Big Band-Aid over budget hole

Sharon Parks

It appears that House and Senate leadership and the administration have hammered out a budget deal that will avert a third state shutdown in four years.

I suppose we should all be relieved but somehow the whole thing leaves some of us feeling pretty frustrated. The final budget resolution seems to be a very large Band-Aid over a gaping hole.

Included among the budget “fixes” are proposals for tax amnesty ($61.8 million), state employee retirements ($60 million), use taxes on Health Maintenance Organizations ($377.3 million), various liquor reforms ($9 million), and a shift of $208 million from the School Aid Fund to the General Fund to avoid further cuts to community colleges.

The budget deal also includes more cuts in state spending—3 percent to all departments and reductions of $50 million each in the departments of Human Services, Community Health and Corrections.

It’s too early to know how $150 million will be squeezed out of these departments, on top of reductions that have been made since 2004 and continued in each subsequent year’s budget. (Notable exceptions are the optional Medicaid services that were eliminated in the 2010 budget but restored in the 2011 budget deal.)

Thank goodness for the federal Recovery Act money that is spread throughout the budget, and for the recent extenstion of the enhanced Medicaid match.  Those dollars helped avoid deeper cuts than are being made—for now. 

Finally, there is wide acknowledgement that the root of our problem extends beyond the current economic firestorm. Yet, what’s missing in this budget deal is any serious attempt to address the state’s structural deficit. It’s a “get out of Dodge” budget that dumps the problem squarely in the laps of the next administration and Legislature. 

Maybe the newcomers will be the breath of fresh air that is needed.  Maybe they will be full of good ideas, resolve and the leadership that is needed to turn Michigan in the right direction. Or, they may come to Lansing and waste valuable time as they learn their assumptions were faulty and their stereotypes untrue. 

I hope it’s not the latter. This train is headed for the cliff, as billions of federal Recovery Act funds end and our own state revenues continue to drop in response to the decline in personal income in Michigan.

— Sharon Parks

One in six

Jacqui Broughton

Just as the U.S. Census Bureau prepares to release poverty, income, and health insurance data for 2009, which may show a record one-year jump in poverty, a USA Today article in the Detroit Free Press sheds new light on just how many Americans are being caught by the frayed safety net.

The numbers are deeply troubling. One in six Americans, or roughly 16 percent of the population, receive assistance from programs designed to help people in tough economic times. Additionally:

• Over 50 million people are on Medicaid (1.9 million recipients in Michigan).
• Over 40 million people receive food assistance (1.8 million in Michigan).
• Nearly 10 million receive unemployment insurance benefits (387,000 in Michigan).
• Over 4 million receive cash assistance (225,000 in Michigan).

These numbers are most certainly dismal but, unfortunately, in the face of all of this, Michigan continues to hack away at funding for programs at a time when people need them most. Since the official start of the national recession in December 2007, Michigan has reduced General Fund spending in the Department of Human Services by 35 percent and in the Department of Community Health by nearly 27 percent.

Meanwhile, unemployment has increased, and caseloads for all safety net programs have increased with approximately one in four Michigan residents receiving some sort of assistance (food assistance, cash assistance, child day care subsidy, state disability assistance or Medicaid). Even still, the governor has stated in her revised budget plan that each department must reduce spending by 3 percent across the board with an additional $50 million in reductions in the Department of Human Services and the Department of Community Health.

Now is not the time to eliminate or further reduce spending on programs that so many families rely on just to get by day to day.

-Jacqui Broughton

Helping kids feel good about themselves

Judy Putnam

With the start of school just a few weeks away, many families are planning shopping trips to get the right outfits for that important first day of school.

Thanks to a state program, some 157,000 children in Michigan’s poorest families will be able to join the annual back-to-school shopping ritual.

Department of Human Services Director Ismael Ahmed announced Thursday that children in families receiving cash assistance (FIP grants) will receive $79 per child the first week of September for the children’s clothing allowance.

“It’s designed to help children feel good about themselves in going back to school,’’ Ahmed said at a press conference.

That is a little less than last year ($84 per child) but it will go a long way in buying shoes, underwear, and new or used clothes for the new school year.

The League has advocated for the clothing allowance for many years. We agree that all kids deserve a good start at the beginning of the school year. Many of us can recall the excitement that accompanied the new outfit, new shoes and a spanking new pack of Crayolas.  

It’s important that all children get to partake in that excitement, but it’s especially true for disadvantaged kids, who are at high risk of falling behind and dropping out.

As the Legislature and governor try to finalize the budget for the year starting Oct. 1, such items as the clothing allowance are in ongoing jeopardy. The governor called for unspecified cuts of $50 million in next year’s Department of Human Services budget to try and balance the budget. That came after the Legislature resisted her ideas for new revenue, including a reasonable plan to reduce the sales tax but expand it to services.

The state budget is a complicated document that’s developed in a complicated process but sometimes our choices become clear and simple, such as making sure that all kids have a good start and decent clothes as the new school year commences.

— Judy Putnam

Income tax drop is elephant in the room

Joanne Bump

An elephant sits in the room but few are talking about it. As Michigan’s legislative leaders grapple with the upcoming year’s budget gap, a scheduled income tax rate reduction is going to further increase budget pressures.  

As noted in the League’s new fact sheet Waiting for the Other Shoe to Drop?, the decrease in the income tax rate will result in over $1 billion of lost revenue over three years, starting in fiscal year 2012.  

 In 2007, the Legislature increased the state income tax rate to address a budget gap. At the time, lawmakers wanted to ensure that the law was temporary so they included a reversal in the tax rate from 4.35 percent back to 3.9 percent. The income tax rate will be reduced by 0.1 percent each October 1, beginning in 2011, until the rate returns to 3.9 percent.

The Michigan revenue picture is even worse now than when the rate increase was passed. Undoubtedly no one could have guessed in 2007 how bad things would get here in Michigan. As unemployment soared and personal income plummeted, state revenues have fallen dramatically.

In January, Michigan state government will experience a significant change in leadership, with a new governor and many new legislators. They will quickly learn that laws passed by a previous Legislature are going to lower future revenue streams and create additional budget gaps.

The League’s fact sheet points out that in the past when the income tax rate has been increased during difficult economic times, it has not been reduced until the unemployment rate has fallen and the economy is stronger.

It’s hard to imagine that by October 2011 the state economy will be recovered enough that we should be cutting revenues that are needed to support basic needs for people in our state.

— Joanne Bump

High cost of higher ed cuts

Jacqui Broughton

Going to college is expensive. It’s also one of the keys to getting out of or staying out of poverty, reducing your chances of unemployment, and attaining higher income.

Unfortunately, with tuition at both two-year and four-year institutions rising faster than the rate of inflation and median household income falling, many students are finding it harder and harder to go to college. (See our new report Pulling the Plug on Michigan’s Future: Why Draining Resources Hurts Tomorrow’s Workforce.)

What’s to blame for the increase in tuition? There are several factors, such as expenses relating to health care, fuel costs and some courses being more expensive to teach than others. However, a lot of it has to do with the state, over a period of years, cutting aid to higher ed. 

Over the last eight years (2002-2010) the state’s general fund has shrunk by 12.6 percent, but state funding to community colleges, public-four year schools, and state-funded financial aid programs has dropped by 15 percent. This lack of state support, coupled with the factors listed above has caused tuition at Michigan’s four-year public institutions to skyrocket. Over the same eight-year period, tuition and fees increased 88 percent at Michigan’s four-year public colleges and 40 percent at two-year institutions.

Overall, Michigan’s investment in higher ed ranked fifth from the bottom in the nation between 2005 and 2009 and our tuition increases rank seventh-highest over the same time period.

Because of these cuts in state support, causing tuition to soar, tuition is representing an ever-increasing share of household income for families at all levels. This especially hurts families at or below the poverty level (which is $17,285 for a family of three) who have the most to gain by going to college.

However, even as tuition rises and aid programs (including many need-based aid programs offered by the state) have been cut or drastically reduced, enrollment has not dropped as more families and individuals understand the need for education beyond high school.

This is causing more students to finance their college education through student loans. In 2008, over half of all four-year graduates had student loan debt, which averaged just over $22,000, and half of all full-time freshmen took out student loans, up from just 40 percent in 2001. 

Michigan cannot afford to have its young people graduating with tens of thousands of dollars in educational  debt due to our cutting aid to the institutions that will ensure Michigan stays competitive in a changing economy.  At a time where jobs are shifting from skills-based to knowledge-based, is it worth cutting off aid to the institutions that invest in our future?

— Jacqui Broughton