Why Can\'t Lansing Balance the Budget?

By the time you read this, state legislators may have resolved the budget crisis in Lansing. But don't bet on it, as there exists a fundamental philosophical divide about the role of government that is finally coming to a head in Michigan.

The clock will wind down at the end of September. Our state budget starts on October 1st and legislators are at loggerheads, with Republicans resisting any tax increases and Democrats unwilling to make cuts that they claim will hurt public schools & universities and adversely affect housing for Seniors and Public Safety.

But is that really the case?

Ken Horn has proposed each department in State government cut it's spending by 2 percent.  This is a good place to begin, considering a strong case can be made for the fact Michigan already pays too much for the government it gets.

The average Michigan state employee receives a salary & benefits package worth nearly $75,000. An estimate of comparable figures for a private sector worker is $58,000.

Currently $300 million goes to cover health care costs for prison inmates (a sizable number incarcerated for drug possession under Michigan's 651 Lifer law. Yet as the Citizens Research Council has pointed out, compared to incarceration levels in other Great Lakes states, Michigan's incarceration rate is 40 percent higher and the crime rate in those other states much lower.

As for schools & universities, the Michigan Education Association is one of the strongest unions in the State.  There's plenty of money in the $13 billion-plus education budget to implement curriculum reform that could make Michigan schools the best in the country, but rather than make nominal cuts in excessive teacher health care benefits, lawmakers prefer to undo the very education reforms they insisted upon last year.

Allowing districts to save money through health insurance pooling is good policy. So is putting teachers on the same health care plan as all other state employees, a proposal that would save $2,000 per teacher.  Indeed, if the Hay Group report that recommends rationalizing public school health insurance, including requiring co-pays & preferred provider networks were adopted, an estimated $422 million could be saved.

Moreover, changing the higher education funding mechanism to a standard 'per pupil foundation grant' in which money is attached to students rather than each university getting a determined amount by legislative maneuvering would save an estimated $70 million.

As for public safety, as Jack McHugh of The Mackinac Center for Public Policy notes, "Shifting state police road patrols to less expensive county sheriff deputies would save enormously. With benefits & related expenses it costs more than $100,000 per year to employ a state trouper. Most sheriff deputies cost much less to employ. The effect on public safety is zero but the savings to taxpayers is $65 million.

Gee, we haven't even touched upon government waste yet, and by adding savings from these few simple reforms nearly half of the budget deficit is met! 
&Governor get the job done?

Inside the Belly of the Beast

Do citizens & taxpayers exist to become the slaves of government & well-heeled lawmakers, or do lawmakers exist to accommodate the interests of those citizens footing the bill.  This is the fundamental question.

As we all know, the rich have little economic duress to worry about. Similarly, with a $15 billion budget for welfare programs, the poor are taken care of quite well, thank you.
It's the middle class that gets hurt most often; and if tax hikes ensue, government will have more people to add to the welfare rolls.

While State government does not peel the same huge amount off your paycheck as the feds, what happens in Lansing still plays a major role in our lives.

Consider that over $15 million dollars per hour is spent on the War in Iraq, and you get more than an inkling of why funding is not available for schools, Medicaid, and other government services that the Feds have cut in subsidies to the States.

Our budget shortfall is $1.7 billion. This comes mostly from eliminating the Single Business Tax. Also, we have decreased our state income tax to 3.9 percent. It was 4.4 percent when John Engler was Governor, and then there was a gradual rollback.

Virtually all of the legislators in Lansing agree that to come up with $1.7 billion, we need tax re-instatements combined with spending cuts.

Review Magazine recruited comments on the budget stalemate from Saginaw's new State Senator, Republican Dr. Roger Kahn of Thomas Township. We also contacted first-term state reps, Democrat Andy Coulouris from Saginaw and Republican Ken Horn from Frankenmuth. For a voice of experience, we went to Democratic Senator Jim Barcia from Bay City.

Jim Barcia may not want to acknowledge this, but he began his career in the state legislature in 1976, a year before Andy Coulouris was even born. Barcia went on to serve on the U.S. Congress from 1992 to 2002, but then he was redistricted out of his seat in favor of Dale Kildee from Flint, and so he returned to state government. This means that Barcia can remember all the way back to when Bill Milliken was governor.

Barcia as a veteran Democrat speaks the Lansing budget truth that Andy Coulouris also will tell you, and that even Dr. Roger Kahn will acknowledge as a Republican.

This budget truth is that some of the solution will involve re-instating our state income tax back to the 4.4 percent neighborhood.  This is because since 2001, revenue from state sources has been flat to slightly down in real inflation-adjusted terms.

But this is an 'easy fix' and one not palatable to voters & taxpayers already carrying a per dollar tax burden that is 12th highest in the nation.

The other part of the solution is to identify and reduce excess spending. State employees - including those who work for the schools, which are now basically state-funded, will have to give up some of their employee benefits.  Right now they don't want to and because the MEA is such a powerfully funded lobby, most Democrats tend to cave into them.

Also, Dr. Kahn asserts that welfare families are crossing the state border from Indiana and Ohio to collect Michigan's generous benefits.  "This is something that needs to stop," he notes.

Engler had set in motion the gradual income tax reduction to 3.9 percent, starting during the late 1990s. This was during the time that the American economy was jumping under Bill Clinton as president. Michigan's budget could handle the decline in revenue at the time. But Jennifer Granholm in 2003 inherited a big budget deficit from Big John.

This is still haunting us.

Barcia remembers. He was a freshman in the U.S. Congress in 1993 when he voted for a Clinton plan to raise income taxes on the richest 5 to 7 percent of Americans, forestalling the Reagan-George H.W. Bush budget deficits. This may have been unpopular, but as Barcia states, "At some point, you have to do the right thing."

Barcia says the state budget here in September 2007 is in the same sort of mess as the federal budget was suffering back in 1993 "or in the same sort of mess as the current federal budget under George W. Bush Jr., in which national debt is approaching $9 trillion. The difference is that the state, unlike the Feds, is not allowed to run a deficit."

Here is a sampling of what our state legislators told Review Magazine:

Jim Barcia: "We cannot allow political party affiliation to become an obstruction to the process. We have a cyclical process that is causing our state budget to decline, and one part of the reason is that there have been 32 different tax cuts approved in recent years. Our deficit problem is twice as bad as during 1983, when Jim Blanchard as the newly elected governor had to go to the people and explain that we needed more revenue. I recognize that people are trying to cope with layoffs and our bad economy, but whenever I have 15 minutes and a chance to explain, people realize and understand that we need to have funds for core services."

Dr. Roger Kahn:  "We have a combination situation. We need a mixture of cuts and revenues. For each one-tenth of one percent that we reinstate the income tax, that is $165 million per year. Hopefully this will be temporary. I believe we can raise $500 million, and cut $1.2 billion, and that will be our solution. People are telling me that they don't want their taxes to be raised, and that they want to know the value of the money that is being spent."

Andy Coulouris:  "We can't get out of this mess with cuts alone. The cuts that some of my colleagues have proposed would devastate K-12 education, police and fire protection, and basic state infrastructure.
We also can't simply tax our way out of this mess. We need to enact real structural reform to government that addresses the structural deficit that our government faces. In fact, the only way out is to do all three: reform government, enact more cuts, and finally raise the revenue to right the ship."

Ken Horn: "I have proposed a reasonable budget solution last spring with the Horn Two Penny Plan. That is for every dollar we spent last year; we would spend 98 cents in this year. Further, for every dollar cut in frontline services, one dollar would be trimmed from administration. Had the House of Representatives acted then, we would not be in this budget crisis today. And now, with only scant time left before a government shutdown, Democratic House leadership is proposing yet another series of irresolute work groups."
Ken Horn served on the County Board of Commissioners, and notes with pride that he helped to balance 14 county budgets.

He states that Lansing legislators during the past 10 months have done a great deal to bring taxes and spending into balance, while "rewriting Michigan's entire business tax code."

So what will happen?   Look for more next issue.

But if tax hikes are enacted absent exploring every form of budgetary cut and avenue for government restructuring, then a hard rain will surely fall upon Michigan - especially in a State that has witnessed a .07 percent reduction in per capita personal income from 2001-2006, while nationwide it rose 4.2 percent.

Opponents to reform say 'That's not the way we've done it in the past'.  They get accustomed to the gravy train (just ask Carl Williams who had a $90,000 job custom created for him after losing this last election to Kahn).

That's not good enough anymore. Michigan has already passed the tipping point of going from relative decline in population & income to absolute decline.

And without major reforms, there's nothing stopping Michigan from going the way of Detroit & Saginaw - with a declining population and an economy unable to support a government establishment that believes its residents exist to serve it, instead of the other way around.