Plenary Session Transcripts

Governors Attending:

Guests:

Discussion Subjects:

• Agriculture (AG) - agriculture and the international economy; and Farm Bill initiatives
• Criminal Justice and Public Protection (CJ) - The Bhopal, India accident: implications for U.S. emergency management and public safety [In 1984, a leak of methyl isocyanate at a Union Carbide facility in Bhopal caused the deaths of nearly 4,000 people]; the demand for illegal drugs in the U.S.; and the future of the National Guard in state service
• Economic Development and Technological Innovation (ED) - meeting housing needs: implications of changing federal policy
• Energy and Environment (EE) - pending environmental problems
• Executive Committee (Exec) - Governors' Report on U.S. Education, 1991; federalism issues; and additional NGA priority issues for 1985-86
• Human Resources (HR) - the state role in preventing child abuse; report on NGA's Conference on the Private Sector Role in Child Care; the Education 1991 project; and refugee assistance and immigration reform
• International Trade and Foreign Relations (ITFR) - U.S.-Japanese trade
• Transportation, Commerce, and Communications (TCC) - review of motor carrier transportation activities; federal highway program perspectives; and a more efficient infrastructure as a prerequisite to international competitiveness
• Other Governors' Session - Governors-only session on conducting a successful trade mission
• Plenary Session Discussion Subjects - Future of U.S.-Canadian trade; and international competitiveness

Points of Interest:

U.S. Commerce Department Secretary James Baker spoke about the Administration's proposal to repeal the deduction for state and local taxes. He said that most benefits of the deduction went to the well-to-do, discriminated against people of equal incomes in different states, and worked against the progressivity of state/local taxes. A better way to help middle income Americans, he said, was through lower tax rates, higher personal exemptions, and other direct relief. What was more, repeal of the state/local tax deduction was important to the reduction of marginal tax rates—an essential ingredient in strengthening the economy. Without the repeal, federal revenue would decline $33 billion in 1987 and $40 billion by 1990. And Baker argued that the effect on states and localities would be modest, given that only 20 percent of all state and local tax spending was financed by deductible taxes. Expanding the national tax base would in fact expand the base of the 32 states that used the federal system as reference.

Secretary Baker acknowledged that concern about the current trade deficit had provoked calls for protectionist action, which he opposed. He said that a major cause for the deficit was that the U.S. was growing faster than our trading partners, increasing import demand. U.S. exports also lagged because of adjustments that less developed nations had adopted to deal with their foreign debt. And the rise of the dollar imposed a price increase on exports and a price cut on imports. Now that U.S. growth was slowing, other economies were beginning to converge with ours, becoming more attractive for foreign investors, which put downward pressure on the dollar.

John Young, Chairman of the President's Commission on Industrial Competitiveness, said the commission had concluded that the ability of the U.S. to compete had declined in the previous two decades, linked to record trade deficits, unsurpassed productivity growth, stagnant and declining real wages, declining rates of return in the manufacturing sector, and the loss of world market share in the high tech industry. To make trade a priority, Young recommended the establishment of a federal Department of Trade and the promotion of more exports, among other things. Economists who had testified before the Commission all agreed that investment in U.S. business was low because capital costs were substantially higher for U.S. firms than for our foreign competitors. The Commission recommended tax reform to eliminate the bias against savings that were being taxed, and thus increase the supply of capital available for productive investment. Other recommendations to make the U.S. more competitive were to: expand research and technology in the commercial sector and in manufacturing in particular; prioritize educational funding to help displaced workers retrain and vocational workers expand their skills; and promote postsecondary education in the engineering field. Young concluded by saying that while the federal government bore responsibility for trade policy and capital cost issues, states could play a major role in improving competitiveness by helping to promote a climate of growth and innovation.

The premiers of seven Canadian provinces spoke to the Governors about trade and competition between the U.S. and Canada. In answer to a question about what energy products the Canadian provinces had the potential to provide to the U.S., premiers spoke of crude oil (Alberta, Newfoundland and Nova Scotia), coal (Nova Scotia), and hydroelectric power (via the highest world tides in Nova Scotia). A total of 60 percent of Canada's energy reserves lay in Quebec. Concern was expressed by Governors that Canada had undercut U.S. pricing by releasing its wheat and other produce reserves, and that the U.S. wood products industry was at a competitive disadvantage because Canadian practices permitted timber to he sold below the cost of administering and replanting the land. In response to both concerns, Canadian premiers said that monetary differential and the value of the U.S. dollar against the Canadian dollar were to blame for both problems.

In response to a question from Governor Bob Graham of Florida—which was the destination of many Canadians seeking to vacation in warm places—Premier Hatfield of New Brunswick said the Canadian government had just published a policy statement that supported expansion of airline schedules and destinations. Mention was also made that eastern U.S. Governors and Canadian premiers had agreed on a strongly worded resolution regarding the problem of acid rain.

Governors debated whether Social Security should be separated from the unified federal budget. Some argued that to do so would mask budget problems, while others said that including it in the unified budget was a mask in itself, which had originally been designed—when Social Security enjoyed a surplus—to help balance the federal budget. They felt that separating it would allow fiscal problems of the Social Security system to be more effectively addressed.

Memorable Quotes:

Premier Rene Levesque of Quebec, in prefacing his remarks about the importance of trade between the U.S. and Canada, said: "All told...31 of the 50 American states were either discovered, explored or pioneered, as far as the white man's presence is concerned, by our own forefathers from Quebec, which gives you an idea of how big a stake we have in this continent historically. In fact, if history had been fair, America would be French."

John Young, Chairman of the President's Commission on Industrial Competitiveness, said: "...our competitive decline is a little bit like bleeding to death from a lot of little wounds, many of them self-inflicted. So prescribing a remedy isn't an easy matter. It takes a stitch here, a band-aid there, a shot of tonic once in a while. But radical surgery probably won't do the trick."

In describing what kinds of actions states could take to help solve competitiveness problems in the technology area, John Young cited the importance of emphasizing innovation rather than trying to predict the success of a proposed product, using the following example: "Bob [Noyce] is widely recognized as the inventor of the microprocessor, a device that has dramatically influenced today's computer industry. A few years ago Bob's wife came to him and described an investment opportunity in a young firm that had a new product idea. After thinking about it, he advised her against it. He felt this idea would go nowhere. That product idea was the personal computer, the firm, Apple, and indeed it has gone quite a ways."

Selected Policy Positions Adopted:
(1) Offering an alternative to inmate wages in the form of a sliding scale based on complexity of work performed; (2) calling upon states to do everything possible to reduce child abuse and calling on the federal government to continue current funding for training, education, and special child abuse prevention and treatment programs; (3) reaffirming support for preserving and building the National Highway Network and for completion of the interstate system by 1990, as well as calling for Congress to begin work on a post-interstate highway system called "Access America" to modernize, preserve, and/or expand services provided by the National Highway Network and ensure that investments in facilities served the needs of commerce, industry, and the nation's economic growth; (4) calling for the federal government, as part of the budget process, to adopt a separate capital budget to distinguish between current expenditures and investments; (5) recognizing the continuing decline in agricultural assets and the deterioration in the farm credit system, and expressing the need to review liquidation plans with a view toward maintaining the ability of farmers to stay in business; (6) authorizing the Governors' association to work with other state and local organizations to seek amelioration from the Garcia decision [The Supreme Court ruled in Garcia v. San Antonio Transit Authority (469 US 528 (1985) that nothing in overtime or minimum wage regulations of the Fair Labor Standards Act was destructive of state sovereignty]; (7) urging that Social Security be maintained as a separate trust fund and removed from the federal unified budget; (8) supporting the continuation of federal programs that required electric and gas utilities to offer energy audits to all requesting residential customers; (9) striking the Governors' opposition to federally mandated groundwater planning, substituting instead recognition that protection of underground drinking water supplies required comprehensive state groundwater programs—including regulations—to prevent contamination; (10) endorsing the creation of a presidential commission on outdoor recreation resources to aid in developing national recreation policy; (11) recommending creation of a $750 million clean coal technology reserve financed out of a portion of the Synthetic Fuels Corporation's reserve fund; (12) stating that the federal government should set standards for solid waste disposal facilities, and supporting continued state and local authority for implementing, enforcing, and operating solid waste programs; (13) supporting federal standards for removal and control of asbestos in public buildings; and (14) calling for federal funding of a deep drilling study to investigate mineral resources beneath the earth's surface.