A VIEW FROM THE LEFT: DEAL OR NO DEAL - THE MICHIGAN BUDGET CRISIS

It's worse than they thought.

State officials are now staring down the barrel of an $803.2 million shortfall in the current Fiscal Year  (FY) 2007, according to the House Fiscal Agency (HFA) on the back of Friday morning's Consensus Revenue Estimating Conference. The sizeable growth in the hole, which the Granholm administration had estimated to be $715 million, is the result of declining state revenue and higher spending pressures from social service programs, among other factors.  As the budget shortfall continues to grow; it becomes more and more apparent that cuts, and cuts alone are NOT going to help Michigan.

For years, Senate Republicans have demanded cuts, cuts, and more cuts.  Governor Granholm has obliged and has cut over $3.6 billion from the State’s budget over the past four years, and has cut more from the budget than any previous Governor, as well as operating state government with fewer state employees than we had in 1970.  Granholm continues to cut services and streamline government and she has lived up to her end of the bargain.  Senate Republicans need to live up to theirs.  Economists from across the country who have reviewed the state of Michigan’s budget have agreed that cuts alone will not help Michigan.  Sensible cuts and new revenue streams (taxes) will be required to bring Michigan’s budget out of its funk.

Senate Republicans introduced and passed S.B. 436 and 437 on party-line votes.  Basically, S.B. 437 would create a cut to schools of $36 per pupil, and make devastating cuts to the 21st Century Job Fund to balance the 2007 budget.

Senate Democrats have two main reservations about this legislation.

First, it is irresponsible in terms of both long and short-term economic development -- schools representing our long-term economic development and the 21st Century jobs fund as the agency charged with long-term economic development. Second, cutting schools at this point in the school year is irresponsible, since schools have most likely already committed the funds.

Basically, the Dems feel this amounts to shooting ourselves in BOTH our feet. In many ways, this plan is even worse than one that is based on cuts alone, since it effectively robs the 21st Century Jobs Fund -- which was created with strong bipartisan support to stimulate our economy -- to balance the budget.  It's also important to mention that the money that would be taken from the 21st Century Jobs Fund includes dollars that have already been assigned to specific companies. In other words, we believe this legislation would effectively break the state's contracts with these companies, which would expose the state to lawsuits.

Both of these bills are non-starters, since they move us in the wrong direction, and send a terrible message to Wall Street agencies, who have already lowered the state's credit ratings a number of times.

The Senate Dems are ready to vote on a comprehensive solution that includes cuts, reforms, and revenues. Unfortunately, based on what we witnessed this month, Republican Leader Mike Bishop is still refusing to reach a compromise and solve this crisis.  To not even consider a compromise which involves revenue enhancements, or tax increases, or new taxes… whatever you want to call it… to take it off the table all together, against the advice of experts and economists… that is irresponsible.

Guest Writer - Jeff Winston
www.michiganliberal.com

Comments

[Wayne Arnold]

It would only be a compromise if our leadership accepts the fact that we are in a new economy and it will not get better for a long time. So accept it and deal with it. Look like an across the board 5 percent tax on food, medicine, services would be a logical place to start, get rid of the pennies and that's my 2 cents worth. BTW this is definately a left wing blog.

[Ryan]

I know asking Jeff questions and expecting an answer would be a triumph of hope over experience; so I'll just point this out to whomever.

Michigan HAS to have a proposed Balance Budget. To claim Granholm or whomever has cut, cut, cut as evidence of fiscal restraint is humorous. To make up a number (ala $3.6 billion - sure it isn't $3.545 billion, or hey, let's just say $4.5 billion and call the budget balanced and be done) is just downright funny.

If they're told revenues will be $40 some-odd billion overall and $10 some- odd billion in the General Fund, well, then, you know that's how much they get to spend.

Of course, one trick is to over-estimate revenue (you don't have to confront spending decisions this way; or another trick is to move when retirement benefits are calculated; yes, this serves no economic purpose, no real money is saved. But, then again, that isn't really the point).

But, much like the accountants at Enron and Worldcom discovered, once you start hedging things because someday - down the road - "things will get better" and then "we won't have to play these games", the state is finding out sometimes the game ends first.

Of course, revenue has grown each year Granholm's been in office. Each budget proposal of hers has been larger then her previous budget. Taxes as a percentage of state revenue have remained constant over the years.

But, no, fellow taxpayers of Michigan, listen to Jeff - you just need to do with less money in your pocket. This so-called "crisis" is your fault. Yeah, yeah, I know you gave at the office...yes, I realize the state's revenue continues to grow...yeah, I know we're not technically in a recession, i.e. Michigan's economy is growing.

But you just don't get it.

Best,
Ryan

[JWinston70]

Ryan - Your argument is akin to a shell game. You are not properly representing the facts. For instance, you claim that Granholm is purposely over-estimating revenues in order to increase her budget. This is just not the case. It is the House Fiscal Agency which reviews and estimates revenues and deficits. You portray this as a conspiracy of Granholm, which is simply NOT the case. You must have forgotten about the 16 years of Republican domination in the House and Senate. Under the watchful eye of Republicans, Granholm's budget proposals increased. Hmmm, maybe the cost of goods and services went up. Fuel costs alone have ballooned beyond anyone's projections from a few years ago. Granholm has done a pretty good job of reducing the mess that was left by Engler. Hell, even Republicans agree that Engler screwed our budget. Under Engler, both the House and Senate were rubber stamps to outrageous spending and tax breaks to special interests.

I find it outrageous that folks out there bash Granholm and the budget; having not even read the budget proposal. I have reviewed the proposed budget, have you? I do not find frivolous expenditures or bleeding-heart liberal causes. I think that Bob Emerson has put together a great proposal. I do not agree with the service tax. Instead, I would like to see the income tax return to where it is supposed to be in the first place, at 4.4%; not the current 3.9%. I am a home-owner, I work for a living, I pay taxes. I am no different than most people. Believe me, I am more than happy to pay the taxes that I do pay. Although I do not have kids of my own... I am glad to see the kids in my community getting a great public education. I am proud of my local police and fire departments who risk their lives daily to protect my community. Taxes are not evil, they are necessary. I am not a fan of being OVER-taxed, but I believe that we are currently being under-taxed.

[B Post]

I think we have many good comments here already, but I think I have a few additional "two cents" worth to kick in. Because I am of a conservative bent I tend to agree with Nick's View From the Right more in principal. As a conservative, nothing riles us more than seeing what we see as wasted spending. I view the process we are going through right now as both troubling and healthy at the same time. It is troubling because our legislators are spouting a lot of rhetoric and not getting the job done, but also healthy because it is actually giving a process to really evaluate the value we're getting from government. My conclusion? While I agree that a lot of the cuts will probably be painful ones that we'd rather not see, there are arenas where we just plain are not getting good value. The education system is probably one of the worst offenders. Despite budget problems in most schools they still are not addressing fundamental spending problems like health care. We see articles in the GR Press where new teaching grads complain that $35-40,000 per year starting salaries with fully paid health care are not where the money's at, but they'll do it for the love of the job anyway. What sort of gilded cage were these kids educated in? NOBODY gets fully paid health care any more. If you even get company paid health care at all, industry standard employee contributions are in the 10-30% range. And that's not even taking into account that company HR departments do competitive bids EVERY year.

Another issue is the structural budget problem with pensions. I can't back this up, but I believe that a strong sentiment in voting down the Proposal last fall guaranteeing levels of funding for K-16 was that most of this money would have simply gone to teacher's pensions. So now we start seeing the level of pensions being offered to retired teachers who can retire as early as 52 if they have 30 years of service, with full health care in retirement. Again I have to ask: what other industry gets that level of benefits? One of the last holdouts is the automotive industry, and even they will have to accept much less in the future if they are to remain a viable industry. If you look once again at the private sector, if they need to improve cost effectiveness and have labor contracts in place, then the answer has been that they have to re-open negotiations. Proposal A is much maligned these days as the "problem" that education has today, but frankly, weak school boards that refused to stand up against the teacher's union would otherwise have bankrupted us with huge increases in property tax millages. Believe me, I find plenty to fault the Engler administration with (especially the whole special interest problem), but Proposal A is not one of the reasons.

I do agree that the legislature will need to look at new tax proposals for next year's budget because most of the structural problems with the budget will take a lot more time to resolve. But if we don't start now in a year where we can resolve the budget problem without tax increases, there would be no incentive to start real structural reform at all. Why should we as taxpayers expect that our legislators would start next year if they're not willing to start now? And by the way, I really really find annoying the rhetoric we sometimes get from the Left when they say that "all these years of tax cuts, and look at the mess it got us into". Remember, it's not tax cuts that got us into this mess, it's a downturn in tax RECEIPTS due to a state in recession. And the tax cuts didn't cause the recession (in fact they probably cushioned against the recession for longer than if they'd not been there at all), it's the loss of manufacturing jobs to overseas competition that was probably the major cause. We can debate about the best way (increase taxes or cut spending) to solve the budget problem, but please stop foisting that whopper on us about tax cuts causing the problem.

[JWinston70]

I do not blame the budget crisis on tax cuts. I do take issue with the special interest SBT tax-breaks over the past 20 years which are responsible for the ineffectiveness of the business tax. As I have written before, only 39% of all Michigan businesses were contributing 93% of the SBT revenues. These are the only tax cuts that I have had an issue with. However when I write about cuts, cuts, cuts... I am referring to th continual cuts to important institutions like education, police, fire, Medicaid, etc. These are the basic fundamental services that the state provides. As for all of the typically liberal social programs. I agree with most conservatives that these are getting out of control and frivolous.

However, I disagree with you about teacher healthcare and pensions. I believe that teachers earn these benefits. It is actually less expensive to provide these benefits than to pay these professionals what they are truly worth. People often forget that teachers are licensed professionals like doctors and lawyers, etc. They are responsible for the safety and education of anywhere from 20 - 140 students per year. I see a lot of conservatives bashing teachers merely because of their union. However, if teachers did not have their union; they would need to be paid even more because they would have to have the equivalent of malpractice insurance. In today's litigious society, teachers would have to protect themselves. God knows that the school district would rather fire a perfectly good teacher in the event of an issue than to fight a parent or a baseless accusation.

If benefits and pensions bother you; I would recommend looking to elected bureaucrats before I would look at teachers. State House and Senate members get lifetime healthcare and a pension. Even our local Commissioners get lifetime healthcare and a pension after they serve 5 years.

[B Post]

Well, we do have several points of agreement. I certainly do take issue with pensions and health care packages on elected official that I can only paint as outrageous. I merely focused on several other areas because while outrageous (and certainly ripe for reform) those line items in the budget wouldn't be sufficient to crack the present budget problems.

As for teachers, I still take issue with some of your remarks. Their pay packages still are not on par with private sector professionals. If you pare it down to licensed professionals they would actually be more comparable to licensed accountants and engineers. Certainly engineers deal with even greater safety issues (in terms of numbers of people affected by their actions) than individual teachers. Once again, I fall back to my previous discussion of comparable private sector benefits packages. Teachers are really not comparable to doctors and lawyers who require significant graduate level education before being eligible for entry level employment.

What I really have a problem with is that "education" all lumped together has still been getting yearly increases in funding (though the rate of increase has slowed in the last few years), yet it feels like a big money pit. If you listen to our educators it would seem that it's never going to be enough. And we're already one of the highest cost states in the country for pay scales. One of the biggest reaons why I take issue with the union is that if they actually allowed competitive bidding on health care they might not even need to begin paying for some of their own health care if sufficient savings were realized. It would be a good start, a sign of willingness to cooperate and generate good will, and shouldn't cost them a thing.

[Mike]

Time to require that all school districts bid out health care - probably saving $400 million a year.

[Ryan]

Jeff,

Funny you mention a shell game, then accuse me of something I didn't say (that I blame Granholm for the revenue gaming), then run off with that charge for several paragraphs.

My point was real clear: (and note, I said "Granholm or whomever...") for you to make up that there have been $3 billion in cuts is a joke. Interesting in your reply, you skipped this part.

It's a joke A) because the budget has grown every single year and B) because the budget HAS TO BE BALANCED.

Yes, I am very well versed in accounting and deciphering budgets. I have read the state budget, thank you very much for asking.

I'm not sure where I charged there were "frivilous expenditures" or "bleeding-heart liberal causes"? But, my original post is still here perhaps you could point out where I said that?

However, rather than your continual use of Strawman arguments, why not engage on the factual points I did actually make in my original post?

Your propensity to avoid what I've said, replace it with your own perceptions, and then debate those self-created perceptions is amusing but not really productive.

So, I'll ask again. In an every increasing state budget how can you claim there's been $3 billion in cuts?

If you read the 2008 Budget as you pat-yourself-on-the-back claim to have, then you'll know there's a little section on how Draconian $3 billion in Budget cuts would be to the State.

This isn't done to point out how tough it was to make those cuts, but to point out how silly it would be to make $3 billion in cuts.

Yet, you show up here and claim that's exactly what's been done. So, did you really read the budget?

Could you please tell me in what fund I would find those $3 billion in cuts?

While you're looking over the Budget, could you tell me whether the state has taken in more or less (just use the 2008 one, if you like, it begins with 2004-2005 Budget Year, iirc) from Personal Income Taxes during the years represented?

Also, answer: Has the budget increased every year under Granholm? (Now, I know your Strawman tendencies would have you run with "unfair attack on the Governor" or "they went up under Engler too..."). With that in mind, I'm not claiming they shouldn't have went up, just asking you whether you agree that they have or not?

As to the "Engler budget mess"...Well, you have to decide whether Wall Street credit rating corporations have merit or not. You're big on highlighting the 'credit downgrades', but what were the credit ratings under the Engler administration, I wonder?

Care to cover that one as well and leave the 'shell' game talk to another time and place?

Thank you,
Ryan

[Ryan]

Jeff,

In my first run-through I missed your comment on rising fuel costs. So, commenting on it was unfortunately left out of my initial reply.

You do know that the State levies a sales tax on gas right? So, they have a built in hedge on the per unit cost of fuel. And in fact, the sales tax overall is a built in hedge against inflation.

In fact, no one makes more money on refined petroleum then State and Federal governments.

And overall taxes are paid in nominal dollars. That means state revenue will increase (assuming inflation), cateris paribus.

So, see, it doesn't really matter whether you want to discuss the budget in nominal or real terms. It doesn't change a thing.

Since I'm here, and I see you posted on another thread without answering any of my questions, guess I'll answer them for anyone playing the home version of our little game.

Let's see, oh yeah, first about the $3.5 billion in cuts and how that fits with an ever-increasing state budget?

You can only do this by subtracting spending that went away and conveniently ignoring new spending or increases in spending. Simple math, correct? Certainly not an argument that gov't is doing with less, or we're paying too little in taxes - those things may be the case, just saying this argument of yours is folly in that regard.

Personal Income Taxes, have they went up or down per the 2008 Executive Budget?

Well, up. And it's forecast to continue going up.

But, I thought we had a decling population and the ones that were left are under-taxed?

Yeah, doesn't add up does it.

Has the Budget increased every year under Granholm?

Why, yes it has. Since we have to have a Balanced Budget, doesn't this imply ever-increasing revenue? Yes it does.

Only humans pay taxes recall (not the shadowy "businesses" some folks like to refer to, remmber you can't invite a "business" over for dinner), this is an important point. Every single dollar collected by the state comes out of a persons pocket. Whehter it's a tax on their wage, or a tax on their capital that they supplied to run a business, a sales tax, an excise tax, a tax on a tax (see Michigan's sales tax on gas - we're one of the few that do this), etc., etc.

Thus, by definition, higher state revenue with a stagnant or declining population means we're paying more in taxes.

This doesn't have to mean we're paying enough in taxes. But it doesn't seem right to say we're paying less than we used to given the parameters I just outlined.

Credit Rating corporations and the Engler budget mess? Oh yeah, the new found 'club' used by the left in the current budget battles.

Well, I'm too lazy to dig up the Engler budgets right now. But, I'm fairly certain (having read them several times...I knew you might ask...) that the Engler administration was quite proud of the credit ratings.

And indeed, the mere fact you're pointing out there have been downgrades means....well, that our credit rating was once higher.

So, have Moody's and Standard & Poor's suddenly figured out how to decipher our state's budget; but back in Engler's day (when the budget was a "mess" according to you) they hadn't a clue?

My view is - and I say this having read their credit ratings on Enron and others back in the day (and more recently "the Market" marked down Ford and GM credit long before Fitch, Moody's or S&P began their downgrades) - that they're real good at telling you what you could already figure out (assuming one is financially literate enough to dig through Footnotes, etc.), but horrible at putting the situation in context, and horrible at anything other than linear forecasting.

Jeff, you're just too defensive. My general criticism (a pox on both sides of the aisle, if you will) is always taken by you as criticism of Granholm or Democrats.

If you'd step back, stop trying to cast everything in a "how can I credit Dems for this?" or "How can I pin this on the Republicans?" (which, I know is essentially your job), and view the big picture and how everyday citizens view things it might help your perspective a little.

Best,
Ryan

[JWinston70]

Ryan,
I guess that I need to clarify your shell-game. Since you have such a keen understanding of budgets; you understand the difference between general funding and restricted funding. For those readers who do not understand, allow me to explain.

While the state budget has increased in size over the years, it is the budget as a whole which increases.

The vast majority of the state budget is made up of restricted funds (which are either constitutionally or legally restricted to specific programs... and much of it is federal money that comes in the form of grants and matching funds.) In fact, I alluded to restricted funds in my view from the left when I pointed out why SB 436 and 437 would not be feasible... because the Senate Republicans want to use RESTRICTED FUNDS.

The remainder of the budget is General Funds which are the ONLY discretionary funds in the budget. These are the funds which the Legislature and the Governor have to play with in budget creation. Today, the General Fund portion of the budget amounts to about $8 billion of the $42 billion overall state budget. So while the overall budget has increased, Michigan's tax revenues and general fund spending has gone down. During the Engler Administration, General Funds peaked at $11.7 billion.

So Ryan - to argue that the state budget has increased every year is absolutely true. But you present the data in a shell-game fashion. The General Fund portion, the only thing that can be affected by the Governor or Legislature has gone down every year. You have framed your argument to give the appearance that Granholm is responsible for an increased budget every year. In fact, while the budget does increase due to circumstances that are completely out of the control of the Governor and the Legislature, the General Fund spending has been continually reduced every year during her term. Also, the costs of these overall budget increases are covered by the federal grants that are responsible for them. To make it easier for those who are following along; lets not talk about the overall budget. Let's focus on the General Fund.

So far, in her first 4 and a half years the Governor has resolved $4 billion in shortfalls, and she has made $3 billion in cuts. You wanted to see the numbers... here they are:

Budget Cuts:
- Higher Education- $275M
- Human Services- $172M
- School Aid- $323M
- Revenue Sharing- $447M
- Consolidation and Merging of State Agencies to save millions.
- Reduction of State Employees by 10000 since 2000

Savings:
- $524Mby renegotiating contracts, ending no-bid contracts
- Nationally-recognized protections against food stamp fraud saving millions
- Bulk purchasing of prescription drugs and other cost saving steps saved $400M

I am not in the business of trying to pin everything on Republicans. I find that I spend more time defending the Dems from Republican attacks, slant and mis-information that I don't have the time to go after Republicans. I believe that the partisan divide that we now see on the state and federal level is a cancer. When both sides stand too firm and unwilling to a compromise, no one wins in the end. When it comes to the Michigan budget crisis... I will go out on a limb and fault the Republicans (Mike Bishop to be exact) not because of the party... but because Bishop et al. have formed a blockade to progress. To publicly announce that taxes or revenue enhancements are completely off of the table, and in the next breath say that he wants the Governor to compromise is being dishonest to the people and to the process. By definition a compromise is a give and a take, a coming together. If Bishop has taken taxes off of the table all together... then how exactly can a compromise happen. When Bishop asks for a compromise, he is really saying, "Agree to my terms only, I will give you nothing in return". Then in the media, he can come out and call Granholm the one unwilling to compromise. One needs to clarify with Bishop what the definition of 'compromise' is exactly.

[Ryan]

Gee Jeff, on my payroll stub could you point out what part goes to the General Fund and what part doesn't?

*****Let's focus on the General Fund.*****

Right, 'cuz Lord knows the rest of the money spent doesn't count, right? I knew youd eventually get to this part of skulldugery. But, I have to say it's been fun dragging you to this position.

*****The vast majority of the state budget is made up of restricted funds (which are either constitutionally or legally restricted to specific programs... and much of it is federal money that comes in the form of grants and matching funds.)*****

Yes, and being a man-made invention I guess we can't review this can we?

*****So Ryan - to argue that the state budget has increased every year is absolutely true.*****

Thank you very much. But, we're still under-taxed right?

*****You wanted to see the numbers... here they are*****

Figures. They don't even add up to what you claimed. And as I stated you have to be ignoring increases elsewhere.

*****lets not talk about the overall budget.*****

And, lastly, you're saying let's not discuss 79% of the budget? And, this is your proof we need to be taxed more? That, we need to forget about 79% of the revenue?

Mind-boggling - I now know first hand what is meant by inside-the-beltway thinking...

Oh by the way, the GF didn't go down last year.

*****I believe that the partisan divide that we now see on the state and federal level is a cancer.*****

And from what I've read you're a part of it, buddy.

-Ryan

[JWinston70]

Ryan - Are you suffering from high blood pressure or something, you seem to be an overly angry writer or perhaps you are just naturally snarky. Relax man...

The other 79% of the budget is no less important, there is just nothing that can be done about it. I mean really, you can spin your wheels day and night complaining about the $42 billion chunk of the budget... but realistically, what can be done about it? The Legislature nor the Governor can touch it. Is there waste there that could be cleaned up... sure. But that is another fight for another day. The clock is ticking to come up with a balanced budget, so for the time being... Michigan needs to concentrate on the General Fund.

As for your concern:
*** Figures. They don't even add up to what you claimed. And as I stated you have to be ignoring increases elsewhere.***

The numbers that I provided add up to $2,1+ billion

The additional $1.4+ billion is made up of the combined Consolidation and Merging of State Agencies, Reduction of State Employees, and misc.

[Nick]

Jeff says:

"The other 79% of the budget is no less important, there is just nothing that can be done about it. I mean really, you can spin your wheels day and night complaining about the $42 billion chunk of the budget... "

Umm... the total budget is just over $42 billion. 79% of 42 isn't 42. Just saying.