Greater Transparency Could Have Helped Budget Battlers

As Michigan’s Republican House capitulates to an agreement forged by Gov. Granholm and Senate Majority Leader Ken Sikkema to resolve a $900 million state revenue shortfall (view the House and Senate roll call votes), all the parties should note that state spending is still well larded with non-critical, non-core items. The fact that under the current budget system these are difficult to uncover made it easier for the friends of big government to dislodge the House from its initial "no new taxes" position.

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Just a few examples:

  • The Department Of Community Health will award a $729,862 contract to the Michigan Fitness Foundation of Lansing to provide "assistance to several Michigan communities for the development of active communities."

  • Earlier this year the Department of Education gave $4,000 to a charter school opponent to compile a list of complaints about public school academies, and $13,500 to a former school bureaucrat to review them.

  • The Michigan Department of Transportation will give a Central Michigan University biologist $135,000 to study the behavior of animals near highways.

Such examples, of which there are many, reveal a state government so sprawling that no one — neither the governor, nor the legislative appropriations committees, nor the heads of 20 state departments — can know where all the money is going. Instead, this knowledge is dispersed among hundreds of state bureaucrats who have an interest in protecting the thousands of programs and grants they oversee.

This lack of transparency makes closing a $900 million deficit far more difficult than it otherwise would be. The information needed to separate core government functions from lower priority expenditures is not readily available. There may be plenty of revenue to sustain the former, but if they can’t be segregated from the fluff, then the debate quickly veers toward "revenue enhancements" – tax increases.

Further evidence of this lack of transparency is the number of hidden "cookie jars" stuffed with tax dollars that have been used to sustain current spending levels. Among these are a "Medicaid Benefits Trust Fund," a "Michigan Employment Security Contingent Fund," and an "Environmental Response Fund." Altogether some $335 million discovered in these three funds was used to maintain General Fund spending in the 2003 budget.

Another example comes from the area of school finance. A cool $320 million of the $900 million state revenue shortfall is in the school aid fund. Yet in recent days it was revealed that Intermediate School Districts (ISDs) have more than $112 million in general fund balances. At least seven of the state’s 57 ISDs are sitting on pots containing more than 100 percent of their annual operating expenses, and another 21 have more than 50 percent. Combined, the ISD surplus is 50.7 percent of their annual expenses. A 15 percent balance is considered prudent; more than that suggests that there is too much taxpayer money floating around, which may explain recent ISD spending scandals. This information comes on top of recent reports showing that 338 Michigan school districts have a total of $1.84 billion in their "rainy day" funds. As with the ISDs, many are sitting on substantially more than the prudent 15 percent balance. (Part of the House's capitulation was giving up an attempt to dip into the ISD surplus.)

Part of the transparency problem lies in the nature of the appropriations bills themselves. Hundreds of spending items may be rolled up into single line items disbursing millions of dollars under vague headings like "Multicultural services," "Professional preparation operations," or "School excellence operations — 61.5 full-time equivalent positions." Every departmental budget contains scores of line items like these. Appropriations committees hear only the most cursory explanations of what they include, prepared by bureaucrats who are careful to show only what they want to be seen.

It doesn’t have to be this way. Each state department, bureau and agency should be required to provide detailed annual descriptions of all their activities and grants, posted online, with links to appendices containing even more detail. For example, a report on the approximately $1 million a year granted to local physical fitness, health and sports councils should include links to the grant proposals and reports submitted by these entities. All the reports should use the same consistent format. Ideally, annual reports would also include performance measures showing whether a particular program is getting the results intended. But just knowing where the money goes is the critical first step.

This kind of reporting is already mandatory in the private sector. Every publicly traded corporation must file standardized "10K" reports and proxy statements with voluminous details on company activities. Establishing comparable requirements for state government is the first step toward getting a handle on all the places our tax dollars go. To the extent that state departments file any reports at all, they generally look more like glossy press releases than full and detailed accounts of how $38 billion in tax dollars are spent each year. The current reports are rich with glowing language about the grand intentions behind programs, and very lean on spending details.

Until citizens have user-friendly access to all the state spends money on, it is impossible to say that no fat remains, or that tax hikes are justified. Before reaching deeper into taxpayers’ pockets, the bureaucracy should lay out a detailed description of where they now spend our hard-earned tax dollars.


Note: Jack McHugh is manager of and legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.