By Susan J. Demas

Gov. Jennifer Granholm has framed the upcoming budget debate as requiring a "grand bargain" – a painful mix of government reforms and revenues.

That's the only way she believes the state can close an at least $1.7 billion budget gap for fiscal 2011.

But there is a question hanging over budget negotiations: How can you truly bargain if tax increases are taken off the table at the onset?

While Senate Majority Leader Mike Bishop (R-Rochester) hasn't fully closed the door on tax reform, he maintains that there are no votes in his caucus for more revenue. That's the same position he took during the fiscal 2010 budget. He was successful in holding his ground in a rope-a-dope strategy, allowing Democrats to make a series of pitches for complicated revenue increases that fell flat time and again.

In the end, Bishop's all-cuts budget prevailed, although the state did briefly shut down for the second time in three years. Despite an injection of federal stimulus dollars, the state still had to slice more than $1 billion. That's left little of the Recovery Act money in the state's bank account for fiscal 2011, making the next budget an even tougher riddle to solve.

So if there's another stalemate, what kind of legacy will that mean for the three leaders, all of whom are term-limited? Craig Ruff, senior policy fellow with Public Sector Consultants, offers some historical perspective.

"For 50 of the last 60 years, we have had divided government," he notes. "In 50 years, we made it work through a steady progression of different people at the helm of all three branches. We have had unfortunately awful circumstances in the last three years, and there emerged a new crew of people – Andy Dillon, Mike Bishop and Jennifer Granholm – as a result of term limits. But we've had a steady stream of derailed negotiations."

There is a powerful perception in Lansing that Bishop will be even less likely to give the Democrats in this election year.

"It looks like a continuation of last year, unless there’s a subtext I don’t know," said Michigan State University economics professor Charles Ballard. "Republicans seem pretty solid about not giving an inch on taxes."

Bishop has mounted a campaign for attorney general, and the nomination is determined at a party convention by conservative activists. And the Republican Party strategy, both in Michigan and nationally, appears to be stoking the anti-government fury articulated by the Tea Party groups by fighting for spending cuts and against tax increases.

"That's very accurate and very real," said Ruff, a former aide in the administration of Gov. William Milliken. "If he acquiesces to a tax increase, the really rock-ribbed Republicans will just eat him for lunch. He has an uphill fight to begin with – not because of ideology, but because of how hard (his opponent) Bill Schuette is working at the grassroots level."

But Michigan Chamber of Commerce President Rich Studley takes issue with the premise, although he acknowledges that Bishop probably won't back a tax hike.

"I don't think that's fair or accurate," he said. "I don't think that's the feeling in the Senate Republican caucus or the Senate majority leader's office that they're not about to give in to the governor and House Democrats. The feeling in their caucus is that they think about working families and job providers. You can't raise taxes on people who don't have anything left to give."

Dennis Darnoi is Bishop's former chief of staff who now runs the Farmington Hills-based political firm Densar Consulting. He said that Bishop is taking the politics of the AG race into consideration, but that works in concert with his limited-government philosophy.

"I don't think he'll give (Democrats) a revenue increase," Darnoi said. "But if they present him with certain reforms, he'll take that into consideration. Revenue is sort of a non-issue with him. On that issue, I don't think there will be a lot of give and take."

Public mood

Bishop is only reflecting the mood of the public with his anti-tax stance, according to many insiders.

"The revenue simply isn't there. No one has the stomach for new revenue, except perhaps in transportation," said Kelly Rossman-McKinney, a former Democratic legislative aide who’s now CEO of Rossman Public Relations. "I don't see a taxpayer out there who thinks he can afford one more penny."

Rossman-McKinney sees the potential for some "revenue rebalancing" that could include cutting business taxes, but no net tax increase. Studley said that the budget can be balanced through cuts and reforms alone.

"Bishop's message is that we have to live within our means," he said. "That makes sense to Joe and Mary Michigan."

Ruff agrees that leaders can't raise taxes in an election year, "especially when the economy is in a nose dive." But he said that Granholm, Bishop and Dillon are in a box.

"I think of myself as a fiscal conservative, but it just defies all logic to find $1.8 billion in budget cuts," he said.

Doug Roberts, director of MSU's Institute for Public Policy and Social Research, said that it's early, but there already appears to be an impasse on the budget. He threw out a scenario in which leaders split the difference over the deficit with $1 billion in cuts and $1 billion in taxes.

"There aren't the votes for either," said Roberts, who served as treasurer under Gov. John Engler. "There aren't the votes for both. What does that mean? I don't know where we’re heading."

Democratic compromises

Granholm has signaled her willingness to compromise. She came out swinging last week with $450 million in reforms once unthinkable for Democrats, by incentivizing early retirements, watering down benefits and pooling health care.

"If John Engler had proposed the very things Granholm did, I would have had to find a new way home, because certainly people would have been waiting for me," Roberts said. "I really do think Granholm has changed the landscape."

Roberts is optimistic that the governor's proposal could break some of the budget logjam, as lawmakers can vote on the reforms independent of any tax increase she proposes.

"Given what the governor announced, I think there will be some Republican votes," he said.

It should be noted that House Speaker Andy Dillon (D-Redford Township) got the reform ball going last year with his plan to put public employees under a handful of health care plans. And Senate Republicans popped their own 10-point reform plan last month, which included changes to the local bargaining process to encourage consolidation, ending some Medicaid services and a 5 percent pay cut for public employees.

"I don't think what Granholm proposed is philosophically different from what Bishop proposed or what Dillon proposed," said Rossman-McKinney, who served in former Gov. James Blanchard's administration. "Here's the irony: there are no new ideas. Baby steps in this economy won’t get us there. That's where Andy has been going against the grain. He's been saying that for a long time. But the downside of being a visionary is that it takes a while for everyone to put on the same glasses."

Ballard said that the trio needs to dust off a copy of the 2007 report by the governor's Emergency Financial Advisory Panel chaired by Milliken and Blanchard. They need to take a balanced approach to solving the budget, he argued.

"I hope we have some combination of spending restrictions, reforming the way we deliver services and bringing taxes at least into the 20th century, if not the 21st century," Ballard said. "You can avoid a repeat of 2009 if you can get people to back away from their hardened ideological positions and take a flexible, cooperative approach. My view is that the average citizen is a pragmatic moderate, and I don't think that type is terribly represented in Lansing."

Moving up

Bishop isn't the only one aspiring to higher office, as Dillon is exploring a bid for governor. No one knows what Granholm might pursue next year, although she has expressed interest in the U.S. Supreme Court and vowed never to run for office again.

Still, few political observers think the election will be enough incentive to get the budget by the Oct. 1 deadline. Ruff predicts a continuation budget with a 5 to 20 percent cut and "leaving the mess for the new three leaders."

But if the fiscal 2011 budget devolves into chaos again, what will that mean for the triumvirate's legacy?

Studley sees the election as an equal factor for both Bishop and Dillon, but doesn't think it as being overarching.

"Everyone knows that's out there," he said of their candidacies, adding that they cancel each other out.

The two legislative leaders have the most to lose, Studley argues, because Granholm is almost a non-factor.

"In the end, very few people care about what an ineffective lame duck governor says or does with her budget or State of the State," he said. "The burden falls to the speaker and Senate majority leader. An impasse would be damaging to both of them."

Ruff sees landmines for both men in their respective campaigns. The Senate majority leader is faced with a Hobson’s choice, Ruff said – he can't raise taxes and win, but that position could lead to another budget meltdown.

"That won't make him look like a leader, either," Ruff said. "Mike Bishop can't take as a template what Republicans are doing on Capitol Hill – opposing everything. He can't deny that he is in power. He controls the majority of one of the three key chairs of power."

"I've got to believe Andy Dillon is running for governor," Ruff added. "If he stays as speaker and there's continued chaos, he will suffer the same kind of problem Mike Bishop will."

Rossman-McKinney said that if Bishop tries to use another budget debacle to his political advantage, it may not pay off.

"What you do strategically to undermine one party has an impact on your own chances, as well," she said. "I might be in the minority for this opinion, but I can’t imagine politicians not wanting to resolve he budget in a way voters see as responsible in a timely manner."

In the end, an impasse would mean Granholm would go out "on a sour note," Rossman-McKinney said. And Dillon and Bishop could kiss their aspirations for higher office goodbye.

"It would sink them both," she predicted.

If they don't get the budget done, there will be a "huge effect to the negative," Darnoi agreed. "Three out of four years, they failed in their constitutional duty. It will tarnish the reputation of all three leaders."

But Ruff points out that resolving such an untenable budget may not have much political payoff, either.

"All three might have approval ratings in the teens before it's all done," he said.

Looming legacy

It may sound cynical, but is there really anything that Granholm, Bishop and Dillon can do this year to rehabilitate their collective and individual legacies?

After all, the three have worked together since 2007 and have garnered a reputation for chronic infighting and ineffectiveness. Bishop and Granholm have clashed since her days as attorney general, when he as chair of the House Judiciary Committee attempted to strip some of her powers. The governor backed Dillon’s opponent in his first speaker fight, and they've never been on the same page. And although Dillon and Bishop forged an agreement on last year's budget, their relationship became strained after Democrats' attempts died to restore education, local government and health care funding.

There legacy is "one of extraordinary discord and inability to forge meaningful, timely solutions," sums up Rossman-McKinney.

Ruff says that few leaders take the longer view nowadays in making decisions for the state.

"There's a saying, 'What has posterity ever done for me?' by British author Lytton Strachey," he said. "Boy, does that sum it up. Politicians look at how they're judged today, and who cares what historians think in 2030. Especially with term limits, there's an even shorter view."

Darnoi said leaders might be remembered favorably for a few measures, like the Race to the Top education reforms passed in December. But it's the budget messes that likely will linger in the public's mind.

Rossman-McKinney and Studley heap more of the blame on the Democrats. The public relations guru notes that Democrats control two of the three leadership positions and yet have been ineffective at getting a shared agenda through. She also said that the governor's "traditional female style of leadership – one of collaboration – hasn't worked in politics. Not yet."

Studley is particularly critical of Granholm.

"I have worked with two Republican and two Democratic governors," he said. "She is by far and away the most intelligent and the best communicator. But I believe her legacy is already written, and it is one of lost jobs and missed opportunities. If she had been more bold and more decisive in her first term and made reforms, I believe she could have been one of the best governors in Michigan history. But she leaves office as a nice person, but as a governor, basically a failure."

But Roberts sees the trio's struggles as the outgrowth of circumstances beyond their control, particularly with the near-collapse of the auto industry.

"We were being slowly strangled and we were kidding ourselves," he said of the Big Three's loss of market share in previous decades. "Then Michigan got swamped by the financial collapse and foreclosures and then creamed by the autos (in 2007)."

Ruff said whether the leaders have any kind of productive legacy looms as "the question all of Michigan wants answered."

"It's not much, but one might say that in the grim and long economic downturn they have managed to sustain funding for key areas of public needs and wants," he said. "They've scaled things back, raised some taxes and managed to eke by, and maybe that's enough for people in terms of the budget. They are doing less with less. It’s no Mackinac Bridge, though."

Ballard believes that their leadership has weakened the state.

"Their legacy will be of a greatly reduced social safety net," he said.

In the end, Darnoi said that the lack of trust between Granholm, Bishop and Dillon has doomed their relationship and effectiveness.

"It's tempting to blame it on term limits," he said. "There used to be that 'I'll give you something now, and I'll get something back a little later.' But there's no trust whatsoever."

Rossman-McKinney agrees, but said there could be a silver lining to the conflict.

"There's a potential recognition beyond Lansing that term limits don't work. That would be ideal," she said.

But she adds, "Practically speaking, I don't think their legacy will be much more than increased disgust with Lansing."

Susan J. Demas is 2006 Knight Foundation Fellow in nonprofits journalism and a political analyst for Michigan Information & Research Service.

By Kevin Prokop and Jim Curran

The State is about to begin its annual budgeting rite when the Governor presents her proposed budget. While the specifics are far from clear, we all expect more gloomy news.

As Co-Chairmen of the Legislative Commission on Governmental Efficiency, which has spent the past 18 months examining the State’s structural issues, we can confirm what the Governor's budget is likely to highlight: the State has a massive structural budget issue, driven by cost pressures, a revenue system that is out-of-step with the economy, and spending priorities reflecting a different era.

Our Commission's recommendations chart a path through these difficult issues and towards real fiscal reform. And, they demonstrate that both Democrats and Republicans can come together to craft common sense solutions to the State’s budget problems.

We achieved consensus in most areas by taking a holistic approach, looking broadly at the root causes of the issues and looking for opportunities to take costs out "throughout the system." We asked hard questions about which units of government should be doing what work and looking for opportunities to achieve savings within – and among – the 1800 local units of government.

Our work focused on ten areas. Some ideas, including recommendations around higher education and corrections, have already been implemented in whole or in part. Other recommendations include:

• Restructuring local government revenue sharing to provide local governments with visibility and certainty while also helping local governments achieve consolidation
• Helping school districts achieve savings by providing “early out” incentives and additional latitude for district consolidation
• Evaluating opportunities to reduce benefits costs for all governmental units by pooling health care plans across levels and units of government
• Conducting a five-year workforce supply and demand forecast to better align the number of state personnel with the expected demand for services.

We also recommended a "pay as you go" budget process to ensure that any new spending commitments can be paid for and long-term fiscal forecasts to illuminate the trajectory of the State’s budget.

Finally, we recommended that the legislature examine the structure of the State's tax system, which reflects an era when the State's economy looked very different. As an example, reducing even a portion of the $35 billion of annual tax credits and loopholes could simultaneously reduce the size of the structural budget deficit and reduce overall corporate, personal income, and or sales tax rates, similar to what Republicans and Democrats at the federal level were able to achieve with the Tax Reform Act of 1986.

Our Commission demonstrated that representatives from both sides of the aisle can find common ground on most of the issues and craft a common sense approach to reform. In short, the path forward exists. It's up to the leaders of the State to find similar common ground and make the tough decisions that will allow our State to once again begin investing in areas that create jobs and bolster the well-being of its residents. It is up to us, as citizens, to reward those leaders who provide such leadership.

Editor's Note: Jim Curran and Kevin Prokop were Co-Chairmen of the Legislative Commission on Governmental Efficiency, a Commission established as part of the 2007 budget process. The Commissioners included representatives appointed by Majority Leader Bishop and Speaker Dillon and the Directors of the House and Senate Fiscal Agencies, among others. The Commission’s full report can be found at http://council.legislature.mi.gov/lcge.html.