(Note: This article is part two of a two-day series discussing recent developments related to the Michigan budget. See part one.)

Confronted with an $803 million gap between revenue and spending in the current-year budget, the state capitol political class agreed to "solve" the problem largely by borrowing, shifting funding around and creating a larger problem by pushing the consequences off to the future. Remarkably, an agreement that is supposed to get rid of the spending gap actually increases spending on Medicaid, welfare and prisons. In the spirit of "consensus" that is often invoked when one side of a policy dispute wants the other to choke down bad ideas, this deficit-financing scam was approved with comfortable vote margins in both chambers of the Legislature.

The agreement does make some token cuts to various budget items, such as the Legislature, governor’s office, and arts grants. But these meager efforts are dwarfed by the centerpiece of the plan: $410 million borrowed from future payouts of Michigan’s lawsuit settlement with the tobacco industry. Because the settlement is effectively a court-ordered tax on cigarette makers, borrowing from its future-year payments (with interest) is comparable to taking out a loan against future income tax payments to pay for current spending. Either way, it is taxing tomorrow to hide from today’s troubles.

Compounding the tragedy of this folly is the road not chosen: a sizeable collection of sensible spending reforms, a small portion of which were recently and narrowly approved by the Michigan Senate but rejected by the House of Representatives. On March 22, the Michigan Senate approved a $250 million collection of modest but genuine cost containment measures. Of that, about $100 million in reasonable cuts were spread across a wide variety of health care, welfare, local government revenue sharing programs and others. They included a $14 million reduction for public transit, a $3.6 million cut to arts grants, a $10 million deduction from lottery advertising, a $2.5 million cut from intermediate school district funding, and many more.

This was commendable, but a small drop in the bucket compared to the reforms that could and should have been implemented when the magnitude of the current-year budget problem was quantified in January. The Mackinac Center has compiled many billions of dollars in potential annual budget savings. What follows are just a few of the many budget saving options that were and remain available to lawmakers:

  • $192 million could be saved from privatizing just 5 percent of the state’s prisons.

  • $112 million should be saved by cutting state mass transit subsidies and liberating the market for more cost-conscious private sector transportation options such as commercial van pools, jitney cabs and more.

  • Arts and culture grants are not a core function of government. Eliminating them entirely and reducing state subsidies to local libraries by 50 percent would save $35 million.

  • Privatizing non-instructional services at all of Michigan’s public schools, such as transportation, janitorial and food service could save an estimated $300 million or more.

  • Repealing the mandatory union-scale wages on public school construction projects could save $150 million.

  • Transferring state highway road patrol duties from the state police to more cost effective county sheriff deputies could save $65 million.

A small effort to enact some of these reforms took place with that March vote to cut $250 million from the 2007 budget. The Michigan Senate narrowly approved the reductions on a 20-17 vote, but the Michigan House of Representatives rejected the exact same proposal 60-49 on April 17. This effectively ended the attempts at real fiscal restraint for the 2007 budget and set the stage for the deficit-financing agreement that took place in May.

The Legislature will soon shift its attention to writing and paying for the 2008 budget. The sensible spending restraint ideas that were tried last March and countless others remain as fiscally sound alternatives to yet another borrowing binge (or perhaps even a major tax increase). Lawmakers must not put taxpayers on the hook for more future spending or taxes. Michigan deserves a less costly tomorrow.

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Kenneth M. Braun is a policy analyst specializing in fiscal and budgetary issues for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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