JUNE 23 UPDATE - SENATE MAY CAVE: A spokesman for Senate Majority Leader Mike Bishop said that the body would condsider the new debt and deficit spending if Congress does not pass its own deficit spending package that would distribute $514 million to Michigan's Medicaid program, MIRS News reported yesterday.


According to MIRS News (subscription required), Michigan House Democrats are talking about using the peoples' credit card to close a $300 million gap between desired spending and expected revenue in the state fiscal year that begins on Oct. 1. At the other end of the Capitol, a spokesman for Senate Majority Leader Mike Bishop told the Gongwer Michigan Report (subscription required), "(I)t's not something we think our membership is going to be very supportive of," but Bishop himself was noncommittal, neither rejecting the proposed debt out-of-hand nor promising to consider it.

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If the borrowing takes place it would be pure Washington-style deficit spending, a perfect example of what author Steve Malanga called in a recent Wall Street Journal article, "slick maneuvers to avoid constitutional borrowing limits."

This wouldn't be the first time, either: In 2007, 23 members of the Michigan Senate and 78 from the House approved borrowing $415 million against the same revenue stream that they're currently eyeing, the tobacco company lawsuit settlement payments.

All told, almost $922 million has been already pledged against this revenue, for which future taxpayers will pay some $1.28 billion in interest through 2049, according to an audit released last winter. This means that every year for the next 40 years, Michigan residents, including those not even born yet, will receive around $75 million less in government services, or have to fork over that much in higher taxes, all to pay for the spending of long-gone politicians. If Lansing's current deficit spending talk comes to fruition, the annual hit will increase to around $100 million.

The Malanga article citied above also blows the whistle on other forms of what he calls "America's Municipal Debt Racket." Michigan is fully implicated in other common offenses he describes as follows:

"But much state and local debt now exists in independent authorities whose borrowings are not subject to voter approvals. ... Another weapon in the debt arsenal is the so-called pension-obligation bond. For two decades, governments have played a risky arbitrage game in which they issue bonds and then deposit the money in their pension funds to be invested in the stock market with the hope that the money will outperform the interest rate on the bonds. ... (M)ost pension bonds issued since 1992 have been money losers for states and cities."

On that last charge, taxpayers should be on high alert over House Bill 4075, which has already passed the House, and Senate Bill 927, now pending before the full Senate. The bills are especially objectionable because they authorize more debt to pay post-retirement health care coverage for local government employees, a benefit that is not mandatory. Not many private-sector workers expect that particular goodie anymore, yet lawmakers would effectively guarantee it for many government employees, when instead they can and should be trimming it back. The differences between the two bills are primarily cosmetic, so taxpayers beware.

Michigan taxpayers are also burdened with scads of those voter-approved, debt-dodging referred to by Malanga. Downtown Development Authorities are probably the best known form, and among recent additions are "neighborhood improvement," "water resource improvement," and "corridor improvement" authorities. U.S. Census Bureau figures indicate that Michigan taxpayers are on the hook for some $21 billion in county, city and township debt, and almost $4 billion in special district debt.

And then there's the state's credit card. In 2006 lawmakers said "charge it" to the tune of $400 million to pay for a massive business subsidy program they called the "21st Century Jobs Fund." A recent Detroit Free Press analysis suggested that the program has been a bust, but least it had a putative long-term purpose. This borrowing was the first installment on the $922 million pledged against future tobacco lawsuit revenues described above.

Malanga concludes his article with this: "(A) senior policy adviser to the Securities and Exchange Commission ... recently warned that the muni market has all the characteristics of a crisis that might unfold with 'a widespread cascade in defaults.' If that painful scenario materializes, it will be because we have too long ignored how some politicians have become addicted to debt."

"Some politicians" in Michigan are among those addicted borrow-and-spenders. In fact, most politicians in Michigan are.


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 Center and the author are properly cited.