Summer 2007 Version
(Note: Legislative Analyst Jack McHugh has also discussed these ideas in detail in a
WJR-AM 760 radio interview.)
In facing budget challenges that are
unquestionably daunting, the state’s political establishment has concluded that
tax hikes are necessary because it would be impossible to find enough cuts and
reforms to close the gap between desired spending and expected revenue.
Not so fast! Below is a list of ways
to achieve $1.9 billion in savings with little heavy lifting. Some of these may
take a few years to fully implement, but the total also exceeds the expected
deficit for next year. Much of the savings comes from injecting competition into
government operations, providing government employee fringe benefits comparable
to (generous) private sector plans or eliminating non-core functions.
Change the higher education funding
mechanism to a standard "per-pupil foundation grant" in which the money is
attached to the students, rather than each university getting an amount
determined by legislative maneuvering. As colleges were forced to compete for
students, they would "sharpen their pencils," rein in costs and eliminate the
kinds of inefficiencies highlighted in recent audit reports. If the effect was
that costs fell by just 5 percent, the savings would be: $70 million.
Shift state police road patrols to less
expensive county sheriff deputies. With benefits and related expenses it costs
more than $100,000 per year to employ a state trooper; most sheriff deputies
cost much less to employ. Effect on public safety: Zero. Savings: $65 million.
Adopt the Hay Group report
recommendations on rationalizing public school health insurance, including
requiring co-pays and preferred provider networks. This could save: $422
Eliminate the Michigan State University
cooperative extension service and agriculture experiment station to save: $61 million.
The original version of this list
recommended halting the so-called "21st Century Jobs Fund" before it borrowed
and spent $400 million. It’s too late for that now: All but $33 million was
spent before the 2006 election, and taxpayers will be repaying the debt for
decades. At the very least, the bleeding can be stanched — $75 million of what
is being characterized as a "$1 billion state deficit" is new borrowing for this
boondoggle. Skip it and save: $75 million.
According to a Rio Grande Foundation
report, if 5 percent of prisoners are placed in privately-managed prisons, the
state saves 14 percent on overall prison spending because government-managed prisons have an incentive to "sharpen their pencils." Savings: $192 million.
Eliminate "History and Arts" subsidies,
and cut state library subsidies in half: $35 million.
In 1999 the Citizens Research Council
noted that "a number of changes have occurred over the past decade that have
reduced the need for intermediate school districts." Let’s help the ISDs catch
up by reducing their operations grants: $32 million.
Cut so-called "20j" payments to affluent
schools in half. This extra money is a political response to the fact that under
Proposal A certain wealthy school districts benefit less from per-pupil state
foundation grant increases than other districts. (They still benefit, though.)
Savings: $26 million.
Cut transit funding in half. By
eliminating protectionist regulations that restrict alternatives, empty buses
driven by public employee union members can be replaced by private sector
innovations like jitneys, commercial van pools, "call-and-ride" services,
car-sharing and more. This will improve service for transit users at a much
lower cost: $112 million.
Repeal the "prevailing wage" law that
requires above-market rate wages be paid on school construction projects:
Schools can realize huge savings by
privatizing non-core functions like transportation, food service and custodial.
Many have already done so: The Mackinac Center’s most recent survey of school
privatization shows that 38.5 percent of school districts already have a
competitive contract in place for one of these functions. Some idea of the
magnitude of these savings can be seen in the experience of one district that
saved the equivalent of $177 per student by contracting out for its custodial
needs. Statewide, similar savings would add up to $300 million annually! In the
short term, it would not be unreasonable to expect: $65 million.
Reduce the Merit Award Scholarships by
50 percent. Shockingly, at the governor’s request, the Legislature just did the
opposite and increased these non-need based college scholarships by $64 million
annually beginning in 2010. When families face economic hard times, the first
thing they do is cut luxuries. This is a luxury Michigan can no longer afford.
The state spends almost $15 billion on
Medicaid and welfare, more than $6 billion of which is from state taxes and
fees. Medicaid in particular is a command-and-control monstrosity rife with
perverse incentives. Reforming it in ways that give recipients an incentive to
economize and take better care of themselves could save hundreds of millions of
dollars, while actually giving recipients greater freedom and choice. If just
1.6 percent of the expense in these two programs could be reduced in this way,
the state would save: $240 million.
Thousands of private sector workers have
given back painful wage and benefit concessions to save their jobs. The average state employee receives salary and
benefits worth nearly $75,000, compared to approximately $58,000 in the private
sector. Comparisons of specific job classifications produce similar comparisons.
State workers should be grateful for their much greater job security and
benefits, and more than willing to assume some of the burden through
concessions. $300 million.
Total: $1.9 billion.
There is a common theme that runs through opposition to every one of these common-sense reforms: "That’s not the way we’ve done it in the past."
That’s not good enough anymore: Michigan has already passed the tipping point of going from relative decline in population and income to absolute decline. Without major reforms there’s nothing
to prevent the entire state from going the way of Detroit, with a declining
population and an economy that is unable to support a government establishment
that believes its residents exist to serve it — not the other way around.
None of the items above would be
"devastating" to the state, to "vulnerable populations" or even to any
particular interest group. Most people would not even notice that these changes
had taken place. The alternative, a major tax hike, will only drive more people
out of Michigan and hasten the impoverishment of a formerly rich state economy
that in this decade has become a poor one.
Note: This list combines reductions
from current budgets, and speculative savings that assume certain policy
reforms. It is intended as a plausible illustration of what is possible, not as
a precise roadmap.
Jack McHugh is a 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.