$1.358 Billion in Spending Cuts Available Right Now

The Mackinac Center for Public Policy has regularly recommended specific state spending reductions to balance the state’s budget and improve Michigan’s public policy. In 2003, the Center listed more than 200 recommendations that would have produced $2 billion in savings and one-time revenue enhancements; these recommendations were updated and expanded in 2005 to produce a new total of $3.5 billion in savings and revenue enhancements.

The following list shows how the state could reduce spending immediately to help balance the state budget if policymakers chose to forgo the projected $1.358 billion in fiscal 2008 revenue from the recent state income tax hike and the new sales tax on certain services. Note that nothing in the Michigan Constitution prohibits the Legislature from shifting the savings listed below to the budget areas where they are needed.

Department of Corrections: $136.0 MILLION IN SAVINGS

On Sept. 23, the Michigan Senate passed Senate Bill 511, a budget that included many "hard cuts" — that is, real reductions, not gimmicks, fund shifts and so on. Gov. Granholm has also recommended sentencing guidelines revisions that would move Michigan closer to the Midwest average in prisoner population; we’re currently 40 percent above it. Both proposals should be adopted.

  • Adopt at least three-quarters of Gov. Granholm’s sentencing reforms: $69.0 million

  • Close three prisons (net savings): $37.6 million

  • Cut employee nonholiday overtime pay: $10.0 million

  • Other staffing efficiencies: $8.8 million

  • Centralize prison store operations: $3.7 million

  • Privatize certain prison food services: $6.9 million

  • "Economic Development" Subsidies: $90.0 MILLION IN SAVINGS

    For 60 years, Michigan has been targeting particular firms or industries to be the beneficiaries of special favors in the hope that those businesses will prosper and ultimately help our economy. But extensive research has shown that these subsidies are not improving Michigan’s economy, and that such state subsidies typically do not stimulate economic growth in other states either.

  • Eliminate the new "21st Century Jobs Fund" spending: $75.0 million

  • Reduce so-called "job creation services" funding; shift off-budget Michigan Economic Development Corporation revenue, such as casino revenue, to the general fund: $15.0 million

  • Department of Human Services: $135.7 MILLION IN SAVINGS

    Michigan offers a variety of optional welfare benefits to groups not covered in neighboring states. Once again, the Senate-passed version of Senate Bill 511 identified immediate savings opportunities.

  • Reduce welfare day care subsidy reimbursement rates: $47.2 million

  • Increase welfare day care subsidy case reviews: $6.1 million

  • Strengthen welfare-to-work sanctions: $57.1 million

  • Close Maxey Boys Training School: $11.8 million

  • Make changes to child welfare programs: $13.5 million

  • Department of Community Health: $82.2 MILLION IN SAVINGS

    The Medicaid low-income health care program is the state’s second-largest spending item. Financed by both state and federal money, this is a command-and-control program hindered by counterproductive incentives and in need of major reform. In the short term, Michigan’s economic situation requires that we tighten eligibility and stop offering nonmandatory services.

  • Eliminate Medicaid coverage for caretaker relatives: $25.6 million

  • Eliminate Medicaid coverage for 19- and 20-year-olds: $12.7 million

  • Eliminate most "Healthy Michigan Fund" grants: $18.9 million

  • Impose mandatory citizenship verification for Medicaid recipients: $10.0 million

  • Require the Detroit-Wayne County community mental health services program to become a mental health authority: $15.0 million

  • Higher Education, Including Community Colleges:
    $82.7 MILLION IN SAVINGS

    When times are tough, the state’s universities should tighten their belts. Given decades of increases greatly exceeding the inflation rate, universities are well-situated to manage without a state funding hike.

  • Cut the proposed 1 percent increase in grants to state colleges and universities: $27.5 million

  • Cut scholarships to students at independent colleges by one-third: $18.6 million

  • Cut "Cooperative Extension and Agricultural Experiment Stations" by 50 percent: $31.5 million

  • Cut the "Tuition Incentive Program" by 25 percent: $3.5 million

  • Cut community college "at risk" student funding subsidies by 50 percent: $1.6 million

  • Impose a moratorium on new construction: current year savings indeterminate (and not included in total savings)

  • Primary and Secondary Schools: $286.3 MILLION IN SAVINGS

    Given the state’s troubled economy and the $11.5 billion education budget, which is the state’s largest spending area, school districts must tighten their belts along with everyone else. Proposed funding increases in school operating money should be eliminated, and millions for optional "nice-to-have" items should be cut.

  • Eliminate a proposed 1 percent increase in per-pupil foundation grants: $115.9 million

  • Eliminate extra money to school districts with declining enrollment: $20.0 million

  • Cut state preschool "readiness" and related programs by 50 percent: $49.0 million

  • Reduce by 9 percent extra "at risk" funding to certain school districts: $28.0 million

  • Cut intermediate school district operations funding by 10 percent: $8.0 million

  • Cut middle school math grants to districts by 50 percent: $10.0 million

  • Cut adult education by 60 percent: $14.4 million

  • Eliminate "20j" payments to wealthy districts: approximately $36.0 million

  • Cut "school equity" payments by 25 percent: $5.0 million

  • Impose a moratorium on new School Bond Loan Fund commitments: current year savings indeterminate (and not included in total savings)

  • Department of History, Arts and Libraries:
    $29.9 MILLION IN SAVINGS

    This department is clearly not a core function of state government. A state whose per-capita income is now 7.8 percent below the national average can’t afford to maintain the department’s current funding levels.

  • Eliminate state government arts grants: $10.1 million

  • Cut state aid to libraries by 50 percent: $6.1 million

  • Replace the state subsidy to Mackinac Island parks with user fees: $3.4 million

  • Cut department operations by 50 percent: $2.8 million

  • Reduce "historical administration and services" general fund support by 80 percent: $4.2 million

  • Replace 50 percent of Library of Michigan subsidies with user fees and cuts: $3.3 million

  • Other Departments and Programs: $211.3 MILLION IN SAVINGS

    Over time, state departmental budgets have accumulated luxury items, noncore spending programs, and direct and indirect subsidies to local governments and other entities. For example, Mackinac Center research shows that repealing the state’s prevailing wage law, which prohibits awarding state construction and repair projects to the lowest bidder unless the company pays union wages, would very conservatively save the state at least $90 million this year on government infrastructure projects. (Repealing the law would also save local governments and school districts money that is not included here in the total savings, which involve the state budget only.)

    If the state is indeed in a budget "crisis," then policymakers should be willing to give up or reduce a wide variety of business-as-usual spending items.

  • Cut funding for agriculture "development" programs: $2.3 million

  • Cut State Police "secondary road patrol" spending by 50 percent: $7.0 million

  • Cut statutory revenue sharing to local governments by 10 percent: $40.7 million

  • Adopt Michigan Supreme Court recommendations for reducing low-caseload judges: $3.7 million

  • Reduce spending on the Legislature: $8.9 million

  • Reduce so-called "workforce training grants": $4.4 million

  • Eliminate state Amtrak subsidy: $7.2 million

  • Reduce local transit operating subsidies by 20 percent: $32.4 million

  • Reduce lottery advertising: $10.0 million

  • Close nine Secretary of State offices: an estimated $4.7 million

  • Repeal state prevailing wage law: $90 million

  • Impose a moratorium on all new state construction (including the new state police headquarters): current year savings indeterminate (and not included in total savings)

  • Achievable Government-Wide Economies:
    $303.9 MILLION IN SAVINGS

    A large portion of the budget "deficit" is actually a gap between spending increases the state would like to enact and the amount of revenue it expects to collect. For example, included in departmental budgets are employee pay hikes and other automatic "economic" increases in base spending. These should be eliminated, and state employees, like private-sector workers, should pick up a greater portion of their health insurance costs. Such changes would require the governor and state workers to engage in some tough negotiations, but there is no reason state employees should escape the burden of balancing the budget.

  • Eliminate state employee pay increases: $150.7 million

  • Shift 10 percent of current state employee health insurance costs to employees: $59.0 million

  • Eliminate "economic adjustments" and impose administrative savings identified in Senate Bill 511: $94.2 million

  • Total Savings: $1.358 billion

    The static analysis by the state Senate Fiscal Agency estimates that the 11.5 percent income tax increase (from 3.9 percent to 4.35 percent) will extract $744.8 million from state taxpayers in fiscal 2007-2008, and that the 6 percent service tax will take $613.8 million (of which $453.3 million is from businesses). This adds up to $1.358 billion, assuming the unlikely outcome that taxpayers do not change their behavior or leave the state.

    The prudent, immediately achievable budget savings listed above add up to the same $1.358 billion and make the repeal of these tax increases a matter of common sense and good public policy.

    Conclusion

    The $1.358 billion in savings identified would replace the recent tax increases, but obviously would not close the projected $1.749 billion gap between desired spending and expected revenue in the fiscal year now underway. It is entirely possible, however, to find $391 million in additional spending reductions, as past Mackinac Center publications have shown.

    Ultimately, current spending levels are the product of past failures to embrace genuinely transformational government restructuring, including public employee benefit changes, competitive contracting for government services and reforms of harmful incentives in social welfare programs. The current tax increases, which will further burden the private economy, are likely to establish a cycle of ever-lower revenues and successive budget crises.

    Therefore, after the tax hikes are repealed and the cuts outlined here are implemented, creative responses are called for to close the remaining gap. For example, Mackinac Center research has shown that the state could realize many tens of millions of dollars from selling assets, such as the state fairgrounds, the McMullan hotel-conference center on Higgins Lake, the Porcupine Mountains ski hill, and state parks that do not represent significant natural or historic resources. Another idea is to save $192 million by reducing the state work force along lines proposed by the Michigan Senate last month.

    Given the serious economic challenges facing this state, residents deserve bold leadership on transformational change and restructuring.

    Jack McHugh is senior legislative analyst 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.