Tough times, tough decisions. But also magnificent
opportunities. That’s what a looming state budget deficit means for Gov.
Jennifer Granholm and Michigan’s newly elected 92nd Legislature. Make no
mistake about it: The soft economy and resulting decline in state revenues will
dominate politics in Lansing this year as officials struggle to fulfill the
state’s responsibilities and its constitutional mandate to balance income and
expenses. How officials respond will be determined by whether they see our
situation as a crisis to be survived, or an opportunity to be welcomed.
State programs will be under the microscope, scrutinized in
more detail than they have been in perhaps a decade. Priorities will be
re-examined, and some programs may be eliminated. Others will be pared back.
The state workforce will shrink. Certain government duties, once regarded as
sacrosanct, will be found to be expendable after all. Adjustments of one degree
or another will be undertaken within all 20 state departments. Ingenious and
compassionate private citizens and organizations will surprise skeptics by
expanding or arising to do what had recently been an activity of the state.
As challenging as the situation may seem, we must keep it
in perspective. First, state government is not the only means, nor necessarily
the best means, for meeting human needs. Second, state government is not the
only entity in Michigan that’s having a difficult time. Hundreds of thousands of
Michigan families, nonprofits, and businesses are, too. Indeed, it’s precisely
because those families and business are in trouble that the state is in
trouble. We should never forget that the state has nothing to spend for anybody
except what it first takes from somebody. And the state’s first priority ought
to be the fiscal health of the hard-working people who, as taxpayers, have to
pay the state’s bills before they pay their own. When they are not unduly
burdened by taxes, they have less need for assistance themselves and more
ability to help those who do need assistance.
All across Michigan, citizens are coping with the
challenges of an ailing economy. And they are coping by re-examining their
spending. They are re-prioritizing, and doing without some things they’d love
to have. They are hiring less, spending less, and taking fewer and shorter
vacations closer to home. They are stretching further the dollars they have,
and generally exerting the discipline necessary to weather the storm. Why
should state government not do the same? In fact, why wouldn’t we welcome this
as an opportunity for officials to demonstrate the discipline and prudence we
expect from them?
Another matter that should inform the budget debate in
Lansing is the fact that Michigan families and businesses are shouldering a tax
burden that is still above the average among the 50 states. What we get in
exchange is a mixed bag. We get decent roads and good schools in some areas.
But more often than not we get excessive construction costs, inefficient
bureaucracies, and schools that parents and children are desperate to escape.
Due in large measure to rising property tax rates and
assessments, state and local taxes actually have risen since 1993, the year
before Proposal A passed, from 10.7 percent of total personal income in Michigan
to 10.8 percent in 2000, the most recent year for which numbers are available.
The state’s Single Business Tax exacts a "take" that represents a larger portion
of business income than that of perhaps any corporate income tax in the other 49
states. Even a May 2002 report from the Michigan Economic Development
Corporation showed that Michigan ranks 16th among 17 peer states in business
costs (meaning that 15 of the 17 states with whom we compete have lower
costs). Michigan simply must make more progress in reducing the financial
burdens it imposes on its workers, families and businesses. Because we live in
a competitive and highly mobile world, we cannot afford to do otherwise.
Gov. Granholm and the Legislature can pursue any number of
courses as they navigate today’s troubled fiscal waters. On the one hand, they
could ignore the difficulties faced by the state’s citizens and simply raise
taxes. That would drive people and businesses elsewhere, and in the long run
undermine the state’s financial health for many years. Until the early 1990s,
that’s what Michigan often did, inspiring the all-too-familiar line that the
last person to leave the state should turn the lights out. On the other hand,
the governor and Legislature could follow the example of most of the state’s
citizens who know what to do when times are tough: Make tough decisions.
There is a magnificent opportunity in these difficult times
to make a huge difference in how state government relates to its citizens — to
regroup, stick to the basics and do them well, and trust the people. This is a
time to strengthen civil society — that network of private institutions,
community associations, schools and religious organizations, families and
friends and coworkers, and all their voluntary, from-the-heart interactions.
There is room for politics in our lives, but most of what enriches and defines
us as a progressive and compassionate people emanates from other, deeper
As government grows, civil society shrinks. When
government moves beyond its core functions, it does not create things out of
thin air so much as it displaces what a free people would choose to do. And it
ends up performing too many tasks too poorly, including the ones we absolutely
must rely upon for the sake of safety and basic, essential services. If this is
a radical notion, then America was founded on radical notions.
For all people interested in the advancement and enrichment
of our culture, this is a crucial observation with far-reaching implications.
Cultural progress should not be defined as taking more and more of what other
people have earned and spending it on "good" things through a government
bureaucracy. Genuine cultural progress occurs when individuals solve problems
without resorting to politicians, or the police and bureaucrats they employ.
How can we restore and strengthen the attitudes and institutions that formed the
foundation of American civil society?
Certainly, we can never do so by blindly embracing
government programs that crowd out private initiatives or by impugning the
motives of those who raise legitimate questions about those government
programs. We cannot restore civil society if we have no confidence in ourselves
and believe that government has a monopoly on compassion. We’ll never get there
if we tax away large portions of people’s earnings and then, like children who
never learned their arithmetic, complain that people can’t afford to meet
certain of their needs.
We can advance civil society only when people get serious
about replacing government programs with private initiative, when discussion
gets beyond such infantile reasoning as, "If you want to cut government
subsidies for Meals on Wheels, you must be in favor of starving the elderly."
Civil society blossoms when we understand that "hiring" the expensive middleman
of government is not the best way to "do good"; that it often breaks the
connection between people in need and caring people who want to help. We make
progress when the "government is the answer" cure is recognized for what it is:
false charity, a cop-out, a simplistic non-answer that doesn’t get the job done
well, even though it allows advocates to believe they’ve done the right thing.
The kind of leadership we at the Mackinac Center for Public
Policy hope to see from Lansing in 2003 and beyond is defined by adherence to
the principle enunciated by Thomas Jefferson in his first inaugural address:
. . . a wise and frugal government, which shall restrain
men from injuring one another, shall leave them otherwise free to regulate their
own pursuits of industry and improvement, and shall not take from the mouth of
labor the bread it has earned. This is the sum of good government . . .
In accordance with this Jeffersonian principle, the
Legislature and the governor should evaluate each item in the state budget,
asking 12 key questions:
Does the item weaken communities by assuming a
responsibility best left to private families, charities or firms?
Does the item duplicate what other state agencies or the
federal government are doing in that area?
Does the item primarily benefit a single favored
constituency or region rather than the state as a whole?
Are direct users or beneficiaries of the service paying
a reasonable amount of the cost?
Does the item create or expand an "entitlement" that
cannot be reasonably withdrawn if necessary or advisable in the future?
Has the item received significantly more money in recent
years but not used that money in the most effective way?
Has the item been funded in the past by deceptive or
inappropriate legislative or executive actions?
Does the item use taxpayer funds for political advocacy
or to discriminate against racial or ethnic groups?
Does the item discourage self-help and personal
independence unnecessarily or encourage reliance upon government?
Does the item yield benefits commensurate with costs?
Does the item force private businesses to unfairly
compete with the state?
Does the appropriation growth of an item exceed the rate
of inflation or real personal income growth?
The Mackinac Center for Public Policy recognizes that not
all budget cuts are created equal. Some represent the proverbial "low-hanging
fruit" — easy to reach, if not painless. Other budget cuts would surely entail
at least short-term pain. We encourage readers to consider the potential for
long-term gain — from all the cuts recommended herein, whether they
be "low-hanging fruit" or, to mix metaphors, the "sacred cows" of the Lansing
Michigan citizens have reason to be encouraged by the
statements made by incoming Gov. Granholm and her representatives since the
November 2002 election — statements to the effect that she will address the
budget deficit from the spending side and avoid raising the tax burden on
still-overburdened Michiganians. If she follows through and makes the tough
decisions required in these tough times, she will truly display the kind of
leadership she was elected for, and the Mackinac Center for Public Policy will
be in the forefront of a cascade of praise that will be due her.
Scrutinizing every nook and cranny of state government,
raising questions about previously unquestioned premises, thinking creatively
about how to do things better, if the state is to continue doing them at all —
these are healthy, positive attributes of forward-looking leadership in a free
society. While some may approach the state’s deficit with their minds already
closed to the concept of downsizing the public sector, we ask readers of this
document to think progressively. Why must the state do things as it always
has? Why can’t — and why shouldn’t — private people and private institutions do
more? Will they ever do more if we take for granted that they can’t or
shouldn’t? With government at all levels consuming over 40 percent of national
income — more than ever before in our nation’s history — why isn’t now a good
time to make a big difference?
The following analysis examines the 2003 fiscal year state
budget and makes recommendations for fiscal year 2004. If the legislature
adopts the recommendations in this study it will be able to close the estimated
$1.5 billion General Fund/General Purpose (GF/GP) budget deficit that is
expected in fiscal year 2004, with millions to spare. Adopting every
recommendation in this study would reduce overall state spending by $3.7
billion, which constitutes 14.2 percent of the total state budget. Of this
total, $1,527,814,522 is from the GF/GP portion of the budget. We also
recommend a 50 percent reduction in the state revenue sharing that is not
constitutionally mandated, producing savings of $344,665,000, which should be
redirected to the state’s GF/GP fund. In addition, we recommend the sale of
three state properties worth an estimated $69,600,000, a fee hike worth
$25,280,155, the elimination of the Life Science Corridor Initiative, which
would save another $45,000,000; and use of the $11,500,000 in annual revenue
from the state’s Indian Gaming Compact. Together, these savings and revenue
enhancements exceed $2 billion.
Most complaints leveled against the proposals in this study
will fit into one of two categories. First, people will argue, "Why cut a
program that constitutes such a small proportion of the total budget?" And
second, people personally affected by the program cut, such as recipients of
direct subsidies, will oppose the proposal on the basis that it will affect them
disproportionately. Both of these arguments are easily refuted when examined
more closely. In the first case, while it is quite true that eliminating one
program will have little effect on the overall size of the budget, many of these
cuts will certainly affect some people more than others, but this is not
coincidental — it is these same people who are benefiting disproportionately by
the very presence of the programs. What is unjust or unfair is not the
elimination of the programs, but their creation in the first place.
Over the past 12 years, the Engler administration took
steps to reduce the size of state government. But there is far more work to be
done. It is the Mackinac Center for Public Policy’s hope that Gov. Granholm
will take much of Lansing’s power and return it to where it rightfully belongs:
the homes of families and individuals who are the citizens of the Great Lakes
One final word is of introduction is necessary. It is
important to note that the title of this study is not, "Reducing the Proportion
of State Spending Paid by State Taxes." A large portion of Michigan’s budget
comes from the federal government. In this study we recommend cutting many
expenditures funded entirely by Washington. The source of the funding is not
the issue here. Restoring civil society requires reducing the role of coercive
institutions (government) and increasing the role of formal and informal
voluntary associations in improving peoples’ lives and solving problems. If a
state function is outside the proper role of government, the fact that the money
goes through Washington first is of secondary importance. "That’s federal
money," is no excuse for continuing such functions.
A Note On Terminology
Each proposal within this analysis contains information
described as the "appropriation breakdown." The numbers in these breakdowns
refer to the origins of the funds used to pay for the program. There are four
possible areas from which a program can be funded: Interdepartmental Grants,
Federal Funds, General Fund/General Purpose (GF/GP) Funds, and Special Revenue
Interdepartmental Grants are exactly what the name
implies: funds transferred from one state department to another. For example,
if the Department of Commerce were to assume some of the computer processing
responsibilities of the Department of Labor, Labor would issue a grant to
Commerce to help pay for the provision of that service.
Federal Funds are funds sent from Washington to
Lansing to subsidize the operations of various state programs. The source of
Federal Funds is, of course, federal revenues, which are comprised of federal
income tax, fuel tax, capital-gains tax, and tariff receipts, just to name a few
General Fund/General Purpose Funds are funds gained
by the state from three main areas: state personal income taxes, state sales and
use taxes, and single-business and insurance taxes. These taxes are broad-based
and (in theory, if not always in practice) intended to fund programs that also
have broad-based effects.
Special Revenue Funds are comprised of many
different types of state revenues. The most common type of Special Revenue
Funds, however, is targeted taxes, user fees, and regulatory fees.