Thursday, June 30, 2022

Solving budget crisis not easy

Eric Gregory

The editorial Increasing taxes will not solve budget crisis (SN 9/17) suggests an overly simplistic analysis and response to Michigan’s current financial catastrophe. Any self-respecting college student would like to see the state make up for revenue shortfalls by allowing bars to stay open later. This cannot be taken as a serious suggestion.

Yes, the Legislature’s proposal to raise the income tax is a dilatory and feckless response to a foreseeable problem. Because of cyclical (a decline in the economy) and structural (the cost of maintaining programs) pressures, the state has had to use reserves to balance the last six budgets. Our Legislature suffered from the delusion that Michigan’s economy would grow, moving the state out of its budget crisis. The House and Senate refused to consider anything but minimal spending cuts — this led to large operating deficits in the General Fund and the School Aid Fund. In the ultimate coup de grace of fiscal irresponsibility, the legislature enacted a series of tax cuts, again, based on the notion that the state was only in a temporary recession.

Two structural spending areas stand out as problems: healthcare and corrections spending. Healthcare spending is the proverbial elephant in the living room. When one calculates healthcare spending including putting public school districts in the equation, healthcare is the largest expenditure item in the entire state budget.

Since the cost of health benefits has been rising at double digit rates for several years, each state-funded organization is greatly impacted year-to-year. Healthcare costs rapidly outpace revenue growth. Adding to projected costs is the growth of the state-funded Medicaid program that has grown by 400,000 people since 2000.

An honest assessment of the current political climate in Lansing leads me to believe that our Legislature does not have the political capital or backbone to effectively address healthcare costs. Legislators elected from swing districts do not seem to be interested in effecting the kind of change necessary to create the kind of novel public-private partnership we saw in Massachusetts in 2006 — where innovative and cost-saving solutions were enacted to ensure healthcare for all. That leaves our immediate focus on the other big expenditure: corrections spending. Corrections is the largest program that Michigan operates directly, and employs almost one-third of state employees. We must consider that although our crime rates are lower than the other Great Lakes states, our incarceration rate (prisoners per 100,000 people) is higher by about 40 percent. This is a result of longer stays in prison for given crimes, as well as the use of alternative methods to incarcerate and rehabilitate nonviolent crimes in the other states.

Michigan needs to become smart, not soft, on crime. When nearly half of our prison population is composed of nonviolent offenders, we must consider if we are keeping people behind bars because we fear them or because we are mad at them.

We can reduce our corrections spending by outsourcing non-security services at the prisons themselves. This would include custodial services, cafeteria services, medical care and transportation. Privatization has saved other states (like South Carolina, Texas and Tennessee) substantially, without impacting public safety. According to the Citizen’s Research Council, the Mackinac Center for Public Policy and the Reason Foundation, by combining these measures we could save the state $600-$750 million.

Unfortunately, these (substantial) spending reforms alone are not going to make up for our $1.7 billion deficit by October. The real solution, to the anguish of taxpayers statewide, will include a tax increase. I agree with last week’s editorial that a 0.7 percent increase in the income tax sounds a little high. An increase is necessary nevertheless (a more reasonable number might be around 0.2 or 0.3). Michigan is not alone in its need to raise taxes (albeit slightly): Gov. Jennifer Granholm was one of 18 governors nationwide to make a request for higher taxes this fiscal year.

We need to urge our legislators to not preoccupy themselves with whimsical ideas and to focus on comprehensive solutions to this crisis. Solutions need to deal with both our spending and revenue problems. Our legislature needs to face up to the fact that Michigan’s recession is likely long-term, and small budget cuts are not going to do it. We need a fundamental philosophical reconsideration of spending priorities to help bring about the new Michigan economy.

Eric Gregory is a State News columnist, political theory and constitutional democracy senior. Reach him at gregoryf@msu.edu.

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