Big Band-Aid over budget hole

September 9, 2010

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


Income tax drop is elephant in the room

August 11, 2010

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

Michigan Is Ours!

July 19, 2010

Jan Hudson

The League of Women Voters of Michigan recently completed a project called Michigan Is Ours! that documents the loss of state dollars to fund public services over the last 10 years, in part due to tax policies that reduce taxes. The group is advocating for a reversal of this trend.

In its background information, the League of Women Voters cites the negative consequences  to state services  because of the dramatic decline in state revenues, including:

  • the reduction in state workforce– 18 percent, over the last seven years.
  • the dramatic decline in public safety funding– $3 billion, since September 11, 2001.
  • the astonishing decline in state investments in higher education.

The group’s members believe that the “T” word is not a terrible word, but is a necessary word if we are going to have quality public services.  They further believe voters are concerned about such services as education, public safety, social services, health care, employment services, safe food and water, parks, libraries, and roads, and are willing to pay for them. 

As part of this project, the League of Women Voters has created a series of postcards on specific public services to be sent to legislators. These postcards have a simple message: they affirm the voter’s support for a specific public service and further affirm the voter’s willingness to pay more taxes to support it.  They encourage legislators to pursue tax changes to increase state revenues to support these essential public services.

The Michigan League for Human Services also advocates for tax policy changes to increase state revenues to support key public services.  Numerous options are available to policymakers.  Please see our Facts Matter report for more information. 

If you think a change in direction is in order, and support public services, including adequate taxes to pay for them, let your legislators know.  You can contact Jackie Benson at the Michigan League for Human Services,, for a supply of postcards.

Thanks to the League of Women Voters for creating such an easy way for us to communicate our priorities and willingness to pay more taxes for public services to our legislators.

— Jan Hudson

Dog days of the budget cycle

June 22, 2010

Sharon Parks

Webster defines “dog days” as a period of stagnation and inactivity.  It’s the day after the start of the summer, and in Lansing it already feels like the dog days of summer.

Michigan is 100 days away from the new fiscal year, and we don’t appear close to having a budget. There is no agreement as to how to close the gap between revenues and expenditures; targets haven’t been set, and the whole process appears stalled.  Meanwhile, we creep closer to campaign season when there’s little likelihood of rational policymaking.

Monday’s Spotlight on Poverty, a national online source for news, ideas and action, focuses on the importance of federal aid and a balanced approach to state revenues, rather than cuts, as the immediate short-term solution to state budget problems. The article highlights the difficulty that many families and individuals have in making ends meet, and cites the harm of continued state budget cuts. 

In Michigan this is particularly true.  While we moved last month to No. 2 in the nation’s unemployment rate, we still have a long road ahead of us.  That journey could be made easier if policymakers would get over their fear of the “t” word and tackle the important job of overhauling our tax structure.  Wishing doesn’t make it so; action is needed now rather than later.

— Sharon Parks

Tax break for working poor

June 15, 2010

Peter Ruark

In a Factually Speaking post on Feb. 22, I wrote about the federal Child Tax Credit and how the American Recovery and Reinvestment Act lowered the minimum household income level from $10,000 to $3,000.

This change has helped many very poor families in Michigan qualify for the credit, and Congress must make the change permanent. Without such legislation, the minimum eligibility level for the Child Tax Credit will jump to $12,850 next year. 

The Center on Budget and Policy Priorities has just released a paper showing that failure to make the change permanent will result in a loss or reduction of the credit for the families of 477,000 urban and suburban children in Michigan and 106,000 rural children.

The reduction for some families comes about because the tax credit is phased in at the low end of the income eligibility scale. Currently, families with two children with household earnings between $3,000 and $16,333 receive a partial credit based on their income. Families who earn more than $16,333 (but less than $70,000 if they are one-parent families and $140,000 if they are two-parent) receive the maximum credit of $1,000 per child. 

If Congress does not make the $3,000 threshold permanent, families earning less than $12,850 won’t receive a Child Tax Credit at all, and families earning less than $26,183 won’t receive the full $1,000 amount.

As with the federal Earned Income Tax Credit, much of the money families get back for the federal Child Tax Credit gets spent in their own communities, helping local businesses and stimulating the economy. That is why this tax credit expansion was passed as part of the Recovery Act.

If you feel comfortable calling your representatives in Congress, you might want to pick up the phone and ask them to stand up for low-income working families in our state. You can find your representative’s office phone number here.

— Peter Ruark

Real fiscal hang-up nailed

June 10, 2010

Sharon Parks

Talk about spot on. Today’s Detroit Free Press editorials zero right in on the real hang-up in resolving Michigan’s ongoing fiscal problems. Too many current and wannabe lawmakers think the answer to Michigan’s problems is more tax cuts, and no tax increases.

This approach ignores the fact that tax cuts actually got us into this mess. Michigan cut taxes aggressively throughout the 1990s and enacted multi-year tax cuts in 1999. Lawmakers foolishly continued these tax cuts, even as Michigan and the rest of the country slid into a recession.

The implosion of the auto industry and the 2008 recession only compounded our problems. An improved economy, which is not around the corner, won’t entirely solve our revenue problems, as the Free Press points out. The League’s graduated income tax (pdf) plan is cited.

If Michigan is ever to have a revenue base (pdf) that can restore viability to this state, it must look to the growth sectors of the economy and to those whose incomes are growing the fastest.

Tax cuts have not pulled Michigan out of this mess, nor will they in the future. Those who want to lead Michigan in the future, yet take a “no tax” pledge, would lead Michigan nowhere.

— Sharon Parks

New budget gap of $244 million

May 21, 2010

Karen Holcomb-Merrill

The state Treasurer and the heads of the Senate and House fiscal agencies gathered today to hear economists talk about Michigan’s future. At the end of this meeting, known as the Revenue Estimating Conference, the three of them reached consensus on projected revenues available to the state.

While the Conference did bring some encouraging news about Michigan’s economy, it is clear that the state continues to have a serious General Fund revenue problem.  Revenue estimates from today show a new budget gap of $244 million for the 2010 budget.

A sharp decline in business tax collections is the cause for the recent fall in revenue. This unexpected news means that more revenue must be found or more programs and services must be cut. The Legislature, which has been working to address an anticipated $1.8 billion budget gap for the 2011 budget, must now also turn its attention to this new budget shortfall.

As state Treasurer Bob Kleine said today, this is a revenue problem, not a spending problem. Michigan has been in a budget-cutting mode for much of the last decade. Most recently, deep cuts have been made to health care, public safety and education.

On the heels of years of cutting, a balanced approach to this shortage of state revenues must include the evaluation and closing of some tax expenditures, which cost the state about $35 billion a year. As state revenue has plunged, tax loopholes have increased every year.

Michigan also needs to modernize its tax structure to provide for stable revenue.  In the short-term this can be done through extending the sales tax to most services.  And in the long-term, Michigan should adopt a graduated income tax which would produce more revenue and would provide a tax cut for 90 percent of tax filers.

Without structural changes, the state will continue to face budget gaps and programs and services will be in jeopardy each year. Earlier this week, Senate Fiscal Agency Director Gary Olson indicated that without revisions to the tax structure and even with an assumed 3 percent increase in revenues, the state faces continuing budget shortfalls.  His projections were that the gaps would range from $1.2 billion to $1.8 billion a year over the next several years.

Economist George Fulton, one of the presenters at the Conference, described Michigan’s economy and budget situation as “despair followed by hope.”  Part of that hope rests on lawmakers taking action now to close tax loopholes and to modernize the state’s tax structure.

 — Karen Holcomb-Merrill