CHICAGO Republican gains in state legislatures across the nation are likely to result in efforts to cut taxes and spending, shrink government, and curtail major capital spending, according to municipal analysts.
And in some cases, those efforts will become credit factors, the analysts said.
The Republican tidal wave of Nov. 8 not only roared over Congress but also swept up a collection of state legislatures. In 11 states that had been split between Republican control of one chamber and Democratic control of the other, the elections gave the GOP control of both. And in most of those states, the governor is also a Republican.
Republicans have also picked up chambers in states where both houses of the legislature had been Democratic. As a result, the legislatures in Connecticut, Florida, North Carolina, and Washington are now. split, according to the National Conference of State Legislatures.
A few chambers are also divided down the middle, with Democrats and Republicans tied in the California and Nevada Assemblies and in the Maine Senate.
All in all, the elections cost the Democrats control of 16 legislative chambers, according to preliminary statistics from the state legislatures group. Both the Republicans and Democrats have control of both chambers in 19 states, while 11 legislatures are split.
The Republicans' rise has caught the attention of municipal analysts, who are forecasting a push in many of those states to curb taxes. Indeed, new Republican majority leaders in some of the states have already announced plans for reining in taxes.
"Clearly, the desire to cut taxes is very strong on the state level," said Robert Muller, managing director of municipal bond research at J.P. Morgan SecUrities Inc.
However, that desire could be on a collision course with the Republican majority in Congress, which is launching a crusade to balance the federal budget. Muller said the federal government may choose to push more funding responsibilities onto states at the same time that states are attempting to cut taxes.
Some states will be better able to handle tax cuts than others.
"Where you have a legislature or a governor elected with a mandate of cutting taxes, to the extent the state's economy is growing and growing nicely, it will be easier to accommodate that than in a state where the economy is not performing as well," said William Fish, senior vice president and manager of municipal research at Donaldson, Lufkin & Jenrette Securities Corp.
Meanwhile, tax increases "are out of the question," according to Richard Ciccarone, executive vice president and director of tax-exempt, fixed-income research at Kemper Securities Inc.
Ciccarone said the message from the electorate calls for more prudence in tax and spending matters on the state level. He predicted that many of the states will now consider measures such as reforming welfare, moving to a managed-care system for Medicaid programs, and privatizing some services.
"I think all these things are potential credit factors," he said.
Republicans may also push for selling more state bonds competitively in an effort to emulate business practices, he added.
As for bond issuance, Muller said that prisons and schools are high on the Republican agendas, but basic infrastructure projects may not be.
"There is a lot of support for prison construction, but there wasn't a strong theme one heard for roads and sewers," he said.
Rating agency officials have adopted a wait-and-see attitude about the changcovers in control.
Steve Hochman, vice president and assistant director of state ratings at Moody's Investors Service, said that having a legislature and the governor's office controlled by the same party could result in "more coherent policies."
"I'm not sure having more Republicans in control of legislatures by itself makes a difference," Hochman said. "I think having more coherent policies may be a difference and that might be a positive difference, but it's still too early to tell."
Steve Murphy, a director at Standard & Poor's Corp., said that if state lawmakers choose to cut taxes, how they handle those cuts will determine whether the move helps or hurts credit. A potential negative would be if a state cuts taxes without offsetting the cuts with a decrease in spending and instead pushes more funding responsibilities onto local governments, Murphy said.
Claire Cohen, vice chairman of Fitch Investors Service, said that the direction Republican-controlled states will take will be clearer once the post-election rhetoric dies down. However, she predicted that if cuts are made, higher education could be one area that will suffer.
Leaders of some of the new Republican majorities in state legislatures are already floating proposals.
In Illinois, where Republicans gained control of the House after winning a Senate majority two years ago, majority leaders have announced their desire to extend a property tax cap statewide. The cap, which limits tax increases to 5% or the rate of inflation, whichever is less, was imposed on five metropolitan Chicago counties in 1991.
Indiana's new Republican speaker of the House, Paul Mannweiler, said last week that he sees a "good opportunity" for welfare reform, property tax relief, and a cut in the excise tax. While a Republican majority in the House that resulted from the Nov. 8 election gives the GOP control of the state's legislative branch, the executive branch is in control of Gov. Evan Bayh, a Democrat.
In Alaska, the Republicans now have clear majorities in both houses, according to John Manly, press secretary for Republican Coy. Walter Hickel.
A key issue for Alaska is whether a state income tax, which was ended in 1980, will be reestablished. "There are some Democrats who think we should impose income taxes," but that is now only a remote possibility following the election, Manly said.
Hickel, who chose not to mn for reelection, leaves office Dec. 5, but his replacement remains unclear, Manly said late Tuesday.
Republican gubernatorial candidate Jim Campbell, an Anchorage businessman, is trailing Democrat Tony Knowles, Anchorage's former mayor and a deli shop owner, by 500 votes. About 8,000 absentee ballots have not been counted.
For the first time since 1953, both houses of Montana's legislature are controlled by Republicans, and the governor is a Republican.
Democrat Fred Van Valkenberg, a 16-year member of the Senate who is president of that body, will turn over the presiding officer position to Republican Bruce Crippen.
"Even when the Democrats were in control, Montana had a very fiscally conservative approach to government," Van Valkenberg said yesterday.
"The biggest concern I have is that in the rush to deliver to the people who elected them, the Republicans will engage in less fiscally responsible actions," Van Valkenberg said.
He said Gov.-elect Mark Racicor "has already proposed a $30 million tax cut principally by providing an income tax rebate. And he is doing that before the legislature has even acted on the budget. The budget proposes a pretty substantial increase in spending, and includes a very large capital construction program to be financed with debt.
"The speaker of the house, John Mercer, has publicly said he expects the Republican controlled legislature to cut the proposed spending that the govenor has offered here," Van Valkenberg said. "I think that the governor and the Republicans in the legislature may be at odds with each other over the spending program the governor has in mind."
With the GOP in control of both the executive and legislative branches in Pennsylvania, chances have improved dramatically for passage of a tax bill that includes provisions for. more referendums on school district bond issues.
The House passed the bill in June minus the bond provisions, which were tacked on in the Senate. The Senate then rejected the bill. However, state Rep. Jim GerInch, the bill's sponsor, said the Republicans' new edge makes the bill. more likely to pass both chambers, and proponents plan a renewal push at the start of the new legislative session in January.
Governor-elect Tom Ridge would probably sign such a bill, Gefiach said. Bill Casey, the current governor, did not support the measure, he said.
Republicans took control of the legislature when the Democrat stated Rep. Thomas Stish announced on Monday he was joining the Republican caucus.
Wisconsin voters elected Republican Gov. Tommy Thompson and gave him a Republican-controlled Assembly to go along with the already Republican-controlled Senate. Lawmakers there have until Oct. 31 of next year to come up with $1 billion for a new school funding plan that takes effect in fiscal 1996.
"There is a great resistance to any increase in taxation on the Republican side;' said David Hoopman, chief of staff to new Assembly Speaker David Prosset.
In Michigan, where lawmakers have already tackled school funding, the likely new House speaker is talking about refining the new system, which gave the state the predominant burden for funding schools. Paul Hillegonds, the current Republican co-speaker of the House, is expected to be elected House speaker next week, after Republicans gained a one-member majority in the House.
Perhaps bucking the Republican trend, Hillegonds is opening the door to a possible gas tax increase to fund bonds for roads and other infrastructure projects.
Ohio residents voted in a Republican majority in the House, giving reelected Republican Gov. George Voinovich a Republican-dominated legislature.
Partisan support could help pass a 10-year, $1 billion bonding plan for school renovation that Voinovich has proposed. Another top priority for Republicans ts a crime bill.
Tax policy changes in California are unlikely following the Nov. 8 elections, eventhough the Democrats lost control of the Assembly for the first time since 1969. The state Senate remains under the Democrats' control.
While Republican Gov. Pete Wilson won reelection, California's tax agencies remain under Democrat control. The state Board of Equalization is controlled 3 to 2 by Democrats and the Franchise Tax Board is 2-to-1 Democratic.
"There will be some attempts to lessen the burdens on California taxpayers," said Rob Cook, legislative assistant to Assemblyman Ted Weggeland, who is minority whip, the thirdranking Republican in the Assembly.
In Oregon, Republicans took control of the Senate and widened their control of the House.
"This is the first time in about 40 years" the Republicans have taken control of the Senate, said Annette Price, caucus administrator for the Oregon Senate Republican office.
Price said that one immediate effect of the election is that there is no chance an Oregon sales tax proposal will reemerge in the legislature. A sales tax proposal on the November 1993 ballot was defeated by a 3-to-1 margin, but Price said she "wouldn't doubt" Democrats would Yhke to see it raised as an issue again.
