"This is a horrible thing that I present to you today.
-- Michigan Budget Director Bob Emerson presenting budget cuts to House and Senate Appropriation Committees, quoted in MIRS News.
Responding to a $1.3 billion gap between how much state politicians want to spend vs. the amount of revenue they actually expect to collect, Gov. Jennifer Granholm Tuesday proposed and the legislative appropriations committees approved $304 million in state spending reductions. The balance of the spending gap will be filled in with federal "stimulus" money (called "Obamabucks" by Capitol wags).
The $304 million amounts to 1.05 percent of state revenue from state sources, which is around $28.9 billion. Federal money (not counting the "stimulus") adds another $14.9 billion to make up the $43.8 billion "adjusted gross spending" budget.
Here's how they spend the biggest chunks of the $28.9 billion collected in the state:
- K-12 schools swallow $11.8 billion
- Medicaid and related items consume $4.9 billion
- Universities and colleges get $2 billion
- Prisons spend $2 billion
- Gas tax and vehicle registration fee dollars set aside for roads are $2.1 billion
- Welfare is $1.3 billion
- Revenue sharing to local governments is $1.1 billion
The political class and those who favor the status quo like to measure spending reductions as percentages of the "general fund," but that's a game they play to fool the public. Much of so-called "restricted fund" money really isn't very restricted. For example, $11.7 billion in "school aid fund" money all goes to K-12 schools, but it could also be spent on colleges and universities (especially since the number of kids in public schools is falling).
Also, lots of state revenue never touches the general fund, but has been earmarked for other purposes (and can just as easily "un-earmarked"). That includes around $300 million in tobacco lawsuit settlement money, and $304 million from a 75-cents per pack cigarette tax hike passed in 2004. Most of the money from both of those goes to Medicaid and related health welfare.
If the road tax revenue is subtracted from the $28.9 billion the state takes from Michigan taxpayers, yesterday's $304 million cut comes to 1.2 percent of the remainder. If school aid money is also subtracted it's 2 percent.
If they didn't use "Obamabucks" and covered the entire $1.3 billion "deficit" with cuts, the reduction would be 4.5 percent.
Given the financial sacrifices Michigan families have made in light of the recent economic downturn - not to mention the jobs-killing $1.4 billion tax hike of 2007 - the whole thing is really rather insulting.
It is said by some that this oversimplifies, and that it really is hard to cut the budget. It's not hard. You just have to be willing to think outside the box and reject, "But that's not the way we've done it in the past!" If you are willing, then here's how to cut $1.9 billion.
If you're not willing then not only is it hard to cut spending, it's impossible. And if it's impossible, that leaves only one alternative - tax hikes. Which they are already whispering about around the Capitol.
That tax talk should cease. These cuts represent a penny to a nickel on every dollar of state spending. Isn't protecting what few jobs Michigan has left from another economy-crushing tax hike worth more consideration than that?
Jack McHugh is senior legislative analyst at 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.
Note: This article is an edited version of a blog entry on the Students for a Free Economy Web site. SFE is a nonpartisan campus outreach project of the Mackinac Center that promotes the benefits of free markets, civil society and individual liberty.