Posted on 10/07/2007 11:08:30 AM PDT by mombyprofession
State money woes to mount - Deficits could dwarf this year's emergency shortfall
BY JOHN WISELY FREE PRESS STAFF WRITER
Created: 10/6/2007 9:55:14 PM Updated: 10/6/2007 9:56:00 PM
In a detailed analysis of state budget troubles, a former state treasury official painted a grim picture of Michigan's budget over the next 10 years, despite a controversial deal struck this week that includes two tax increases.
Tom Clay told almost 300 policy makers from across the state Friday that, at current levels, state expenses will outpace revenues by roughly 5% each year, creating a $6-billion annual shortfall in the state's general fund by 2017.
That's more than three times the amount of the budget crisis this year that led to a brief state government shutdown before the Legislature and Gov. Jennifer Granholm reached a deal to raise taxes and cut spending.
Because the state constitution requires a balanced budget, large cuts or tax increases would be needed every year, Clay said.
"The challenge is enormous and it's compelling and it continues without relief into the future unless we get changes in state policy," Clay said. This week's budget deal does little to change the trend, Clay said.
Clay's analysis came at the annual meeting of the Citizens Research Council of Michigan, an influential nonprofit policy group in Livonia. Leaders from local governments, businesses and universities listened intently for an hour as Clay marched through a 47-page presentation based on months of research by his center and the W.E. Upjohn Institute for Employment Research.
When he finished at 11:30 a.m., lines formed quickly at two bars outside the room where he spoke at the Troy Hilton.
Granholm spoke after lunch, offering her own slide-show-backed report. She defended this week's budget deal but acknowledged more work remains. Granholm hinted there could be tweaks to the much-maligned services tax, but she didn't commit to any specific changes. The new tax extends the state's 6% sales tax to mostly business-to-business transactions beginning Dec. 1.
The Legislature and governor also raised the income tax rate from 3.9% to 4.3% Monday.
"The structure of the service tax is something I'm sure we'll be working on," she said.
House Speaker Andy Dillon said Friday that he's considering a ballot proposal to raise the state sales tax from 6% to 7% in return for reducing the tax on services and giving homeowners a bigger income tax credit.
The Redford Township Democrat said he plans to talk to Senate Majority Leader Mike Bishop, R-Rochester, about placing an issue before voters.
Granholm didn't dispute Clay's presentation, calling him a friend who is "brilliant." She also noted she had proposed one of the suggestions in his report, a 2-cent, broad-based service tax, only to see Republicans in the state Senate kill it.
The CRC report concluded that rising costs of prisons, health care and retiree benefits would continue to sap Michigan's money. Those costs will grow faster than revenue.
Clay said policy changes could yield savings. The Department of Corrections now spends $1.9 billion annually, including almost $300 million on prisoner health care. Corrections Department spending has grown an average of more than 9% annually since 1980, according to the report. Michigan locks up convicts at a 40% higher rate than neighboring states. If those rates matched, the state could save $500 million a year, Clay said.
Granholm said, "Part of the cuts we're going to have to do will involve cuts to corrections."
The report showed the state spends $9,000 annually on benefits for each state employee and about $8,000 for each school employee. Those costs need to be controlled, Clay said.
Granholm agreed, adding that this week's budget deal requires longer vesting times and tighter restrictions on those who receive the benefits.
State employees already have been moved to cheaper defined-contribution retirement plans, but school employees haven't. To convert school employees to those plans would cost about $165 million annually for several years to keep the old pension system solvent, Granholm said.
"We couldn't come up with the money," she said.
Granholm, who walked through the crowd with a wireless microphone during her presentation, received strong applause when she was done, but some people were skeptical.
"The long-term issue of budget reform really wasn't done," said Karl D. Gregory, a retired economics professor from Oakland University who attended. "This was a short-term fix and it wasn't even a very good short-term fix."
Deputy Oakland County Executive Gerald Poisson agreed:
"It's more of the same, and the devil will be in the details."
Contact JOHN WISELY at 248-351-3696 or jwisely@freepress.com.
” and in five years...you’re gonna be blown away...”
Michigan could cut government spending. hahahaha just kidding!!
Just raise taxes again. I’m sure that will work.
....but there will be money for their healthcare system right?
I’m blown away in this, the 5th year!
From the top —
1. The GOP got us here. They ran things until recently, when the voters decided that the GOP had turned from Pigs to Men (using Animal Farm metaphors). The GOP had at least a dozen years to find ways to downsize the size and scope of government, but instead went from $29 billion to $41 billion. A POX on the GOP’s house.
2. All of this hype about recalling people who voted for a tax raise is BS, since a tax raise was the only thing that could be done. There is no way that enough cuts could be made fast enough to balance this budget.
3. Obviously, more cuts will happen. Granholm’s unfortunate (if not tragic) State of the State address, where she vowed no cuts plus tons of “investments” will continue to cause long delays in making needed cuts. If Jen Granholm doesn’t become part of the solution, instead of part of one side, she’s gonna find out that the cheering crowds at the next election will be cheering ‘cause she’s gone.
4. Our term limits here are too short. In the old days, before limits, we had people who knew the government front-and-back. Now, we have politicians who are all newbies, who are all maneuvering for their next elected post.
5. Tim Walberg, the GOP first-term Congressman (who replaced RINO Joe Schwarz) is the big winner here. The Dems will put up Mark Schauer, who as the MI Senate Minority leader had to carry the water for Granholm. Walberg is a noted budget hawk and tax-cutter, and Schauer is now a tax-raising shill for Jen Granholm.
Granholm needs to resign or get recalled, she is in way over her head.
You think maybe Walberg will run for Governor in 2010?
So in the state with really high unemployment rates, they decide to create a tax on business to business transactions. That should help . . .
“You think maybe Walberg will run for Governor in 2010?”
Wow... yeah... hadn’t thought of that one... Certainly Tim is the about the only GOP guy who has any credibility as a tax hawk, budget cutter, etc.
Hint:(Don't put all of your eggs in one industry and expect them to pay all the bills)
Michigan has had more than 20 years (decline of the American Auto Industry and the UAW), as a self-governing body to chart a course. What is it?
I got mine, get yours!
“Especially young, college-educated folks, they’re not going to settle down and raise their kids in a state like Michigan.”
My two college-educated kids are already gone — one to the USAF (never to return) and the other to Nashville, TN. I’d be gone if I didn’t own a house that has lost 25% of its value in the past year, and hence worth less than I owe on it.
It’s not the high taxes, but rather, the lack of jobs for a college grad that is driving them out. They’d pay the taxes if they got a new job.
What is REALLY keeping jobs out of Michigan is the UAW. Seriously. I’ve been told that point-blank by top management types of the other auto manufacturers, and I’m sure other companies feel the same way. That UAW strike set Michigan back another 20 years in getting new employers, and no doubt hastened the job loss that we see today. Employers will either replace humans with machines, or move to a place w/o the UAW. The UAW is the union for most of the State employees, and is the biggest contract for Blue Cross (itself heavily unionized).
Did you happen to watch the Canadian Governor on ‘Spotlight on the News’ - WXYZ channel 7 today ?
Blame Engler.
Blame Bush.
Repeatly say the tax increases were bi-partisan supported.
Praise Hilary.
Hmm...that’s a thought out of right field and I think I like it.
I’m one of Walberg’s constituents. The Dems were pushing Schauer as a possible replacement but these tax hikes are puttng a nail in that coffin.
What I’m noticing is a profound LACK of polls for against those who voted in the tax hikes. No “will you vote against the incumbent” polls — the more likely, imho - since it paints both Dems and Reps with the same brush whether they deserve it or not. Jenny has a big unfavorable rating right now (and she deserves it), but Dillon’s should be in the tank.
“What I’m noticing is a profound LACK of polls for against those who voted in the tax hikes.”
All of the GOP guys who voted for tax hikes are term-limited Senators. They’ve got their pension fund, and certainly don’t have plans of any more service to the Michigan legislature.
No GOP guy who had an election coming up voted for the tax hike (at least that’s the way I heard it).
“Blame Engler.”
Engler needs to be blamed for that piggish spending he supervised for his last 8 years.
However, he’s been gone for a while...
What’s the unemployment rate in Michigan?
.....large cuts....
Not so large.... if the rate of spending increase is 0 than a cut of less than 5% per year will do the job. That is not large.
The worrisome part is the decrease in taxpayers. If union type lose jobs as they become increasingly uncompetative and if people leave the state, there is going to be a revenue shrinksge.
There is only one sure solution, elimination of all fat and exposure of a little bone. If the rats had any smarts, they would cease running candidates and let repubs come in cut spending, balance the budget and restore fiscal order. The resulting public disgust would assure reelection of rats after five or six years.
Statewide I think it’s been hovering around 7.8%. Detroit, naturally, is higher but I haven’t seen recent figures.
We vie with Missouri for the highest rate.
And on a previous post you made a comment that the term limits are too short, so by the time somebody know how the government works front-to-back;
Well, without having specifics on the term limits, the first response I have is that if it takes an office holder that long to figure out the government, then the government is too big and complicated. Reduce the size, and make it simple.
And along with the UAW is GM, who agreed to spend $15 Million on lobbying efforts to have the federal government pick up the GM tab for health insurance commitments GM made for its employees. That way, the debt can get lost into the magic debt black hole known as the national debt. Then we can all forget about it, because it never comes due and politicians tell us that it doesn't matter.
The easiest and fastest way to solve local problems is to get somebody from out of town to write a check that never has to be covered. It's such a magical time we live in!
“What’s the unemployment rate in Michigan?”
Roughly twice the average of the rest of the USA. Our foreclosure rate is twice the average as well.
The loss of jobs has been slow enough that many unemployed are no longer counted, since they’ve moved out of state and/or run out of benefits.
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