With elections looming, governors must understand challenges

We are now but a few weeks away from the November elections. From a state perspective, the 2010 election represents perhaps the most daunting level of leadership changes ever experienced at one time. This creates significant opportunities, but also some risks and uncertainties.

As has been widely reported, there are an unprecedented 37 contested governors races nationally. Some level of change is being brought on by state term limits and some has been brought on by the aspirations or failures of incumbents.

What is so staggering to me is that many analysts are now estimating that at least 25 and potentially as many as 30 new governors will come into office this January. Can you imagine half of the CEOs of a major U.S. industry sector turning over, all at one time, along with their C-Suites?

This advent of new leadership represents an opportunity for many states to undertake key fundamental transformational, organizational and operational changes that are imperative. Unfortunately, as I have previously written, a number of states failed to take advantage of the economic downturn over the last several years to drive fundamental agreements around cost structure and changes to business operations. In fact, the American Recovery and Reinvestment Act (ARRA) allowed many states to plug short term budget holes rather than taking on these tougher decisions. It appears that many new governors will now have a daunting challenge: to cut the cost of government while maintaining service levels.

This change in state leadership will be taking place right in the middle of one of the more significant program transformations ever experienced by this generation. Federal health care reform, as enacted, affects the states in a significant way – in their role as health care financier, in their role as health care payer and in many cases in their role as health care provider.

Although many incumbent governors and their teams have taken implementation planning seriously, as new executive teams focus on their approach to healthcare reform, the change in state leadership could create unfortunate delays and shifts in direction.

There are certainly a number of other issues that are receiving significant attention in the election debates and media. Some of the more provocative issues appear to be the following:

  • Deficits and Debt: Controlling spending is a daunting issue federally and in the states. Fiscal year 2011 (FY11) promises to be the most financially challenging for the states, with nationwide shortfalls estimated at close to $200 billion. In many cases, states used funding from ARRA to address shortfalls in their budget for the current fiscal year, in essence deferring major budgetary issues to future years. Furthermore, unlike the Federal government, most states are constitutionally bound to balance their budgets. As a result, tough decisions still loom on the horizon in FY 11 or beyond. Additionally, were federal actions to be undertaken to address the growing and daunting national debt, it is possible that such measures are likely to have unintended negative consequences on the states.
  • Energy policy and sustainability: – Depending on future Congressional considerations, regarding a national energy policy, states will need to determine their appropriate role in energy policy and sustainability.
  • Immigration policy: This has emerged as a vitriolic issue, at least in our border states.

Like many of you, I am planning to stay up late on November 2nd to follow the election returns and the impact of this sea of leadership change on the states.

Mr. Robert N. Campbell III, vice chairman, Deloitte LLP and U.S. state government leader, is based in Austin, Texas.

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