A long-term, sustainable solution to Michigan’s public budget woes appears as far away as ever. The governor is refusing to accept cuts to education proposed by the Senate and the Senate is refusing to accept the governor’s plan to restructure the state tax system with a sales tax on services.
It smells an awful lot like the standoffs of 2007 and 2009. It smells an awful lot like the doubtful “pundits” the governor lampooned in recent speeches are going to be correct. It smells as if the lack of trust between the governor, the House, and the Senate remains as acrid and toxic as it has been for the past several years. It smells an awful lot like real budget reforms – both to taxing and spending – will have to wait for a new governor and new legislative leadership.
Taxing and spending pressures are boiling under the domes of nearly every state capitol in the nation. That’s obvious from the “State Expenditure Report” and “Fiscal Survey of the States” published in recent months by the National Association of State Budget Officers.
But a close look at those studies reveals other states’ strategies that the new crop of Michigan leaders might do well to consider as they get started in 2011.
Five specifics:
CONSIDER HOW OTHER STATES WIELD THE KNIFE: Seventeen states made deeper budget cuts than Michigan in FY 2009 – Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina, Utah, Virginia, and Wisconsin. Seven states made deeper budget cuts than Michigan in FY 2010: California, Georgia, Massachusetts, Minnesota, New Jersey, New York, and Wisconsin.
STOP QUAKING IN FEAR AT THE TAX BOOGEY MONSTER: More than half the states enacted net tax increases in the past year. That’s right. They actually RAISED TAXES in some fashion. Every interest group in Lansing and every accountant or economist who has peered at Michigan’s public finances cries out for a complete overhaul of the Michigan tax system because it was built for a mid-20th Century economy that no longer exists. With steerage from a number of the state’s most prominent corporate executives, the governor has proposed a medium-term shift from business taxes to expanded sales taxes. That kind of business-friendly shift is common nationally – states have cut corporate income taxes by $200 million in the past two years. But despite its business-friendly themes, the governor’s tax system rewrite is DOA with legislators who are gearing up their summer re-election campaigns because it raises revenues in the short term. Some polls and economists in Michigan favor a graduated income tax and instituting taxes on retiree pensions – and nearly half of the tax increases enacted nationwide this year are income taxes. At some point – and our best hope is with new leadership in 2011 – the governor and the Legislature will have to design and approve a grand bargain. That grand bargain includes comprehensive reforms and a rebuilt tax system.
LOOK CLOSELY AT PAY FOR GOVERNMENT WORKERS: If state workers beat back Senate attempts to kill 3 percent raises scheduled to go into effect this fall, they’ll clearly be going against the national grain. Already, Michigan was the only state in the Great Lakes region to give pay raises (of 1 percent) to state workers in FY 2010, according to the National Association of State Budget Officers. Nationally, other states reduced state employee salaries 19 times in the past two years. States reducing those salaries twice include Maryland, New Jersey, Ohio, Nevada, and Oregon. States reducing those salaries once include Massachusetts, Vermont, North Carolina, South Carolina, Maine, Delaware, New York, Virginia, Colorado, Hawaii, and Washington.
FOCUS ON PRISONS’ SLICE OF THE PIE: Michigan has saved big bucks by cutting 5,000 inmates out of the prison system in the past several years. Still more can and must be done to reform both sentences and prison operations because prison spending remains out of whack. Michigan spends nearly a quarter of its discretionary general fund budget on prisons. When all state revenues, including restricted funds, are considered, the ratio of Michigan prison spending stands at 5.3 percent of total state resources. That’s 50 percent higher than the national average of all the states.
CONSIDER THE COSTS OF DUMBING DOWN: Michigan risks falling way behind in the never-ending national race to develop highly educated, entrepreneurial, and talented workforces. The 50 states spend an average of 10.2 percent of their total budgets on higher education. Michigan spends half of that national average after a decade of steady cuts to university funding.
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7 Comments
Your tax ideas mentioned in this article are identical to mine as I run for Michigan’s state rep district 80.
The fact that many states with lower unemployment rates are reducing government pay while Michigan raises it, speaks volumes about the lunacy of the Granholm Administration. Change is on the way though !
Your article fails to include the fact that State Employees took 6 furlough days last year, which is a 2.2% PAY CUT! This effectively eliminated their 1% base pay (less than cost of living) increase.
Full context on furloughs, which were not included in the article above…
Fifteen states furloughed state workers in FY 2009.
Sixteen states furloughed state workers in FY2010.
Five states instituted furloughs AND pay cuts in 2009… Massachusetts, Maryland, New Jersey, South Carolina, and Oregon.
Eight states instituted furloughs AND pay cuts in 2010… Maine, Maryland, New Jersey, Virginia, Colorado, Hawaii, Oregon, and Washington.
John
Only one state has a governor that protects state workers at all costs. Regardless of the health and or ability of that state to pay for it ! Guess which state ?
I see that Mr. Bebow is still promoting shaking down Michigan Taxpayers during a recession (depression?).
By the way, since he believes in this so much, when will Mr. Bebow promote a “Tax-Me-More” fund, so that he and people like him can contribute to their heart’s content without burdening those on limited/no income here in Michigan?
There are other ways to increase revenues rather than tax increases. We give more incentives than what we take in for revenue. There is such a huge disparity in what we give away as incentives than what we take in for revenue that it does not matter who is in charge. Michigan was set up years ago, by the Engler administration, to not take in enough revenue to run the state. You can put whoever you want in the Governor’s office and in the legislative branch and you will still not take in enough revenue. That is because the incentives versus the revenue is a whopping $13 billion dollar spread. Sooner or later you will have to restructure the tax policies in Michigan, which has been suggested by the sane for a long time. Cuts with revenue restructuring and reforms is the only way you are going to shift the tide. If you continue to stomp services the people you stomp may be you. Be careful what you wish for because you just might get it. We are in a race to the bottom with other states that do not invest in education. Watch the prisons soar as you take away the safety net for desperate people.