SOS: Sensible Spending with Taxpayer Protection

Estimated SOS Spending

(Note: The following is an edited version of a commentary that appeared in the July 3, 2006 issue of the Detroit Free Press.)

State spending would be restricted to the annual increase of population and inflation if a constitutional amendment called the Stop Overspending proposal reaches the ballot and is approved by voters this November. While government restrained to the same spending rules of a well-run household has a logical appeal, SOS has its critics. They argue that government cannot live within this restriction and still provide the "essential services" that citizens both need and demand.

SOS proposes other reforms, but the spending limit is one of the most important. A complete fiscal and legal analysis of the entire proposal is necessary, but a preliminary review indicates that criticism of the spending limit has been misplaced.

State spending can be restrained within the SOS standard: the previous three years demonstrate that spending can be even more modest than that.

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Michigan’s recession has limited the growth of state spending from state resources to about one-fourth the rate of inflation between 2002 and 2005. What SOS would do is put an end to the horrible spending priorities exhibited by lawmakers during the good times, when they have too much taxpayer money to spend.

Between 1995 and 2002 — when the economy was good and revenues were up — spending shot up 33 percent. Had SOS been in place, the increase would have been just 23 percent for that same period. The spending increase for 2002 alone was about $2 billion.

Was this extra spending on "essential services"? Hardly. In the summers of 1999 and 2000, "supplemental" budgets were created to spend extra tax money that was coming in as a result of the strong economy. Suddenly, $35 million was "needed" for the Detroit Symphony Orchestra, as was $60 million for a Grand Rapids convention center, $3 million for a new Aviation History Museum and hundreds of millions more for other projects. Lawmakers also spent $10 million to provide themselves with new office furniture.

A state representative seeking an extra $125 million for local roads in 1999 called the process a "food fight" over a "slush fund." The House of Representatives convened a Task Force on Government Waste, and issued a report in early 2000 blaming itself for at least $130 million of "non-essential" spending in 1999. But later in 2000, yet another supplemental budget passed with just a handful of "no" votes. Failing to secure more money for a favorite project, a veteran senator griped that the supplemental budget was all "an incredible tub of lard."

SOS would stop this spendthrift reflex. The chart shows an estimate of where state spending would be today had we implemented SOS in 1995. The black space represents hypothetical SOS spending; the green space represents the elevated spending that actually occurred. Under both scenarios, the outcome for 2005 is nearly the same level of spending. The difference is that a controlled-growth measure like SOS would have prevented the dramatic spike in spending. The SOS surplus would have been more than $11 billion.

Instead of being spent by government, more than half of this surplus would have been returned to Michigan taxpayers in the form of income tax refunds. If divided on a per-capita basis, a household of four would have received refund checks totaling some $2,000 from 1999 to 2001 — the years when lawmakers were approving expenditures they characterized as nonessential.

Under SOS, some of the surplus must also go to a "rainy day fund" that government can dip into during difficult economic times. Under the current spending regime, the rainy day fund had more than $1.2 billion in it during 2000, but was almost empty by 2005. Had SOS been in effect during the years 1995-2005, the reduced spending and required savings would have resulted in an estimated 2005 rainy day fund of more than $2 billion.

Lawmakers admit to spending without restraint when the economy is strong. SOS would provide the reasonable spending restraint that is now missing and force lawmakers to budget larger reserves for future economic downturns. Most importantly, it would return at least half of the surplus to taxpayers, who might even use it to buy some new furniture for themselves.


Kenneth M. Braun is a policy analyst specializing in fiscal and budgetary issues for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.