by Frank Weir
Legal News
Michigan’s new state budget director John Nixon brought Gov. Snyder’s gospel of economic rejuvenation to Jackson Chamber of Commerce’s Economic Club last week.
Nixon began the post on January 1 after being hired away from Utah.
His remarks, “Right-Setting Michigan — The State Is Now Set for Michigan’s Recovery,” focused on key economic factors, their impact on the state’s revenues and expenditures, and how the budget just passed gets on the road to “fixing Michigan.”
The presentation began with the obvious: Michigan’s economy has bottomed out and is recovering “but at a slower pace than the national average.”
Nixon continued, “Our recovery is going to be slower and longer than any other recovery in the past. Most other states experienced a significant recovery in 2002. In Utah, we had more revenue at that time than we knew what to do with. But Michigan never came out of 2002. In one sense, you didn’t have as far to fall as those states that experienced a bubble in 2002 that popped in 2008.”
Nixon noted that Michigan’s ongoing high unemployment rate, coupled with a continuing drop in personal income, has meant that “less revenue is coming into the state to fund services.
“It has been a very difficult economic environment here over the last 10 years. There has been no revenue growth in the last decade while expenditures have increased. The Medicaid caseload has increased by 84 percent since 2000 and food assistance expenditures are four times our 2004 numbers.”
In fact, one out of every five people in Michigan now receives food assistance, he said. And corrections spending has grown from 5 percent of the budget to 24 percent from 1982 to this year.
“In 1982, corrections represented 5 percent of the budget compared to almost 25% today while Medicaid takes up another 25%. That doesn’t leave us with a lot of flexibility.”
But what keeps Nixon “awake at night is that we have $58.4 billion in unfunded state and local government pensions including education and post retirement health care liabilities.
“We have 56,000 retirees that the state is providing health costs for and we have 44,000 state employees. This is a significant funding problem. We aren’t saying we are going to alter anyone’s healthcare coverage for the folks that are there now. But this is something that we need to address for the long term going forward.”
He went on to say that benefit programs were “given out when they were inexpensive but now we have to start paying the bill. The legislature will be debating this and it’s very important. Both sides of the aisle know it’s a problem and must be dealt with.”
How does this all affect the state’s budget?
Nixon referred to Michigan’s “perpetual budget problem,” the amount by which expenditures exceed revenues, projected to be $1.4 billion for fiscal year 2012.
Snyder’s “strategy to fix Michigan” includes:
––Structural balance;
––Simple, fair and efficient tax reform that is predictable and stable; and
––Accountability and transparency.
Nixon knew very well what he was walking into when he joined Snyder’s team in January, he said.
“To have a $1.4 billion budget gap with expenditures greater than revenues, you can’t run a business like that for long-term sustainability. People I spoke with told me this was not a new problem, that it has existed for the last 10 years, but that no one has wanted to address it permanently. One-time fixes were used but today we are dealing with decisions that are not panning out the way they were projected to.
“Gov. Snyder told me, ‘Let’s fix this once and for all.’ That brings us to structural balance.”
Nixon explained that if a potential homeowner obtains a mortgage, he or she doesn’t base their ability to make the monthly payment on a savings account but on monthly income. “If you don’t, once those savings are gone, you lose the house. That’s what has happened when Michigan has used one-time solutions to balance the budget.”
So the approaches to achieving structural balance in the budget include: ensure annual revenues support annual expenditures; address long-term liabilities; eliminate one-time solutions; bring all expenditures into the budget process; and right-size government programs.
“Only a few states are even talking about other post employment benefits (OPEBS). And even though we have grown over the last 10 years, we are dead last in revenue growth, zero. So on the tax side, we need a simple, fair, efficient, predictable and stable tax reform.
“In terms of business taxes, we must create a stable and predictable environment so businesses can operate, expand, and relocate here. For individual taxes, we must reform our plan so those benefitting from state services are contributing to the costs.”
He noted, “Michigan is growing in its retiree population and by 2030 we will have many more retired. People will be moving off the tax rolls and for long term structure, that’s difficult. If we don’t tax pensions now, it will happen down the road when the stakes are higher.”
Nixon said that most states currently tax pensions. “Only two or three states don’t tax pensions. We are not after folks with no money. We are just saying that we have had inconsistent taxation policies. The state is in the top 10 percent in the way it treats senior income. There are safeguards built in and we are treating senior income more favorably than a lot of states do.
“But we want to get people to start thinking long term about pension costs. None of the bills we’ve proposed will do anything today. They are designed to address the long term.” Nixon added, “The Pew Center has estimated that nationally, we have some $2 trillion in unfunded pension and healthcare costs.”
In response to a question concerning cuts in higher education, Nixon stated that “education is a priority. Our main goal here is to get us out of crisis management. Then we can think about what we want out of our higher education system and start talking about what will it take on the funding side to get us there.”
––––––––––––––––––––
Subscribe to the Legal News!
http://legalnews.com/Home/Subscription
Full access to public notices, articles, columns, archives, statistics, calendar and more
Day Pass Only $4.95!
One-County $80/year
Three-County & Full Pass also available
