Gov. Mitch Daniels (R)

Mitch Daniels has been the Republican governor of Indiana since 2005. He grew up in Indianapolis and graduated from Princeton University and Georgetown University’s law school. He worked as a staffer for Republican Richard Lugar when Lugar was mayor of Indianapolis in the early 1970s, and was chief of staff for Lugar from 1977 to 1983 after Lugar moved to the Senate. He was political director in the Reagan White House until 1987, when he returned to Indianapolis to join the Hudson Institute think tank. In 1990, Daniels went to work for Eli Lilly and Company, the pharmaceutical giant based in Indianapolis. He had climbed the ranks to become president of Lilly’s North American pharmaceutical operations, but resigned in 2001 to reenter government, liquidating at least $27 million in stock holdings. He turned down Gov. Robert Orr’s offer to appoint him to the Senate in 1988 when Indiana Republican Dan Quayle was elected vice president. Instead, he became President Bush’s director of the Office of Management and the Budget. In that role, he developed a reputation as a committed spending cutter and for having disdain for members of Congress, whose motto he said should be “‘Don’t just stand there, spend something.’ This is the only way they feel relevant.” Bush insiders referred to him as “the Blade,” and veteran Democratic Sen. Robert Byrd of West Virginia called him “Little Caesar.” Alaska’s Sen. Ted Stevens, a fellow Republican, said the only way Daniels could fix his relationship with Congress was to “go home to Indiana.”

He did go home, but not because Stevens told him to. In 2003, Daniels said he was tired of commuting between his family in Indianapolis and Washington. But he also saw an opportunity to run for governor of his home state. Democrats had held the office in mostly Republican Indiana since 1988—first Evan Bayh, elected in 1988 and 1992, then Frank O’Bannon, elected in 1996 and 2000. For most of that time, Bayh and O’Bannon cut taxes, cut welfare rolls and instituted education testing. But with the 2001 recession, state revenues plummeted, and O’Bannon took a different course. In 2002, the sales tax was raised. Out-year deficits loomed. Small scandals were exposed—DMV employees selling black market IDs, a state contracting official accepting favors, and child protective workers filing false reports. Lt. Gov. Joseph Kernan, a Vietnam veteran and POW for 11 months and a popular three-term mayor of South Bend, was widely assumed to be the strongest Democrat to succeed the term-limited O’Bannon. But in December 2002, Kernan shocked just about everyone by announcing that he would not run. “I just want to have a beer in my backyard on a Tuesday night,” he said. “I’ve got a great job. I’ve enjoyed it, but I want to go back to South Bend.”

Soon after he returned to Indiana, Daniels announced he was running for governor. All but one of the Republicans then running, including 2000 nominee and former U.S. Rep. David McIntosh, left the race and endorsed him. On a visit to the state, President Bush referred to “my man Mitch,” at a time when that was still a politically advantageous thing to be. Vice President Dick Cheney and First Lady Laura Bush also put in appearances for him. Daniels campaigned around the state in plaid shirts and sweaters, traveling in an RV with supporters’ signatures all over it. He went to every one of Indiana’s 92 counties and eventually visited some of them repeatedly.

Then, in September 2003, O’Bannon suffered a major stroke and died within a few days. Kernan was sworn in as acting governor. He handled the tragic transition gracefully and reconsidered his decision not to run in 2004. In November, he announced his candidacy, and other Democrats ended their campaigns.

From there, it was a two-man race. While his former boss, President Bush, was on the defensive nationally for job losses in the manufacturing sector, Daniels was attacking Kernan and local Democrats for job losses in manufacturing in Indiana, saying it was time for a “new crew.” He called for tax breaks for new business property investments, new hires and research and development. He said he would put more emphasis on winning federal grants, create a state agriculture department and provide tougher enforcement of child-support obligations. Daniels opposed importing U.S. drugs from Canada, saying he favored an online referral service to match patients with drug discount programs. He called for health savings accounts for state employees and credits for employees who stopped smoking and stayed fit. Kernan called for lower property taxes and for tax abatements for new business on a case-by-case basis. He endorsed full-day kindergarten. He criticized Daniels for his budget cuts as OMB director and for signing off on foreign contracts and job outsourcing. He blamed Indiana job losses on federal trade policy.

After enjoying modest leads in polls during most of the campaign, Daniels won 53% to 45%. He carried metro Indianapolis 57%-42%, but ran behind in northern Indiana and Kernan’s home town of South Bend. Republicans increased their margin in the state Senate to 33-17 in 2004, and converted a 51-49 deficit in the state House to a 52-48 majority. It was the first time Republicans had won control of state government since 1986. Fiscal problems loomed. State government faced a $645 million deficit and owed $710 million in back payments to schools, universities, and local governments. Daniels achieved some notable but controversial successes in his first two years. With the help of business interests, he persuaded lawmakers to enact daylight-savings time to stop Indiana from being one of three states that does not go on daylight-savings time. And he persuaded the Department of Transportation to allow eight counties to switch to the Central time zone. He created a state economic-development corporation to replace the state Department of Commerce and a new inspector general post for ethics. He also got a small funding increase for schools, a voter-identification bill, and a crackdown on methamphetamine production. He signed a bill requiring state vehicles to run on agricultural-based fuels when possible. He reduced the state’s property tax relief payments, and in turn sought to give local governments more control over how they raise revenue.

His most controversial plan was “Major Moves,” a 10-year transportation plan that aimed to cover shortfalls in the state’s transportation budget by privatizing transportation assets rather than raising gasoline taxes or state borrowing. The centerpiece was a 75-year deal to lease the Indiana Toll Road, a 157-mile-long span across northern Indiana that connects Ohio and Illinois, to an Australian-Spanish consortium in exchange for a $3.8 billion lump-sum payment. Daniels sold the plan as a way to raise cash to improve the state’s road system and create jobs, while leaving toll collection and highway maintenance to the private sector. Democrats protested that the state would lose control of toll increases and decades of future revenue, while supporters of the plan argued that the highway was losing money because tolls had not been raised in 20 years. After the Republican Legislature approved the deal in 2006, Daniels proposed a spend $12 billion on the state’s infrastructure over a decade, including the construction of an “Illiana Expressway” to ease traffic congestion between Illinois and Indiana and a privately funded toll beltway around metro Indianapolis.

The toll-road lease program and the switch to daylight-savings time proved unpopular. Daniels largely stayed off the campaign trail in 2006, and his political woes contributed to Republican losses in the state, including the ouster of three members of Congress. Democrats won a narrow 51-49 seat majority in the state House.

In 2007, the governor’s plans to privatize the Hoosier Lottery were frustrated by House Speaker Patrick Bauer and a U.S. Justice Department ruling warning it would violate federal law. Daniels was able to privatize intake services at the Bureau of Motor Vehicles and at the Family and Social Services Administration. His Indiana Economic Development Corporation committed to $700 million in tax incentives to new businesses and took credit for deals that promised to generate more than 75,000 jobs. Tight fiscal policy resulted in an AA+ credit rating for the state in 2006 and an AAA rating in 2008. In October 2007, Daniels proposed a 1% increase in the sales tax in return for a cap on property taxes of 1% of assessed value for homeowners, 2% for apartments and farms, and 3% for businesses. His tax proposal passed in March 2008, but he failed to get a limit on overall spending based on income growth.

Going into his 2008 re-election campaign, Daniels’s job ratings were well under 50%, and Democrats sensed he was vulnerable. Most Democratic leaders supported South Bend architect Jim Schellinger, but Schellinger was upset, 51%-49%, in the May primary by former Rep. Jill Long Thompson. She attacked Daniels for privatizing the Indiana Toll Road and other government functions and on the switch to daylight-savings time. She advanced a Reinvest in Indiana program, with tax changes, business incentives and tax credits for health care and continuing education. Daniels called for a constitutional amendment making his property tax changes permanent and for a consolidation of local offices. He called for giving modest-income students tuition for two years at Ivy Tech Community College or an equivalent amount at another state school, to be funded by borrowing against future lottery proceeds. He outspent Long Thompson 3-to-1 and won 58% to 40%. He was especially strong in metro Indianapolis. He won 56% in Marion County, which Barack Obama won with 64%, and he carried affluent, fast-growing Hamilton County, 83%-15%. Democrats gained a seat in the state House and thus kept their majority there.

Daniels’s victory, in a state carried by Obama and in a dismal year for Republicans, led some to urge him to consider a run for president. But Daniels seemed reluctant. One of his campaign ads showed him saying, “Here’s some good news. This is the last time you’ll have to watch me in an ad like this. See, governor is the only office I’ve run for or ever will.” He stayed away from the Republican Governors Association meeting in Miami a few days after the November 2008 election and said again he would not run for president.