On to the Next Round

The election is over and now both Republicans and Democrats will chart a course over the next two years with the intent to win the 2012 presidential elections. Since only one side can win the ultimate prize, the White House, drama will take center stage in Washington, DC. Here is what we know about the election:

The Republicans elected in both the House and Senate are more fiscally conservative than their predecessors and are chomping at the bit for a show down with President Barack Obama to reduce Federal spending. Republicans in both chambers are talking tough about cutting non-defense programs to the 2008 levels. Republicans have been soliciting recommendations from the public on which programs to cut. The site, America Speaking Out, allows citizens to recommend where they would like to see funding cut. The recommendations from citizens will only strengthen their resolve to reduce federal spending.

Republicans must assess how to incorporate these conservatives into a broader agenda which achieves substantive results. If they can accomplish that, they set the stage for their party presidential nominee to have a chance at victory in the 2012 presidential election. It will not be easy. Pursuing a balance budget agenda will be difficult for Republicans to accomplish if only domestic programs are under consideration for reduction. To truly reduce federal spending, there is a consensus that cuts to defense spending, Medicare and Social Security must be included. These are popular programs with strong voting constituencies who have historically punished politicians who broach cuts to these programs. However, some Republicans, such as Senator-elect Ron Paul (R-KY), have said those are on the table for discussion. This can become a dicey issue for Republicans to navigate and could be their Waterloo.

Republicans increased their numbers in the Senate to be major players in any legislative initiative up for discussion in that chamber. If consensus can’t be reached on issues in the Senate, gridlock will occur. Sen. Mitch McConnell (R-KY), Senate Minority Leader, has stated the Republicans number one agenda is to ensure Obama does not get reelected. That does set the stage for compromise; it only sharpens the ideological divide.

The remaining Democrats in the House and Senate are more liberal as a whole. Many of the party’s losses were in districts held by conservative Democrats. This reduces the number of “moderate” members willing to compromise with Republicans on issues. It also limits the number of Democrats Republicans can target for support on issues such as reducing federal spending. We can expect Democrats to now become the united opposition Republicans were over the last two years.

Republicans gained enough governor seats and captured state legislatures to reshape the future congressional map, increase the likelihood Republicans will maintain their current numbers in Congress and make the president’s road to reelection a bumpier one. Governors are heavily involved in the redistricting process in most states. Expect future Congress’ to be more conservative. Additionally, in controlling the political operations in their state, Republican governors can create structural barriers to deliver benefits to voters and campaign effectively. The changing demographics in many states also illustrate the difficult path Obama must follow to get reelected. States Obama carried in 2008 stand to lose seven seats in the House meaning there will be fewer electoral votes available in those states.

What does this mean?

Legislative action will be the exception while gridlock will be the rule. The political and philosophical make up of each party in Congress creates a bad mix for compromise. Tea Party conservatives are adamant about reducing federal spending and are willing to buck the party leadership to accomplish that goal. They are equally adamant about not compromising with Obama. Any sign of compromise by the Republican leadership will be met with revolt from these individuals. The House Republican leadership has more leeway to not compromise; however, Republicans can’t be viewed by the voters as obstructionist. They need substantive accomplishments to have any credibility and sustain momentum going into the 2012 election. The Senate is the chamber where compromise must be reached but it is unlikely either party will be able to reach consensus on fiscal issues. With all eyes focused on the 2012 presidential election, the ability and/or failure to compromise is risky for both parties.

Funding for existing programs will be reduced or eliminated. Funding for new initiatives is probably unrealistic unless it enjoys strong bipartisan support. The election results demonstrated the American public is not supportive of increased federal funding for new initiatives when the economy is faulting, jobs are being lost and homes are being foreclosed. Any initiative undertaken must focus on economic growth and will probably come at the expense of other programs. President Obama’s support of a three-year freeze on domestic spending and his willingness to seek further cuts leaves little room for negotiation if defense, Social Security and Medicare are not on the table. Even if they are included, other programs will bear a disproportionate burden of cuts due to the popularity of the big three program.

Expect an increase in demand for services provided by the government, nonprofits, churches and other private groups. Until the economy improves the demand for services will increase with fewer resources to provide those services. More people will need assistance to offset long-term job loss, foreclosure, underemployment, health care needs and other unforeseen situations. When Obama took office most economic experts did not expect the economy to turn around until 2012 at the earliest. But when the economy does improve a combination factors will likely keep wages down. First, fewer jobs will be available. As a result, it will continue to be a buyer’s market. In other words, there will be more workers than the number of available jobs. Older workers who lost their retirement money need to remain in the workforce for an extended period of time. Second, the level of internet purchasing will reduce the need for retail employment which is typically the entry point for young and low-skilled workers and increasing a source of income for the elderly. Third, housing prices will remain deflated reducing the principle vehicle used to create wealth in this country.


What can be done in the interim?

Organizations dependent on government and private funding will need to reevaluate its operations and make hard decisions about structure and scope of services. These groups must decide if portions of its work should continue as is, be consolidated with another program or be eliminated. For nonprofits, in particular, this will be a difficult task. Nonprofits are mission driven; however, economic pressures will force them to make these choices. Demands will increase while available revenue will probably continue to decrease.

The fundraising model currently employed by non-profits in particular needs to be revisited. During a time of fiscal austerity, groups which can demonstrate tangible results will increase the group’s chances of securing support from funders. It will be critical for nonprofits to work with existing funding sources to identify ways in which it can remain attractive to private funders. Nonprofits and public entities that can successfully demonstrate its recipients, or clients, are achieving self-sufficiency as a result of its programs will prove to be more successful in the future.

Look for funding formulas for state and local governments to be revisited as well. The Census will cause the government to revisit how funds are distributed. Deeper targeting of the resources meant to low and moderate income households could be both good and bad to entities serving these households. Changes to funding formulas could create strange bedfellows in certain parts of the country.

Interesting Read

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Why? Why? Why?
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Wave gives GOP upper hand in drawing election map
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Republicans signal a hard-line stance after election success
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