Michigan Governor Jennifer Granholm announced her latest budget plan last week. So what’s the big deal? Why should you care? Because no matter how you think the government should spend your tax dollars (whether it be social programs, education, criminal justice, environmental protection, a return of those dollars to you through tax cuts, or any other purpose) every cause is being squeezed from all sides.
The governor’s budget is a map to her strategy for governing. The budget is one barometer of where we’re headed as a people. It gives glimpses of our competitive strengths and weaknesses. It’s a window into the state’s future.
Today’s Fresh Thoughts For Michigan’s Transformation newsletter seeks to give citizens, in 10 minutes or less, a quick understanding of the governor’s budget plan and her priorities. The governor proposes then the Legislature disposes. It will be months before the horse trading is over and the budget is finalized.
The governor’s number one budget priority is to take care of state residents living in poverty. That’s the clear conclusion from the governor’s detailed 2009-10 budget proposal.
Forty percent of all dollars spent by the state of Michigan in the governor’s plan will be spent on social programs, including health care coverage for the poor, cash assistance, food assistance and other programs totaling $17.5 billion in state and federal funds.
Perhaps you believe a society is best judged by how well it serves a moral duty to take care of those most in need. Perhaps you believe a welfare state can never transform itself into prosperity. Whether you’re at either of those extremes or somewhere in between, there’s no denying the numbers… the number one government strategy in the governor’s budget plan is to take care of those in poverty.
Michigan’s governor and legislators essentially deal with two budgets:
1) An overall $44 billion budget that is a mix of state and federal funds and specially earmarked taxes (like sales taxes and lottery revenues for schools and gasoline taxes for roads).
2) A $9 billion discretionary “general fund” – the main pot of money over which legislators can actually exert control and exercise priorities. The general fund is folded into the overall $44 billion budget.
In the overall $44 billion budget, every $100 your family or business pays in taxes goes to these priorities:
And, in the discretionary, $9 billion general fund, every $100 your family or business pays in taxes goes to these priorities:
For more details on how we derived these pie charts, click here for a quick glance at state government spending in each department under the governor’s proposed budget.
A couple key themes behind the numbers:
1. REVENGE DOESN’T PAY: The knee jerk sentiment to “boot ‘em all out of office,” or “cut the pay of the legislators” doesn’t amount to squat in savings. You could close the legislature for good and the annual savings would be enough to run the rest of state government for about four and a half days. Playing on the margins won’t solve the state’s chronic budget trouble.
2. INCONVENIENT TRUTHS: The governor is fond of saying she’ll go anywhere and do anything to recruit new economic development to Michigan. But even by our inclusive definition, only about 11 percent of state spending is in direct support of economic development. Likewise, funding for education is a constant plea from educators and parents alike, but, in total, education receives a healthy slice of the budget pie – more than one out every three dollars in the state budget. Finally, while many Michigan residents are proud of their local communities and quality of life, as a people we directly invest four out of every 100 dollars in the state budget on such distinctive and competitive assets as local communities, recreation, and protection of natural resources. And the governor proposes to zero out grants to local arts and culture programs.
3. THE COST OF SOCIAL ILLS IS THE ELEPHANT IN THE STATE CAPITOL: The combined costs of prisons, social programs, courts and state police account for seven out of every ten dollars in the discretionary general fund budget. One out of every six Michigan residents is now on Medicaid, the government health care coverage for the poor funded by both state and federal taxes. Likewise, one out of every eight Michigan residents receives food assistance. You could fill Michigan Stadium three times over with the increased number of Michigan Medicaid recipients just since 2004. This year’s budget includes $354 million in new spending on Medicaid – that one-year increase is more than we taxpayers will spend in total on every community college in the state. What is less clear is the state’s plan to deal with these costs over time. Nor is there full recognition of potential reforms and savings in the politically sensitive budget area of social services. For example, a state audit last year found $230 million in undocumented and potentially fraudulent payments for child care assistance for the poor. The governor’s budget made no mention of that highly questionable spending and instead offered $10 million in potential savings in the child care program.
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I’m particularly struck by the fact that just 17% of our budget is ‘fully’ in control of the legislative/budgetary process. For years we’ve constitutionally earmarked one thing after another. Now, there’s relatively little that the legislature can do to influence over 80% of our budget. That might have seemed reassuring at the time, but it sure feels like it locks in a lot of yesterday’s priorities in today’s world.
Two points:
The 800 pound gorilla in the room is missing.
The cost of health care is the largest chunk of all budgets – public and private.
Which would indicate that private insurance as a vehicle for providing cost effective services is broken.
And privatizing the corrections department is considered a smart move?
And just where is the legislature in all of this? The devil is always in the detail and this group is responsible for the detail.
A couple observations (and there is a lot more informatiom on the budget and a historic … well, since 2000 … overview at http://www.mitaxtruth.com., web site of the Michigan Fsical Responsibility Coalition, one of my clients):
1. Hey, John, vast amount of “economic development” comes in the forms of special tax treatments many earmarked to certain businesses. Some call this the “tax expenditure” budget. Here tis: http://www.michigan.gov/documents/treasury/Budget_Report_09_257559_7.pdf
You will see that Michigan forgoes $35 billion in revenues that it would receive without these special deductions. Some benefit all: The sales tax exemption on food, for instance. Others are targeted: The NASCAR Speedway Credit of $1,700,000. The movie credit falls into this category (except even more…we are actually writing checks out of the genereal fund to movie makers right now). You can decide for yourself if these are smart — or dumb.
2. I’d argue that health insurance isn’t really all that broken. Its just that some people can’t afford to pay for their health care out of their own pocket. Since we live in a civilized society, we all are required to chip in to help them a little. And that number has grown dramatically over the last decade. Of course, the rising cost of health care is a huge issue. and that’s all about rationing. So, who do you want to decide whether Grandma gets that third heart operation, she and her kids (current world) or Uncle Sam (single payer world)? If she doesn’t get it, we’ll all save a lot. If she does, she might make it to Christmas.
3. One consideration worth having perspective on isn’t just how the pie is sliced, although that’s real important…But how big is the pie, and is it really growing or not. The pie of state government isn’t growing as fast as Michigan’s income is. So that means you are paying fewer pennies of every dollar you earn for state government today than you did in 2000.
Look at state spending from state tax dollars and fees — that’s state money not from Washington (gas taxes, k-12 state education taxes, general fund tax revenues, etc.): Since 2000, it’s up 10 percent. Since 2000, state personal income is up 17 percent. Inflation is up 18 percent. In 2000, 9.49 cents of every dollar earned in Michigan went to Lansing. In 2009, that will be about 8.11 cents. That’s an 8.5 percent reduction in Michigan’s effective tax rate — even after the 2007 tax increases.
So…now that we all have more money in our pockets, we should all feel richer. How about you?
What’s the result? Well, since 2000, while Michigan’s personal income is up 17 percent, spending on K-12 education is up 10 percent. So when we say “we can’t afford good insurance and pension for teachers,” what we are really saying is “we don’t want to afford…” because we could afford it in 2000. Funding for revneue sharing to keep cities attractive for young talent is down 30 percent. Funding to public universities is down 10 percent.
Is this the way to create the prosperous state of the future? Or is this the way to create Indiana — a state with lower per capita income than Michigan, and unemployment just a tick lower.
The obvious question, there is minimal economic development in this plan. How can this be? Without the private sector everything will role over to…. dare I say it…. socialism. Why can’t people see the obvious here?
I bet that we could easily reduce the 40% spent for social programs if we changed free trade to fair trade and produced the products, and stopped exporting services we already have the ability and talent for. Think of how many more millions of Americans would be employed and also appreciably reduce our trade deficit and debt. It’s my belief that most of us want to have more control over our lives by being self supporting.
To those who do not think health care is broken:
What is driving the steady increase in health care costs? The US does pay more (as a percentage of GDP)than other developed countries. Why?
You don’t want to deny Grandma but you also don’t want to spend a large percentage of the cost on unnecessary administrative expenses such as the duplication in paperwork for every procedure, different prices/procedures for every insurance carrier, the late detection of the heart condition since physicians cannot share diagnostic information, the multiple procedure approval process by insurance company employees, etc. etc., etc.
The questions “Why?” and “How?” need to be asked and answered.
And, since a reasonable and simple method is available for measuring the capability and performance of a process – IF THE DATA IS MADE AVAILABLE- we should move away from mythology, hearsay and folklore and into the world of sound and reasonable decision making.
Unfortunately the necessary data is hidden and obscured (by a professional fear of giving something up (the leverage to make more money than the other guy?) or just indifference).
And resistance is heavy since opinion says it would be too hard, cost too much and take too long to digitize health care records. And then there is the bogeyman of “big government” deciding your health care options. Gee, isn’t that what insurance companies do today?
US based businesses are not competitive in large part due to a health care cost disadvantage. Its time we acted to reduce this cost and protect Grandma.
There are 10 million people in Michigan. How many of those require some of the 40% of the budget for state aid? How many of them expect us to pay for their children’s needs? How many of them expect us to pay for their next child?
We’ve already cut more than we should from the budget. It’s time to start cutting something else- as in snip snip- as in vasectomy. It would probably pay for itself in four years and save the state several thousand dollars a year after that.
Ten Million people in Michigan! To provide the needs for all of them is impossible – unsustainable. Snip snip.
All great points. The Department of Corrections is taking the lead (as far as I can tell) in looking at ways to drive down internal costs and reducing the NEED for prisons with better programs to help parolees stay out after being released.
The social services area is a huge challenge. Eliminating wastes is an obvious step – but that won’t get it under control without a fearless and non-partisan effort to get at root causes for escalating costs. This has two components – costs the State can directly control such as the cost of operations and fraudulent spending. The tougher and bigger opportunity is societal – taking steps to reduce reliance on social programs. This means more jobs and opportunties for people to move off the public dole. . .