Overcut or Overspent?

The following originally appeared in the April 22, 2002, edition of the MIRS newsletter.

Michigan's current budgetary woes didn't come about because of the tax-cutting habits of Gov. John Engler and the Republican-controlled Legislature; the budget pinch was created by overspending: That's the conclusion of the Mackinac Center.

"Over the past decade, state government did a pretty good job of holding the line on spending," said Jack McHugh, Mackinac Center policy analyst and editor of MichiganVotes.org. "It was just since 1997 that spending got out of control."

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According to McHugh, using the 1990 budgetary figure of $9.95 billion as a baseline, Michigan government spending (not including federal dollars and K-12 spending) grew to $13.6 billion by 2000, or at just about at the rate of inflation.

If state spending didn't outstrip inflation over the past 10 years, any current budget shortfalls are due to overzealous tax cuts — right?

"No," McHugh said. "With the strong economy of the 1990s there should have been less demand for government services. For instance, there were far less people on welfare and serious crime fell as well."

What's more, McHugh argues that from 1997 onward, as both the national and state economies boomed into overdrive, state spending began to outpace inflation in a big way.

The figures employed by McHugh were based on the state "Statement of the proportion of total state funding from state sources paid to local units of government - legal basis." This is an annual statement prepared by the state budget office and used to set the Headlee Amendment cap each year

McHugh adjusted the figures to include debt service expense. Budget stabilization fund (BSF) deposits were subtracted, and withdrawals added.

The figures show that state spending in the1998 budget was $157 million more than just the rate of inflation would provide for. Spending really jumped in 1999 as the budget surpassed the rate of inflation by $539 million. Then, in 2000, state spending outstripped inflation again, this time by $565 million.

The state's spending tally for the three years 1997-2000 was $1.26 billion more than the rate of inflation. In other words, if state spending had been held to the rate-of-inflation Michigan would have had an additional $1.26 billion in its BSF when the economic downturn hit.

"Remember, that's not even figuring K-12 spending in," McHugh said.

McHugh argues that rather than look to the tax cuts as the cause of Michigan budget problems, the state should cut spending. A more detailed report by the Mackinac Center is expected to be released soon.

"There were a whole bunch of state programs that were basically on auto-pilot," McHugh told MIRS newsletter. "The funding just continued to automatically go to these programs without anybody questioning whether or not the programs were really necessary."