By Phil Power - November 1, 2007
After months of wrangling, our political masters have at last passed a required balanced budget, as required by the state constitution.
The $9.8 billion spending plan adopted early Thursday morning “resolved” the $1.75 billion general fund budget deficit by imposing $433 million in spending cuts, on top of earlier adopted increases in the income and sales taxes.
In the end, the folks in Lansing missed almost completely the opportunity to use the budget crisis as a lever to force major changes in the structure, workings and costs of government.
By focusing almost entirely on the short-term arithmetic of a balanced budget, our leaders failed to use budgeting as an expression of long-term priorities for Michigan .
Lacking a shared vision for Michigan ’s future, legislators and the governor produced a spending plan that lacks focus, discipline and strategic intent.
Here's a scorecard:
Prisons: Ho Hum. Michigan now spends around 40 percent more on corrections than our neighboring states, around $500 million. Each inmate costs taxpayers half as much again as our neighbors. The $2 billion allocated to prisons ($500 million more than for colleges and universities) represents a “cut” of $66 million and will lead to the closure of three prisons. There’s a long, long way yet to go to get spending on prisons into balance.
Structural Reforms: One hit, many misses. Other than allowing school districts the opportunity to get detailed data to allow competitive bidding on employee health care, there were no big changes in the structure, workings and costs of government. Benchmarking public employee pension, health care and other benefits with the private sector? Nope. Requiring intense collaboration and/or consolidation of local governments and school operations? Nope.
"North Coast" Quality of Life: Not Now. To attract talented people to come live in Michigan and keep our kids from moving to Chicago , we need to stress the unmatched quality of life here, our natural resources and environmental assets. So what did the budget do? Gave the Department of Natural Resources a less than inflationary increase of $1 million (to $289 million), which will result in layoffs for 14 Conservation Officers and the closure of 37 parks. Increased fees for hunting and fishing licenses (which are currently at deep discount, compared to other states)? Nope. Maybe in January. Maybe not. Require developers and business to pay increased costs of air emission and wetlands permits and regulation? No, the Department of Environmental Quality budget was cut by $3 million.
Higher Education: D+. We’re spending 25 percent less (inflation adjusted) on public universities than we were six years ago, while other states are spending around a quarter more. If we’re going to keep our brightest at home, attract talented folks from out of state and encourage high tech startups, we need to sustain our colleges and universities. The budget gives higher education a 1 percent increase (that’s less than inflation), although it does pay back the $138 million that was held back from last year’s budget. And we need to develop oversight methods to assure that every dollar spent on higher education is spent efficiently.
Schools: C-. K-12 schools will get an average of 1 percent increase – less, again, than inflation. Schools will likely continue to lay off teachers and other employees because increased costs (especially health care and pension) will outrun inflation. Programs for math and science in middle schools were cut. Michigan ’s greatest asset is the skills and brain power of our kids. But does the budget make this a priority or assure that as much school funding as possible gets to the classrooms rather than overhead? Nope.
Taxes: Pure Uncertainty. For businesses thinking to expand in Michigan , a simple, understandable and predictable tax system is absolutely essential. Instead, we’re back at square one, with businesses fighting anew to repeal yet another poorly written tax law, the arbitrary, inexplicable, incomprehensible and probably unenforceable 6 percent sales tax on a bizarre array of services. Numerous economists see broad, low-rate services taxes as a good way to modernize the state tax structure, but nobody advocates passing services taxes in the middle of the night, with no public hearings, at a rate triple what the governor originally proposed
Legislature: Ugly Symbolism. We’ve known a budget crisis has been brewing for a couple of years now. Yet last month, unable to pass a balanced budget by the constitutional deadline of October 1, the legislature after embarrassing thrashing adopted a “continuation” budget. The budget for this fiscal year was only finally adopted at 4 a.m. Thursday. Yet lawmakers decided to reward their own performance with a 2.9 percent increase, bringing spending for the House and Senate to $114.5 million.
Future Budgets: More Chronic Structural Budget Deficits. Center for Michigan executive director John Bebow says, “They’re going to be back at it for the next several years because they haven’t dealt with structural reforms.” Tom Clay, the former research director at the Citizens Research Council says, “We’re going to continue to have the same problem we have been having. By 2009, they’ll have another half-billion-dollar deficit, even if the economy improves.”
So, all in all, where are we? This budget offers conclusive evidence that Michigan ’s political, policy-making, taxing and spending systems are broken. The interests of 10 million Michigan citizens continue to be held hostage to the partisan agendas of both political parties, which are more interested in playing gotcha games than in setting long-term priorities for a struggling state.
The solution? It's up to us all, as citizens, to craft a clearer vision for Michigan 's future.
One Comment
Following is an open letter to Governor Granholm.
To: Governor Jennifer Granholm
A lifelong resident of Michigan, I have tremendous affection for its people. Michiganders are smart, tough and resilient. Given policies that promote growth, we are also highly creative.
Michiganders are blessed with fertile ground for agriculture, our precious and increasingly valuable great lakes, and physical beauty that belie perceptions of Michigan as a rust belt state.
I share your optimism about Michigan’s future. I even share much of your vision on how to fulfill our state’s potential. However, I’m deeply disappointed that a smart person such as you, one I voted for, has failed to provide the leadership necessary to solve Michigan’s current budget crisis. Until Michigan can bite the bullet and move on, our state’s promise will go unfulfilled.
The state legislature under your leadership has been gridlocked by partisan bickering. Much has been made of the need for reform to balance the budget. Most of it has been wrapped in unproductive political rhetoric. The solution, while painful in the short term, is simple. Our state needs to get leaner, and fast. If you truly listened to people like Ron Gettlefinger, Rick Wagoner and Alan Mulally you would understand that when your revenues shrink, you must shrink.
Our businesses have shown they can compete with the best in the world. While national trade policies have contributed to a less competitive Michigan, our automobile manufacturers, suppliers and union leaders have decided to stop blaming Washington for their woes. Instead, they have focused on what they can do here and now, and they have negotiated groundbreaking labor agreements. From Wall Street to Main Street, most observers have concluded that while painful for many, these new agreements will make our state’s core manufacturing sector far more competitive going forward.
I share your disdain for critics who don’t offer specific, tangible alternatives to current approaches, and at the risk of exposing my ignorance about how Lansing works, my thoughts on what you need to do, here and now, are as follows.
Based on published reports, the state needs to cut between $440 and $450 million in spending to balance the budget. In an editorial published last Sunday, The Detroit News stated, “The governor claims she has slashed 9,000 jobs from the payroll. But the state’s Civil Service Web site shows that that in December 2002, the month before Granholm took office, there were 52,608 state employees. As of January, 2007, according to that same Web site, there were 53,024 state employees, an increase of more than 600.”
Based on my research, the same Web site indicates that the average taxpayer expense for a state employee is $77,806 in salary and benefits. If you had had truly overseen a reduction in the state’s workforce of 9,000, or 17%, the state would have reduced its expenditures by over $700 million. Such a savings would have wiped out the current deficit and gone a long way toward offsetting the anticipated revenue from the recently enacted, and ill-advised, sales tax on services.
The editorial went on to note ”State employees also got a pay hike this year. Repealing it would save $150 million.”
While accurate numbers can be elusive in a state with over 50,000 employees, it seems indisputable that a reduction in the state’s workforce along the lines of what you have claimed would have more than solved our current budget crisis.
It’s time for you to demonstrate real leadership by insisting that state government be reduced in size by 10%. Whether these cuts are across the board, or whether they are done strategically, is immaterial at this point.
If you have the same affection for Michigan’s citizens and businesses that I have, you should consider the following actions:
1. Place a hiring freeze on all state jobs.
2. Repeal the pay raises already granted to our state’s civil servants.
3. Demand from every state department a plan for process improvements that would result in a 10% reduction in their collective staffing costs.
4. Repeal the sales tax on services.
You should inspire your state employees to seek the same process improvements, with the same focus on arriving at common ground, that you’ve urged our state’s business and union leaders to strive for. The CEO’s of our state’s major companies, and our state’s union leaders, have partnered to accomplish exactly what you’ve suggested. It’s time for our state’s Chief Executive to walk the talk and do the same.
The state you love, the state with innovative and creative people that will transform its economy for the 21’st century, deserves nothing less. Our income tax increase will be hard to swallow, but it will be done. The state must get leaner. It’s time for our state’s dedicated civil servants to share the sacrifices that workers in private enterprise have already experienced.
I believe your vision for a better future for Michigan has merit. But I know that without strong leadership, here and now, our state’s recovery will remain on hold. Michigan has the physical and human assets to restore our state to its previous preeminent position in the foreseeable future. If we start now, the dividends will be realized quickly. The rest of the world is not blind. They see a state with tremendous assets that is undergoing a transformation. The smart money will bet on Michigan at the first inkling that we have our “stuff” together, that we’ve accepted reality, bitten the bullet, and are moving forward.
Respectfully,
Mike Gonyea
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