As governor, Romney faced similar economic situation as Obama -- with similar results
Charles Krupa / AP
The Massachusetts economy was in freefall in 2002, bleeding thousands of jobs each month as the collapse of the technology bubble unraveled the state’s most important industry. In just a year, the state unemployment rate had nearly doubled, with the likelihood that tens of thousands of technology and other jobs would be lost forever.Into this shattering recession -- from which the state has yet to fully recover -- rode Mitt Romney, fresh from saving the scandal-plagued Winter Olympics in Salt Lake City, and promising another turnaround for Massachusetts. In his gubernatorial campaign, he touted his business experience as the cure for the state’s deep recession, saying a “lifetime in the private sector” had taught him how to create jobs. He styled himself as a “CEO governor” and the state’s top salesman who would use his corporate connections to bring new companies and new jobs to Massachusetts.
Governor Deval Patrick, speaking Tuesday night at the Democratic National Convention, assailed his predecessor’s economic record, pointing to anemic job growth and deep budget cuts that affected education, transportation, and other programs that support the state’s economy. Romney’s campaign responded that the former governor turned a wide budget deficit into a surplus, held the line on taxes, and left office with fewer unemployed in Massachusetts than today.
In many ways, Romney inherited a state economy in 2003 similar to the one President Barack Obama found entering the White House in 2009, one marked by a deep recession, huge job losses, and a widening budget deficit. And like Obama, Romney struggled mightily, delivering at best a modest recovery dictated less by his political leadership than by sprawling global forces beyond his control.
Like Obama, Romney could also point to an economy that was much improved from the worst of the recession. But, as with the US economy today, progress was slow, painstaking, and for many, disappointing.
At the end of his term, Romney could claim a small net job gain and a lower unemployment rate, but the pace of job growth lagged the nation badly and only a huge outflow of Massachusetts workers to faster growing states kept the unemployment rate from climbing higher.
It is not quite the image of a turnaround painted by Romney’s presidential campaign.
In a statement, Romney spokesman Ryan Williams said the former Massachusetts governor added “tens of thousands of new jobs,” lowered the state’s unemployment rate, and balanced the state budget every year without borrowing or raising taxes.
“His sound management and fiscally responsible leadership resulted in a state credit rating upgrade and economic prosperity in the Commonwealth that has not been seen since he left office,” he said.
But Romney’s handling of the Massachusetts’ economy was more complicated than the unemployment rate or state’s credit rating would indicate. His budgetary and economic decisions offer insight into his personal and political priorities. There were unexpected foes, victories, and lost opportunities.
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Romney took office in 2003, in the midst of one of the state’s deepest recessions since World War II. More than 200,000 jobs disappeared in Massachusetts after the dot-com bubble burst -- 45 percent, more than the state lost during the recent “Great Recession.”
At the time, no one could foresee how deep the damage would run or how long it would take for the state to regain its economic footing.
“It was clear the state was having significant difficulties and that what had been a boom period had come to an end,” Eric A. Kriss, a former Bain Capital colleague of Romney’s who later became the state’s chief fiscal officer. “As you dip into the details you are amazed and astounded and depressed all at the same time.”
Kriss and a small coterie of aides holed up in a borrowed State House office and began pouring over the state’s balance sheets shortly after Romney’s election. Kriss quickly discovered that the state’s annual budget, set to run out in June of the following year, was dangerously out of balance and likely to yield a budget gap of $3 billion during the fiscal year to come.
Romney spent much of his first two years in office focusing on the state’s budget crisis. Romney succeeded in closing the budget shortfall without raising the state sales or income tax -- a notable accomplishment. Yet his approach triggered criticism.
Romney largely balanced the budget by cutting state aid to cities and towns, many of which responded by raising property taxes. In his first two years in office, Romney presided over a 15 percent cut in spending on unrestricted aid to cities and towns; he also cut more than 4 percent of funding for local schools.
Largely as a result, the average local property tax bill jumped more than $700 a year, or about 24 percent, to $3,962 from $3,206. By the end of Romney’s term, the combined state and local tax burden in Massachusetts grew to 10.6 percent of income from 10 percent, according to the Taxpayers Foundation, a Washington think tank.
Michael C. Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded research group, said the magnitude of the deficit required the cuts in local aid, which he described as a fair, if not dynamic, strategy deployed by most governors in times of crisis.
“In broad strokes, he did pretty much what every other governor has done -- he raised revenues and cut spending,” Widmer said. “It’s probably the right thing to do, to have a balanced approach.”
Romney also took on natural allies in the business community when he undertook an effort to change the business tax code by closing what he called “loopholes.” It was a controversial step, but Romney said the rules allowed many companies to avoid paying taxes at a time when the state could hardly afford it. Some banks, for example, avoided taxes by sheltering holdings in Real Estate Investment Trusts.
Business leaders opposed the effort, viewing it as a tax increase. One revision, for example, required large retailers to pay sales taxes on the printing costs of direct mail promotional advertising, a move that increased their taxes by about $15 million annually.
Romney supporters, such as David Tuerck, executive director of the Beacon Hill Institute, a conservative think tank, said the strategy was ill-conceived and at odds with efforts to change Massachusetts’ reputation as a state with a high business costs.
“It impacted the state’s competitiveness negatively,” Tuerck said recently. “Higher taxes discourage corporations from investing in the state and creating jobs.”
Romney also increased government fees on a host of services, from marriage licenses to property deeds, raising another $375 million annually.
Kriss defended the move, arguing that many fees had not been adjusted for inflation in decades. And, he said, closing the so-called loopholes affected a relatively small number of companies that were eluding the original intent of the tax laws.
“It was not in any way a tax increase,” he said. “It was a clarification of what you could do and what you couldn’t do.”
On the campaign trail in 2002, Romney promised a jobs creation program “second to none in the history of the state,” pledging to use his corporate connections to lure chief executives across America to Massachusetts.
The results fell far short of the promise. During Romney’s four years in office, the state added a net 31,000 jobs, a growth rate of less than 1 percent compared to 5 percent nationally during the same period. State unemployment fell to 4.7 percent from a peak of 6 percent, but remained above the US average, then 4.4 percent.
Meanwhile, as the state recovery lagged other parts of the country, a net 233,000 people -- 3.5 percent of the population -- left the state, many seeking jobs elsewhere.
“He was going to be the number one salesperson,” said Brian Gilmore, spokesman for Associated Industries of Massachusetts, the state’s largest business advocacy group. “I don’t think that turned out successfully.”
As with balancing the budget, Romney took a conventional approach to economic development, moving to reduce some business regulations and using taxpayer money, in the form of incentive programs, to try to stimulate job growth. Widmer said Romney undertook few initiatives that could have fundamentally altered the economic equation for the state, such as policies aimed at lowering Massachusetts’ electricity costs, which are among the highest in the nation.
Widmer pointed to William Weld, another Republican governor who took office during a recession and overhauled the state’s worker compensation system. It took a decade for those reforms to take full effect, but worker compensation costs for business plunged by two-thirds and helped make the state more competitive.
Romney did not have the patience for tackling issues that might only pay off in the long-term, Widmer said.
“His economic record was uninspired,” Widmer said. “They never developed an economic strategy nor implemented a coherent set of initiatives that would improve the state’s business climate.”
Others chafed at Romney’s frequent out of state trips as he tested the waters for his first presidential run. Despite his pledge to be the state’s top salesman, he tried to woo Republican Party conservatives by publicly bashing the state’s liberal politics and emphasizing its generous unemployment insurance benefits -- raising a red flag to firms interested in relocating here.
“I was very shocked to hear our governor on the road basically saying Massachusetts is a terrible place to do business,” said David Begelfer, chief executive of the Massachusetts chapter of the National Association of Industrial and Office Properties, a commercial real estate trade group.
David A. Tibbetts, a former state director of economic development under two Republican governors, Weld and A. Paul Cellucci, said Romney seemed more concerned with his presidential ambitions than the nitty gritty of local economic development. Tibbetts, now president of the Merrimack Valley Economic Development Council in North Andover, cited an effort by local business officials to get Romney’s administration to use federal highway funds to build a new interchange on Interstate 93. The effort would have opened new land for development, Tibbetts said, but Romney showed little interest.
“People had very high hopes for him as governor. He’s extremely bright, talented, and involved in business,” Tibbetts said. “In the end, he showed no loyalty to the state he was elected to run.”
Romney was able to claim some successes attracting business, including the expansions of Swiss dental implant maker, Straumann Group, in Andover and pharmaceutical companies Merck & Co., of Whitehouse Station, N.J. in Boston and Novartis AG of Switzerland in Cambridge.
One of his biggest wins came near the end of his term in 2006, when Massachusetts won a bidding war with other states, convincing pharmaceutical giant Bristol-Myers Squibb to build a $750 million plant at the former Fort Devens army base.
Romney touted the victory at a press conference, saying the state, with approval by the Legislature, had offered $60 million in incentives to the company to build its plant in Massachusetts, where it would eventually employ as many as 550 workers.
But records show the state only required Bristol-Myers Squibb to hire 350 workers to receive the tax breaks. And less than two months after Romney left office, MassDevelopment, a quasi-public development agency led by a Romney appointee, finalized an agreement reducing Bristol-Myers Squibb’s property taxes by about $35 million over 20 years, bringing total incentives to more than $100 million.
The deal provided one of the biggest tax incentive packages in state history. And it meant that the state would ultimately pay about $250,000 for each of the 400 jobs that exist at the plant today.
“That’s a little bit hard to justify,” said Northeastern University law professor Peter Enrich, who has studied incentives extensively. “The reason these companies come to Massachusetts is there’s already a critical mass of companies in the biotech area here, and there has been for 20 to 30 years.”
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In June, just six days after a dismal national jobs report, Romney’s campaign introduced a new 30-second TV advertisement.
“As governor of Massachusetts, Mitt Romney had the best jobs record in a decade,” a voice intones over images of the Massachusetts State House and Romney visiting various employers and talking with workers. “From day one as president Mitt Romney’s strong leadership will make all the difference on jobs.”
As he did in his gubernatorial campaign, Romney has invoked the image of a turnaround expert again and again, portraying himself as a leader ready to confront US budget and jobs woes. Yet the advertisement creates an illusion at odds with reality: Massachusetts experienced an anemic recovery, generating just enough job growth for Romney to claim he left the Massachusetts economy better than he found it.
The economic situations faced by Romney as governor and Obama as president appear remarkably similar. The recessions they inherited damaged the foundations of the respective economies, necessitating long, slow recoveries. In each of the downturns, job losses totalled about 6 percent of employment.
Their first year in office was marked by steep job losses, the subsequent years by disappointing job growth. Both sought increases in taxes and other revenues to help close budget deficits, and both used government money -- albeit on a vastly different scale -- to try to stimulate job growth.
Paul Watanabe, a political science professor at the University of Massachusetts Boston who has followed Romney’s career for two decades, described Romney as an effective manager who has gone to great lengths to show that he was capable of saving Massachusetts’ economy and can rescue the nation from its current doldrums and Obama’s economic policies.
Yet Romney is more like his opponent than he will admit, Watanabe said, right down to his campaign theme, “Believe in America.”
“Interestingly enough,” Watanabe said, “it’s a variation of ‘hope and change.’”
Megan Woolhouse can be reached at firstname.lastname@example.org. Michael Rezendes can be reached at email@example.com. Follow him on Twitter @RezGlobe. Brian C. Mooney of the Globe staff contributed to this report.