence over appropriations to individual agencies or programs. They also view executive versus legislative budgeting as a short- term zero-sum game. An alternative approach is to look at budgeting from a long-term perspective centered on “big-picture” elements of a state’s financial position. This case study takes this perspective by looking at Delaware Governor Pete du Pont’s tenure (1977-1985) when he engineered a remarkable, long-term financial turnaround in the face of economic stagnation, undisciplined spending, historically weak financial management, and divided government. His leadership resulted in balanced budgets, repeated tax cuts, upgraded bond ratings, and reduced unemployment. The case illustrates how governors can impact “big-picture” issues with influence extending well beyond their tenure in office. An examination of du Pont’s leadership style suggests strong similarities to leaders studied by Jim Collins who have transformed other organizations. Looking at the effectiveness of du Pont’s leadership style suggests that clear priorities, bipartisan solutions,

1Kutztown University of Pennsylvania, USA

Corresponding author: George E. Hale, Department of Political Science, Kutztown University of Pennsylvania, P.O. Box 730, Kutztown, PA 19530, USA. Email: [email protected]

479437AAS45210.1177/0095399713479437Administration & SocietyHale research-article2013

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128 Administration & Society 45(2)

and altering the institutional framework for tax and spending decisions can contribute positively to influence over “big-picture” issues of state finance.

Keywords governors, state budgets, leadership

Introduction

Studies of the state budget process generally characterize governors as more influential than state legislatures (Anton, 1966; Howard, 1973; Schick, 1971). Yet despite 40 years of empirical study, gaps in our knowledge remain about how governors influence budgetary outcomes. Relying on comparative anal- ysis of budget outcomes or surveys of state officials, these studies do not focus on how governors influence budgetary outcomes. In addition, studies of state budgetary politics focus on short-term influence over budget out- comes and pay little attention to the long-term “big-picture” issues of a state’s financial position.

Comparative studies of state budgeting focusing on annual state appro- priations find the governor’s recommended budget to be a strong influence on final legislative enactments (Sharkansky, 1968). Thompson (1987) repli- cates this research and finds that governors are “not as dominant as before” but “still play an important, if not paramount role in short-term budget deci- sions” (p. 775). In about two thirds of the states studied, Thompson (1987) concludes that Sharkansky’s “gubernatorial dominance model” best explains budget outcomes (p. 768).

Yet there are limits to gubernatorial influence. Examining conditions of divided government, Clarke (1998) writes, “Successful opposition to the governor, it seems, depends on controlling both chambers of the legislature” (p. 15). Another case study (Hale, 1977) finds that both agency heads and legislators adopt differing budgetary behaviors to respond to the executive’s leadership style thereby limiting the governor’s influence.

Other studies (Abney & Lauth, 1987, 1998; Goodman, 2007) examine gubernatorial and legislative influence over state budgets by surveying executive and legislative budget staffs. They find that executive dominance is not clear-cut. It often depends on institutional arrangements, budget for- mats, and information flows. Abney and Lauth (1987) identify executive dominance in 14 states, legislative dominance in 9 states, and mixed results in another 14 states. By the middle of the 1990s, Abney and Lauth (1998) found movement toward increased legislative influence over short-term budget outcomes. They suggest that gubernatorial influence waned because (a) governors no longer control the appropriations agenda; (b) the item-veto

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is not effective; (c) increased partisanship undermines executive leader- ship; and (d) legislatures no longer are willing to enact reforms to strengthen the chief executives budgetary powers. Goodman (2007) finds that the leg- islatures’ ability to independently access budgetary information, a separate legislative budget agenda, and the addition of detailed language in budget bills, and consensus revenue forecasting can limit the governor’s budgetary influence.

Dometrius and Wright (2010) reexamine the issue of executive and legis- lative influence in an effort to reconcile the disparate findings that executive influence remains strong with findings that legislative influence is growing. They look at a broader data set—the American State Administrators Project— five replicated surveys of state agency heads in all 50 states over a 20-year time frame. They find gubernatorial budget influence has not changed much in two decades. Dometrius and Wright also discover that “differences between the governor’s overall influence and that of the legislature are modest” (p. 787). However, they also note significant differences across the states and within states over time. Structural elements of state government such as the governor’s powers or legislative professionalism do not explain changes in gubernatorial influence over time.

Dometrius & Wright (2010) also note that the struggle for budgetary supremacy is not necessarily a zero-sum game. To some degree, governors and legislators may chase different goals. They assert,

A governor knows that he or she is likely to take the bulk of the praise or blame for the big-picture element of the state’s overall financial status. Legislators, on the other hand, can sacrifice some policy preferences as long as they glean other items, especially from the budget specifics, for their constituencies that can cushion their reelection prospects. (Dometrius & Wright, 2010, p. 792)

Dometrius and Wright (2010) conclude, “Continuing to treat budgetary influence as unidimensional, and a type of zero-sum game, may compare apples and oranges. This is especially true if the two institutions define the terms and games differently” (p. 792).

Despite the general focus on the relative influence over appropriations as a short-term, zero-sum game, a few studies examine gubernatorial influence from a long-term perspective. Alt and Lowry (1994) show that long-term partisan differences in state taxes and spending exist. Alt and Lowry’s (2000) study of 33 non-Southern states from 1952 to 1995 shows that Republican and Democrat Governors shift the fiscal scale of state governments in differ- ent directions and that these shifts are greatest under unified party control of state. Yet this literature also does not address how governors exercise long- term influence over the scale of state government operations.

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As a result, we know comparatively little about how governors use their powers and skills to influence the direction of state policies. One study of gubernatorial success with legislatures finds that the sizes of an electoral mandate, popularity, and formal powers have little impact. Ferguson (2003) finds that a focused agenda is essential to success: “Governors who pursue broad agendas have a significantly harder time achieving their goals than governors who pursue more tightly constrained agendas” (p. 178).

Single-state case studies provide value by identifying hypotheses or dem- onstrating how politics actually works in practice. Nicholson-Crotty and Meier (2002) conclude, “We should focus on our goal—enhancing our under- standing of politics. Carefully done single-state case studies can contribute to this goal” (p. 420). This case study illustrates how executive influence can be exercised over the “big-picture” and long-term issues of public finance. It probes the leadership of Delaware Governor Pierre S. (Pete) du Pont IV (1977-1985) and how his influence extended through the tenure of one Republican and three Democrat Governors who followed.

Delaware Politics and Administration

Despite its small size, on many dimensions, Delaware is a representative state. The governor’s powers approximate those of the typical state. In 2007, Delaware’s governor scored a 3.5, the 50-state average, on a 5-point index of gubernatorial institutional powers (Beyle & Ferguson, 2008). The political parties are highly competitive as indicated by Delaware’s score of .478, com- pared with a score of .500 for a perfectly competitive state, on the Rainey index of party control (Holbrook & La Raja, 2008). Republican du Pont faced a House of Representatives controlled by Democrats for 2 years and a Democrat Senate for all 8 years. Finally, Delaware reorganized its sprawling state bureaucracy with more than 140 separate agencies and created a cabinet form of government in 1970 during an era when the majority of states created streamlined forms of government.

Today Delaware’s financial operations model best practices. The 2008 Government Performance Project ranks Delaware among the top seven states in large measure due to changes unleashed in the 1970s, “Delaware’s long- term financial success can be linked to a strict set of spending and taxing controls that began more than three decades ago.” Similarly, Alt, Lassen, and Skilling (2002) construct an index of nine state-level procedures for transpar- ent state budgeting. Delaware stood as one of only three states with eight of the nine best practices (Generally Accepted Accounting Principles [GAAP] reporting, multiyear expenditure forecasts, annual budget cycle, binding revenue estimates, legislative revenue forecast, single appropriations bill,

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nonpartisan staff drafting, no open-ended appropriations, and performance measures reporting). Furthermore, Delaware also is recognized as one of only seven states rated AAA by all three rating agencies.

Immediately prior to Pete du Pont’s election as Governor in 1976, Delaware government underwent numerous changes typical of era. In the 1960s, reapportionment following Baker v. Carr transformed more state gov- ernment by moving legislative seats from rural to suburban areas. Second, a 1966 law established a merit system of employment. Third, in 1970, Republican Governor Russell W. Peterson won adoption of a major reorgani- zation of the state bureaucracy folding 140-some agencies into 10 new cabi- net agencies under the control of the governor. Soon, Peterson noted, “My seat as Governor got a hundred times hotter over-night. Now everybody knew the responsibility was with me and the cabinet secretaries I appointed and controlled” (Peirce & Barone, 1977, p. 106).

While today Delaware models financial best practices for other states, 35 years ago, it was a far different story. Delaware’s top personal income tax rate reached 19.8%. An unsophisticated state government coupled a high debt burden with the nation’s second lowest bond rating. The state recorded a series of budgetary deficits. Under Republican Governor Pete du Pont, a transformation began in 1977. His major reforms emerged from a challeng- ing environment—economic decline, divided party control, a history of inef- fective governors, undisciplined spending—that resembles the environment common today in many states. Soon his reforms became entrenched in the state’s political culture as his successors from both parties embraced his policies over the next 28 years. Boyer and Ratledge (2009) conclude, “each of Pete du Pont’s successors followed his lead by combining bipartisan and consensus politics with strong leadership and policy initiatives” (p. 80).

Governor du Pont’s Early Missteps

When elected, Governor Pete du Pont provided few clues that he would reshape public finance and politics in Delaware. For one, he lacked senior executive experience. After a couple of years as a junior Navy officer, he briefly worked as a middle manager in the Du Pont Company. After only one term in the Delaware House of Representatives, he was elected to the U.S. House of Representatives in 1970. Frustrated as a backbencher in the Republican minority in Congress, du Pont launched his campaign for Governor in 1976 with a rather thin record of executive and legislative accomplishments.

He handily defeated incumbent Democrat Governor Sherman Tribbitt capturing 57% of the vote. The Governorship seemed to be not much of a

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prize. In his inaugural address in January 1977, he focused on the essential challenge facing Delaware: “One might question whether this is a good time to become Governor. Our finances border on bankruptcy; too many of us do not have jobs” (Nagengast, 2007, p. 41). All three of his predecessors failed to win reelection. In addition to the nation’s highest personal income tax rate, at 19.6%, the unemployment rate stood as the second highest in the nation; the bond rating fell to the second lowest. The state budget ran a deficit in 5 of the previous 7 years. Out of control spending grew at triple the rate of infla- tion. Unreliable and politically driven revenue estimates provided a shaky foundation for state budgeting. Finally, du Pont faced a legislature dominated by an “old guard” and controlled by the opposition.

Although initially lacking a strategy on how to confront the state’s fiscal crisis, he moved swiftly to tackle it. He promptly established the Delaware Economic and Financial Advisory Council (DEFAC) to develop indepen- dent, transparent, and professional revenue estimates. Quickly he froze hir- ing, halted many construction projects, and proposed terminating the practice of granting semiannual cost-of-living adjustments. However, sev- eral missteps and an aloof and confrontational approach to legislative rela- tions produced negative reactions. In his first budget message on March 3, 1977, he confronted the brutal facts: “The State of Delaware is bankrupt.” Intended as hyperbole to spark legislators into action, instead the remark troubled the financial community. Moody’s downgraded the State’s bond rating to Baa.

His first legislative session ended poorly. One observer (Nagengast, 2007) noted, “du Pont would find that many lawmakers in Dover would consider him a blueblood, patrician outsider who would have to be watched carefully and quite quickly take down a notch or two” (p. 44). When the General Assembly adjourned for the year, du Pont vetoed a budget that surpassed his bottom line. The General Assembly promptly embarrassed the Governor by overriding the veto. One cabinet member (Nagengast, 2007) summed it up in one sentence—“It was a horrible, horrible six months” (p. 44).

Positive Developments

By the time du Pont left office in 1985, the state balanced the budget each year, enacted two personal income tax cuts, adopted new Constitutional con- trols on taxes and spending, and limited future borrowing. Delaware also captured two bond rating upgrades, adopted major economic development initiatives, and lowered its unemployment rate. After a “horrible” start, how did du Pont turn things around? What aspects of his leadership style enabled him to enact an impressive array of policy changes? And, what explains the longevity of the reforms he championed 30 years ago?

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It helps to examine du Pont’s leadership in the context of framework pro- vided by Jim Collins. Governor du Pont’s leadership style resembles many of the attributes of successful leaders identified by Jim Collins (2001, 2005) in his study of great private companies and nonprofit organizations. These traits include leaders who combine professional will with the ability to work through others, an emphasis on recruiting a top-flight team, the tenacity to confront “brutal facts,” the ability to focus on one key issue, and a culture of discipline to make and implement difficult decisions.

In addition to making executive decisions, Collins (2005) asserts leaders in the social sector must master what he terms “legislative leadership” by “getting things done within a diffuse power structure” (p. 9). Executive skills are essential when the leader has enough power to simply make decisions, but “legislative” skills are important when the chief executive lacks the struc- tured power to make all the important decisions by himself. Clearly this was the challenge facing the governor. According to Collins (2005), “Legislative leadership relies more on persuasion, political currency and shared interests to create the conditions for the right decisions to happen” (p. 11).

Before the budget veto override, du Pont showed few signs of mastery of the legislative process. His early political success did not require coalition building or credit-sharing. His limited state government tenure, minority- party backbench experience in Congress, and patrician background did not prepare him for working with the rough and tumble, working-class General Assembly. Moreover, lawmakers stood ready to put him into his place. One advisor noted,

Pete ousted a popular Democrat in Sherman Tribbitt, and there was a lot of acrimony over that … There was this sense of wrong that this young scion of the du Pont family was bumping a popular democrat. (Nagengast, 2007, p. 44)

In the summer of 1977 following the abortive veto, the Governor recog- nized the importance of personally forging relations with legislators. That summer the governor made a determined effort to start building bridges. After the veto, Boyer and Ratledge (2009) wrote, “du Pont knew he had to replace confrontation with cooperation with the legislature. He reversed course and ushered in a new era of bipartisan and consensus politics that has dominated the state” (p. 79). One Democrat legislative leader, Lonnie George, recalls,

He looked for social settings to get us together. I remember going to a ballgame. There is something about building a relationship when you are not asking for anything. It’s kind of like, we’re just going out to a ballgame, have some fun, a few laughs, tell some stories, and get to know each other. I give him a lot of credit, for taking this on himself. He could have had his cabinet build these relationships. But

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he did it in social settings that were not threatening, where nobody had to get on the defensive, and we got to know him as a person. He got to know us. (Nagengast, 2007, p. 68)

In his bipartisan outreach, Governor du Pont paid special attention to the younger, rising new leaders in the General Assembly. One was the new Senate Democrat President Richard Cordrey, 45 years of age, who remained in the General Assembly until 1996. The leader of a bloc of conservative downstate agribusinessmen in the Senate, Cordrey became a key ally on financial issues. Another key ally became Orlando George, the 32-year-old Chairman of the powerful Joint Finance Committee, who would later become House minority leader and remain in the legislature until 1994. When major constitutional amendments were ready for consideration, Cordrey became prime sponsor in 1978 and both played leading roles delivering bipartisan support.

Another ingredient in du Pont’s formula for success involved building a remarkably strong cabinet. Intuitively, du Pont grasped the insight from busi- ness consultant Jim Collins. Instead of starting with vision or strategy, Collins (2001) asserts, effective leaders “first get the right people on the bus, the wrong people off the bus, and the right people in the right seats—and then they figured out where to drive it” (p. 13). He started before taking office. As a candidate, he recognized state finances as the critical challenge facing the state. He recruited a young University of Delaware economist, Eleanor Craig, as his economics tutor, to fill in gaps in his formal education as an engineer and as a lawyer. Craig later became a key advisor and chair of DEFAC.

Recognizing that budgetary failures, unsophisticated financial manage- ment, and last-minute tax increases torpedoed both Governors Peterson and Tribbitt; du Pont immediately initiated a national talent search for top-flight financial executives. Du Pont’s Secretary of State, Glenn Kenton (Nagengast, 2007), recalls, “We immediately set about a nationwide search and talking with other governors about the people to do these things” (p. 48). The Finance Secretary came from a top job in Illinois, a budget director moved from the Governor’s office in South Dakota. His planning chief returned to Delaware from a job with the U.S. Office of Management and Budget. “So we really did do a nationwide talent search and that was really, really important. And, to this day Pete will tell you (it was) an important outside-the-box decision that he made before he ran,” recalls Kenton (Nagengast, 2007, pp. 46-50). As time went by, the Governor continued to look to other states for financial talent. In his second term, he again reached beyond Delaware’s borders recruiting new Secretaries of Finance and of Administrative Services from subcabinet posts in New Jersey and Pennsylvania.

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When necessary, he also moved members of his team to another post or reassigned their portfolios. After the first rocky legislative session, he trans- ferred legislative liaison responsibilities to his down-to-earth Secretary of Finance Pete Nellius. Relations improved almost immediately. The governor later joked, “Pete Nellius played poker with legislators and I guess he lost just enough money that they felt good” (Nagengast 2007, p. 47). One legislative leader recalled, “Pete Nellius was a wonderful extension of the governor. He was relaxed, non threatening and would ask how we can work through this together” (Nagengast, 2007, p. 47). He also often moved key advisors to new positions capitalizing on their strengths. In 1981, he moved his planning chief to a newly created cabinet-level economic development agency. When his new Administrative Services Secretary stood out, he promoted her in 1982 to Budget Director after only 1 year.

In addition to building a top-flight team, Collins (2001) argues, “You absolutely cannot make a series of good decisions without first confronting the brutal facts” (p. 70). Governor du Pont did this in his inaugural address: “The challenge, then, will be to recognize our limitations, establish our pri- orities and live within our means. It will require personal discipline from each of us, and political discipline from all of us” (p. 70). While the bankruptcy remark and veto override damaged his standing with legislators, they also represented turning points that signaled his resolve. Governor du Pont explained, “By the time we vetoed the whole budget in July, things were really awful. But in retrospect, vetoing the budget may have won the war because for the first time, people said you know, these people are serious” (Nagengast, 2007, p. 61).

Another aspect of du Pont’s leadership style is what Collins (2001) labels the “hedgehog concept” (pp. 95-96) derived from Isaiah Berlin’s (1993) famous essay. “The fox knows many things but the hedgehog knows one big thing,” Collins (2001) concludes, “Hedgehogs see what is essential, and ignore the rest” (p. 91). Governor du Pont’s priority was to instill responsible financial management as a way to lower taxes as prerequisites for economic growth. In his inaugural address he stated, “It will be painful, but not fatal, for a careful pruning of the shoots and branches of government will lead to a new prosperity, founded on economic growth” (Nagengast, 2007, p. 41). Getting spending under control, and limiting the General Assembly’s ability to raise taxes stood as the first hurdle to clear. The public clearly understood that finances were the top priority. As Governor du Pont later noted, “Being gov- ernor is the greatest job in the world. You can do anything you want—but you can’t do everything” (Rosenthal, 2013, p. 94). His speeches, appointments, and legislative agenda reflected a clear priority of controlling finances as a

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means to jump-starting the economy. The Governor and his cabinet ham- mered on this theme from one end of the small state to another. Only after success in his first term, did he move to a second major issue upgrading eco- nomic development.

A culture of discipline was also essential. His strategy for confronting undisciplined spending soon centered on changing the constitutional frame- work for taxing and spending. Following his horrible 1977 legislative ses- sion, du Pont worked with his new allies by changing the processes of government. Already du Pont had changed the process for estimating reve- nues. By Executive Order, he established the DEFAC, including private industry members, university economists, and governmental officials, to develop the official revenue estimates at public meetings. He also combined the planning and budgeting functions into a new Office of Management, Budget, and Planning.

To inject discipline into the budget process, du Pont enlisted business leaders and new legislative allies to amend the state constitution. In Delaware, two successive legislatures must enact constitutional amendments—no refer- endum is required. By 1980, two amendments introduced by Democratic Senate President Richard Cordrey passed a second General Assembly. One limited spending to 98% of estimated revenues plus the unencumbered General Fund Balance from the previous year. The amendment also required that the remaining 2% be placed in a new Budgetary Reserve Account or “Rainy Day Fund.” This fund could only be tapped by a 3/5’s vote of the General Assembly under very limited conditions—to confront an unantici- pated deficit or offset a tax reduction. The second constitutional amendment required a 3/5’s vote to increase taxes. Secretary of Finance Nellius (Nagengast, 2007) recalled, “It wasn’t simply passing a couple of budgets that were lower or getting some more revenue moving. There had to be some fundamental structural change in state finance” (p. 95).

The Governor also won support for other legislation to tighten control of state finances. New legislation restricted state borrowing to 75% of the prin- cipal on existing bonds retired each year. Building on bipartisan support for the constitutional amendments and a budget surplus in 1978 and 1979, Governor du Pont won approval for reducing the top personal income tax rate from 19.8% to 13.5% by 1980. Another top rate reduction to 12.2% passed in 1984 during du Pont’s last year in office.

Fixing the state’s financial condition took longer than he had expected and involved trial and error. The goal seemed clear initially, but the strategy took time. It was not enough to work with bipartisan allies, flexibility was also essential. The Governor later noted (Nagengast, 2007),

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It’s not as if we were a band of zealots that came into the governorship and said if we do A and B and C, everything will be fine. We learned as we went along and in fact I think our biggest weakness was we didn’t have all these things in our heads in 1977. It took until ’78, ’79 before we kind of got it. (p. 96)

Once the tax rates were reduced, the bond rating increased in 1979 to A and to AA in 1981. Soon improved economic results gave the state the greater financial flexibility to enact additional tax rate reductions. This suc- cess helped maintain the new bipartisan consensus for supporting fiscal restraint.

After stabilizing state finances in his first term, du Pont added economic development as a logical extension to his agenda. Major firms noticed Delaware’s emerging financial turnaround and new tax policies. Overtures from New York banks prompted the Governor and business leaders to craft the Financial Center Development Act (FCDA) removing limits on credit card interest rates and enacting a declining marginal tax rate for bank fran- chise taxes. Legislative support for this bold move flowed from du Pont’s recently acquired credibility on financial matters. Without the fiscal disci- pline already exhibited, it is unlikely that out-of-state bankers would have approached Delaware, or trusted that the Governor could deliver results (Gerth, 1981). With bipartisan support, the FCDA passed the State House 33-3 and the Senate 14-7. Along with a lower cost of real estate and labor, this step prompted the relocation of numerous bank credit card operations. In the next 20 years, employment in the financial sector exploded far beyond the governor’s expectations creating 40,000 jobs.

Du Pont addressed other weaknesses by reorganizing the state’s economic development efforts by creating a new cabinet agency with a broad set of powers to deal with taxes, financing, infrastructure, and workforce develop- ment. Personal income tax cuts by du Pont encouraged private-sector confi- dence in Delaware’s economic path. The new Delaware Development Office became an institutional advocate for additional tax reductions and market principles. By 1982, the state’s unemployed rate dropped below the national rate for the first time in a decade. In 1985, the state’s unemployment rate registered only 5.3% or three fourths of the national rate of 7.2%.

The Long-Term Impact

His transformation of Delaware government and du Pont’s focus on fiscal discipline, tax reductions, and economic growth carried the day for over 25 years. His long-term influence resulted from the constitutional amend- ments he championed, from bipartisan allies, and from his influence on

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later governors. He forged alliances on “big-picture” issues with key leg- islators like Cordrey and George who remained in power into the 1990s. By sharing credit with Democrats, he fashioned a stable coalition on the “big-picture” of taxing and spending policy.

The next three governors were young state officials during du Pont’s ten- ure and were strongly influenced by his policies and success. As a result, Delaware balanced budgets and did not raise income taxes again until the recession of 2008. Governor Michael N. Castle (1985-1993), du Pont’s Lieutenant Governor (Nagengast, 2007), stated, “If Delaware going into the Pete du Pont administration had an inferiority complex, I think coming out of the Pete du Pont administration Delaware had a superiority complex” (p. 166). Democrat Governor Thomas C. Carper (1993-2001) served three terms as elected State Treasurer from 1977 to 1983 and worked closely with du Pont’s financial team. Governor Ruth Ann Minner (2001-2009) served as State Representative and State Senator during du Pont’s tenure.

Republican Governor Castle, maintained the centerpiece of du Pont’s fis- cal program. Under Castle, the state slashed the top personal income tax rate 3 more times from 12.2 % to 7.7%. By 1988, Moody’s upgraded the state’s bond rating to Aa and Standard & Poor’s (S&P) and Fitch adjusted the state’s bond rating to AA (see Table 1).

In 1993, Democrat Thomas Carper, a former State Treasurer and Delaware’s Congressman, replaced Castle. Only 30 years old when elected as State Treasurer in 1976, he worked closely with du Pont’s team. As Governor, Carper also quarterbacked three additional personal income tax cuts through the General Assembly. This pushed the top rate down to 5.95%. The state’s bond rating climbed to the AAA level in 2000. Moreover, the unemployment rate stayed low relative to the rest of the nation throughout the 1980s and1990s (see Table 2). “They (Castle and Carper) built on his achievements,” writes Nagengast (2007), “giving Delawareans a full generation of common-sense fiscal management and reliable leadership from the executive branch” (p. 40).

The 2000 election of Miller, a former legislator and Carper’s Lt. Governor, elevated to the Governorship another official who held office during the du Pont years. She signaled continuity with the du Pont era by nominating as Secretary of Finance, Richard Cordrey, the former Senate President who sponsored du Pont’s constitutional amendments. She also named du Pont’s former economic development chief as Secretary of Transportation. Miner faced tougher challenges than Castle or Carper. She weathered the 2001-2003 recession by tightening state spending and relying on reserves accumulated in the 1990s, but she left the state with strong financial reserves. While Minner became the first chief executive since du Pont not to enact income tax rate reductions, she refused to raise them. She also tightened the state’s belt.

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Two observers note, “Delaware fared much better than other states that had incurred deep deficits and huge budget shortfall occasioned by the post-9/11 recession” (Boyer & Ratledge, 2009, p. 82).

The long-term impact of du Pont’s reforms can be seen in the tax rate, bond rating, and unemployment rates when Delaware experienced guberna- torial transitions over a 32-year period (see Table 3). Throughout these peri- ods, the top marginal personal income tax rate declined from 19.8% to 5.95%. Conversely, the bond rating steadily climbed to AAA. In addition, under du Pont, Delaware’s unemployment rate dropped below the national average during his second term and stayed there under his three successors. The

Table 1. Comparison of Delaware’s Top Marginal Income Tax Rate and S & P Bond Ratings 1976-2000.

Year Tax rate (%) Bond rating

1976 19.8 A 1977 19.8 BBB 1978 19.8 BBB 1979 16.5 A 1980 13.5 A 1981 13.5 AA 1982 13.5 AA 1983 13.5 AA 1984 13.5 AA 1985 12.2 AA 1986 9.7 AA 1987 8.8 AA 1988 7.7 AA+ 1989 7.7 AA+ 1990 7.7 AA+ 1991 7.7 AA+ 1992 7.7 AA+ 1993 7.7 AA+ 1994 7.7 AA+ 1995 7.7 AA+ 1996 7.1 AA+ 1997 6.9 AA+ 1998 6.9 AA+ 1999 6.9 AA+ 2000 5.95 AAA

Source: Delaware Department of Finance, Official Statements, various years.

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long-term results in Delaware also compare favorably with other states. One analysis (Laffer, 2004) shows a positive relationship between Delaware’s relatively low tax rates and economic performance for the period 1994-2003. It is also notable that this relationship obtained during the tenure his Democratic successors.

Outside analysts continue to rate Delaware as one of the best-managed states. Similarly, Delaware stands as one of only seven states to receive an AAA rating from all three rating agencies. For example, Fitch Ratings (2010, 1) concludes, “Financial practices are solid and longstanding constitutional pro- tections are designed to insure surplus operations.” Moody’s Investors Service (2010, 1) concludes, “the highest rating level assigned to Delaware’s general obligation bonds is based in large part on legal provisions—that Moody’s believes will lead the state to maintain a strong financial profile over a long period.” Finally, S&P (2010, 3) considers “Delaware’s manage- ment practices strong … indicating practices are strong, well embedded, and highly sustainable.”

Table 2. Comparison of Delaware and National Unemployment Rates 1980-2000.

Year Delaware unemployment (%) USA unemployment (%) Delaware/USA (%)

1980 7.4 7.1 104 1981 7.8 7.2 108 1982 8.5 9.7 88 1983 8.1 9.5 85 1984 6.2 7.5 83 1985 5.3 7.2 74 1986 4.3 7.0 61 1987 3.2 6.2 52 1988 3.2 5.5 58 1989 3.1 5.3 58 1990 4.2 5.6 75 1991 5.7 6.8 84 1992 5.4 7.5 72 1993 5.0 6.9 72 1994 4.6 6.1 75 1995 4.4 5.6 79 1996 4.3 5.4 80 1997 3.9 4.9 80 1998 3.5 4.5 78 1999 3.3 4.2 79 2000 3.3 4.0 83

Sources: Delaware Development Office, Data Book, various years.

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The bipartisan consensus on state finances continues today even as Delaware and other states face troublesome financial challenges. In 2009, Governor Jack Markell, a 10-year State Treasurer and a Democrat, bal- anced the budget in the face of a potential deficit of $800 million in the $3.3 billion state budget. His fiscal year (FY) 2011 Budget Address also sounded familiar themes:

Last year, states across the country failed to balance their budgets in time. Delaware met its obligations, and we were rewarded for the fiscally responsible manner in which we accomplished that task. The three ratings agencies reaffirmed our AAA bond rating, in part because we appropriated 98 percent of our anticipated revenues and maintained our rainy day fund.

These remarks could have been given by du Pont, by Castle, by Carper, or by Minner. Speaking of the entire era, Boyer and Ratledge (2009) conclude, “Leadership by governors during this period was essential. But the effort could not have been successful without a great measure of bipartisanship. Both major political parties proved dedicated to establishing and maintaining fiscal responsibility in the state government” (p. 145).

Conclusion

Since Pete du Pont took office in 1977, hundreds of governors served in the 50 states. In few cases has a chief executive cast such a long shadow. While many executives find their footprints washed away by the next political tide, successors from both parties embraced Governor du Pont’s legacy. His con- stitutional amendments and his approach to financial issues have been embedded in the state’s political culture for 30 years.

Given the financial challenges facing states today, it is instructive to examine du Pont’s formula for achieving long-term results when confronted

Table 3. Comparison of Key Indicators During Gubernatorial Transitions.

Years Governors Tax rate (%) Bond rating Unemployment

rate (%) Unemployment as % USA rate

1977 Tribbitt/du Pont 19.8 BBB 8.3 120 1985 du/Pont/Castle 12.2 AA 4.3 74 1993 Castle/Carper 7.7 AA+ 5.0 75 2001 Carper/Minner 5.95 AAA 4.7 74 2009 Minner/Markell 5.95 AAA 8.1 87

Source: Delaware Development Office, Delaware Data Book, Delaware Department of Finance, Official State- ments, various years.

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with a stagnant economy, high unemployment, excessive spending, and out- of-control borrowing. He tackled issues directly confronting the “brutal facts” directly and boldly. Political capital was not wasted on second- or third-level issues. He focused on one big issue—the state’s finances—as his sole priority for his first 4 years. He also assembled a top-flight team. At the center of du Pont’s leadership was working through others, forging bipartisan alliances, and generously sharing credit. Finally, du Pont embedded disci- pline into the fabric of the state government through constitutional amend- ments constraining future legislators and governors.

This case study confirms the importance of looking at what Dometrius and Wright (2010) term the “big-picture” (p. 792) and long-term elements of the state’s financial position. Gubernatorial leadership can center on bigger issues than influencing the appropriations for individual agencies and hun- dreds of programs. These are important matters, but they are secondary to struggles to shape the scale and direction of state finances. Given the vari- ability of budgetary influence that exists across the states and within states over time, it is important to look at how governors can make use of their formal powers. However, it is the variations in the vision and skills of leaders that makes the biggest impact on state finances and policy. Finally, this case study demonstrates that occasionally rare Governors can influence policy for decades.

Author’s Note Quotations from Governor du Pont, his associates, and other state officials are taken from a series of oral history interviews conducted for the Delaware Heritage Commission. They can be found in Larry Nagengast, Pierre S. du Pont IV: Governor of Delaware, 1977-1985 (Dover: Delaware Heritage Commission, 2007).

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publi- cation of this article.

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Author Biography

George E. Hale is an assistant professor of political science at Kutztown University of Pennsylvania. He joined Kutztown University after a 30-year career in federal, state, and local government including 8 years as Delaware’s Secretary of Administrative Services from 1985 to 1993. He is the coauthor of The Politics of Federal Grants; he obtained his PhD from the Maxwell School of Citizenship and Public Affairs at Syracuse University.

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