The risks, and rewards, of red ink

With tight budgets, new governors face possibility of fiscal chaos - but the payoff of a rebound could be big.

In politics - as in life - big crises make for big opportunities. Think of Abraham Lincoln and Franklin Roosevelt. They dealt with grave crises - and became two of America's greatest presidents.

So it is with the nation's crop of 24 new governors, who are being inaugurated this month. These rookie chief executives are ascending to office as their states descend into the biggest fiscal troubles since World War II and the Great Depression.

The pitfalls for these newcomers are huge - far bigger than those faced by governors in the spend-easy 1990s. Yet the potential payoffs are big, too: If they preside over an economic rebound, they can sell themselves as saviors. And, as every governor knows, 4 of the last 5 presidents ascended from statehouse to White House.

Already, many newcomers are catching onto the importance of thrifty, egalitarian gestures:.

• In Massachusetts, Gov. Mitt Romney (R) won't accept a salary - his way of helping with a $2 billion budget gap. And on inauguration day last week, he served food to the homeless and coached basketball at a youth center - making a pitch for volunteerism during tough economic times.

• Like many governors, Maine's John Baldacci (D) yesterday held a low-key inaugural lunch - a casual-dress BBQ that was a far cry from the 1995 black-tie dinner for Gov. Angus King, where guests feasted on 1,700 pounds of salmon and one ton of shrimp.

• Maryland's Bob Ehrlich (R) plans to sell off the state's yacht, plane, stadium skyboxes, and other property to help deal with a $1.8 billion budget gap.

Much of the governors' success depends, of course, on whether their economies recover - something over which they have little control. Yet it's often better "to come in at the bottom of an economic valley than to come in at the mountaintop," says Larry Sabato, a political scientist at the University of Virginia. Assuming the economy cycles upward, "They can run again as the person who saved the state."

'There's at least a president or two'

In all, how these governors perform - and whether the economy rebounds - will help determine if they become a group of mostly unpopular one-termers or presidential contenders. Professor Sabato figures some will succeed.

"There's a near-guarantee that there's at least a president or two in there," he says, citing Governor Romney, Governor-elect Ehrlich, Arizona's Janet Napolitano (R), Oklahoma's Brad Henry (D), Minnesota's Tim Pawlenty (R), Kansas' Kathleen Sebelius (D), and Tennessee's Phil Bredesen (D) as potential political stars.

But first they'll have to weather a fiscal-political storm. States have already dealt with about $50 billion in budget gaps for this year. Next fiscal year, the shortfall could reach $85 billion.

The perilous path of tax hikes

And Uncle Sam hasn't done much to bail them out: In his economic-stimulus plan this week, President Bush offered states just $10 billion over 10 years. Also gone are most rainy-day funds that recently bailed out some states. Wisconsin's Jim Doyle (D), for instance, comes into office with just $201 in the state's rainy-day piggy bank.

For many new governors, this may mean having to take the perilous path of raising taxes. Already, two fiscally conservative Republicans - veteran Govs. Mike Huckabee of Arkansas and John Rowland of Connecticut - have proposed major tax hikes. So has Democrat Gov. Jim McGreevy of New Jersey.

But the special trouble for many of this year's rookies is that during their campaigns, they promised - or implied - that they wouldn't raise taxes. (South Carolina Republican Mark Sanford even promised that he'd abolish the state income tax.) And as every politician knows, retreating on a "read my lips" antitax promise can be a career ender.

The other option, of course, is to cut spending. This can be done - but carefully. "What will demonstrate leadership is dividing out the pain in a way that seems fair and equitable," says Tobe Berkovitz, a communications professor at Boston University. One of the quickest ways for governors to raise public ire, he says, is to be seen as "aloof or arrogant or bull-headed or mean."

The blessing of low expectations

And as President Hoover learned the hard way during the Depression, elected leaders have to be proactive.

So far, rookies' strategies have varied. Mr. Romney and Pennsylvania's Ed Rendell see the tough times as an opportunity for reform. Romney blames budget troubles on "slow and bureaucratic ways" of state government and says "the only permanent solution is to change" the structure of the bureaucracy.

Others, such as Governor-elect Sebelius in Kansas, have begun soliciting suggestions from citizens.

All in all, perhaps the biggest thing these rookies can count on is voters' low expectations of them, given the fiscal crises. In Michigan, for instance, Gov. Jennifer Granholm "is starting out with basically everyone feeling sorry for her," says political observer Bill Ballenger. "She's got nowhere to go but up."

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