For weeks, news from the state capital has been dominated by our lawmakers' battles to balance the state’s budget before a threatened government shutdown. Unfortunately, they — and the media — have missed what should have been the main point.

Granted, balancing the budget is important and legally necessary. But here's what all too many of them don't get:

A budget is not the same thing as a solid financial plan.

Sure, the Michigan Constitution requires that the Legislature pass a balanced budget by the start of the fiscal year on October 1. And getting there has been tougher than ever this time around.

What they now call the "Great Recession" meant lawmakers faced a staggering task. When they began, they were staring at a projected General and School Aid fund deficit of nearly $3 billion. Recessions come and go. But for Michigan, this is a problem that is no longer cyclical and by no means temporary. Our state is certain to face a budget crisis every year or so unless we adopt a solid, long term financial plan that gets our financial house in order.

That will have to be a plan that takes account of continued economic troubles, likely population losses and reduced state tax revenues for a number of years to come. In the short run, we’ll have another bad budget problem next year. This may be cushioned a little, since $510 million in federal stimulus money may still be available to help out.
But the year after that, we will be facing the mother of all budget crises, if nothing changes. The stimulus money from Uncle Whiskers will all be gone by October 2011. When that happens, Michigan’s budget is then projected to "fall off the cliff," according to Mitch Bean, director of the House Fiscal Agency.

The fact of the matter, as experts ranging from the Citizens’ Research Council to MSU economist Charles Ballard keep pointing out, is that Michigan has been living for yearly a decade with a budget that is structurally unbalanced by at least $1 billion each year.

"Structurally unbalanced" means simply that the programs now embedded in state spending will continue to always cost more than foreseeable tax revenue.

What the state badly needs, then is a solid financial plan, one which takes account of structural budget deficits — and over the long term, puts into place the kinds of reforms in the structure and cost of state and local government to bring annual budgets into balance.

Simply put, if we do not adopt far-reaching reforms in how our state takes in and spends money, we will continue to be doomed to have budget crises year after year after year.
So our leaders in Lansing may pat themselves on the back today for having finally gotten to a balanced budget.

Well, that's better than not having done so.

But the sobering reality is that just balancing the budget doesn't really solve anything, unless the deeper causes of the deficit are addressed. Now, for contrast, consider Oakland County. It's one of the country's wealthiest, but over the next three years officials there are predicting up to a 50% drop in the value of commercial and industrial property and a 25% decline in residential values.

That means an enormous hole in the tax base.

But Oakland County officials adopted a two-year budgeting model several years ago. Now, they have decided to push their financial planning out further. A new three-year financial plan will give them time to design and adopt reforms to cut the cost of county government to bring it into balance with reduced tax revenues.

Meanwhile, Michigan still budgets one year at a time.

Sadly, it is clear that all the energy now going into fighting over a balanced budget would be far better spent in thinking hard about what the state’s going to look like in the future, and adopting a series of reforms that bring spending into line with income.

There's not much appetite for that kind of hard-headed thinking in the corridors of our state capital. Many say it’s just too tough. But groups ranging from Business Leaders for Michigan, Citizens Research Council, the Detroit Chamber of Commerce and the Center for Michigan have already published lists of far-reaching reforms that could save billions each year.

Last week, I was on a panel moderated by Mary Kramer, The publisher of Crain's Detroit Business. The goal was to consider the state’s long-term financial health. I spent 15 minutes at home jotting down some of the reform proposals that have been floating around for years. By the time I had to leave to get to Novi for the debate, I had noted 14 proposals that in total, cut $2.6 billion each year.

Pie in the sky? If so, it is necessary pie. Without changes of this magnitude in the structure, workings and costs of state government, our state will never be able to overcome our annual budget frenzy.

So, balanced budgets are necessary, yes. But they are hardly sufficient for a financially stable state. Our leaders now need to turn from balancing one year’s budget to thinking about wholesale reform.
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Editor's Note: Former newspaper publisher and University of Michigan Regent Phil Power is a longtime observer of Michigan politics and economics and a former chairman of the Michigan chapter of the Nature Conservancy. He is also the founder and president of The Center for Michigan, a bipartisan centrist think-and-do tank which is sponsoring Michigan’s Defining Moment, a public engagement outreach campaign for citizens. The opinions expressed here are Power’s own and do not represent the official views of The Center. He welcomes your comments at ppower@thecenterformichigan.net