Essay: Budget Deal - 10/3/07

For weeks, many of us were harshly critical of the legislature’s perpetual inability to pass a budget.  After they finally staved off disaster in the wee hours Monday, two lawmakers told me that while there certainly was dysfunction, one person did deserve praise:  Speaker of the House Andy Dillon.

“He’s awesome. I have the greatest admiration for him, and I’m not easy to impress,“ said one  House Democrat. That impressed me because I knew that this individual had been a strong backer of Rep. Andy Meisner, who Dillon narrowly defeated to become speaker after last year’s elections.

Dillon has a more impressive background than most legislators. He is both a lawyer and an accountant, and before going to Lansing was president of the firm that was formerly McLouth Steel.

He’s married and has four kids, and began his political career as an aide to U.S. Senator Bill Bradley. During the last two weeks of budget wars, he spent endless hours trotting back and forth, from the Senate to the House and from both to the governor, trying to put together some sort of deal. Finally, after a series of false starts, the legislators narrowly agreed to raise the income tax by less than half a percentage point, and extended the sales tax to some services.

For days and weeks, Republicans refused to consider raising any taxes, no matter what happened to the state. But the logjam was finally broken, in part because Dillon agreed to permitting competition for MESSA, the agency that provides benefits for teachers.

Dillon’s ability to put together a compromise is stunning when you consider first how rigidly ideological so many lawmakers are these days. And then remember he has had less than three years in government at any level, and became speaker after only serving two.

That indicates rare political skills indeed.  But in a little more than three years, Dillon will be permanently barred from the House forever. That’s one of the many curses of term limits. A judge who used to represent me in the legislature said:  “Michigan is a state that prohibits two kinds of people from holding office: incarcerated felons and those who have proven they have earned the people’s trust.”

Nobody talks about this much, but the deficit disaster we are  suffering through is largely due to term limits. When they kicked in during the nineties, politicians knew they wouldn’t have to be accountable for their long-term follies and mistakes.

So they voted big tax cuts the state could not afford and passed largely fictional budgets. That resulted in deficits every year. In the short-term, the lawmakers counted on raiding the rainy day fund and doing a series of accounting tricks when the bills came due.

Now, we’re out of savings and tricks, and have to make some tough decisions. Last week, most Republicans refused to take responsibility. Some Democrats refused to face reality.  Andy Dillon rolled up his sleeves and tried to make it work.

Without that kind of attitude, we won’t have a chance.   

Hear Audio Story   

Comments

[Anonymous]

The Wall Street Journal took note of the billion dollars or so in new taxes, and pronounced in a memorable headline, "Michigan's Worst Loss Since Appalachian State."

Here is a remarkable editorial that appeared in the Detroit News after the Michigan Democrats' huge tax increase was passed:

***********************
When Michigan demanded a transformational budget crafted from innovative thinking and bold ideas, it got the same old, same old -- a massive tax increase and the continued denial that the structural costs of state government are unsustainable.

By the time budget negotiations reached the critical hour Sunday, the focus of lawmakers and Gov. Jennifer Granholm was solely on averting a government shutdown, rather than on delivering a budget that included the substantive spending reforms they promised nine long months ago when this process began.

The evidence suggests the governor and Legislature never intended to reinvent government. That was all talk to buy cover for what they really wanted -- protection of the status quo in Lansing.

The deal they produced Sunday institutionalizes government inefficiency and sets the pattern for resolving chronic deficits with chronic tax hikes.

Had they been serious about changing government, they would have attacked this challenge with the sense of urgency and cooperation it demanded. They would have set aside politics and committed themselves to a bipartisan solution that ignored the special interests and placed the well-being of Michigan citizens first.

They did just the opposite. Granholm, while talking about the need to balance the budget with a combination of "revenue" -- taxes -- spending cuts and reforms, never proposed anything close to that. She stuck to a formula of 80 percent new taxes and 20 percent spending cuts, and kept the door closed to suggestions for saving money through commons-sense changes.

She was assisted in her negligence by state lawmakers who saw in the budget crisis an opportunity to escalate their ridiculous partisan war, rather than to reshape Michigan to better weather the ongoing economic slide.

Oblivious to pleas to work together for the good of Michigan, they bickered bitterly to the end, and ultimately just gave up and accepted the governor's tax hikes.

What they did may get them through the next year or two without having to deal with the deficit headache, but the shortfalls will eventually return, and either they or their successors will have to face them.

Lawmakers continue to work on $400 million in spending cuts necessary to balance the budget, but based on what we've seen so far, we expect little more than a closing of the gap with tired old accounting tricks and other gimmicks.

The size of the bureaucracy is not measurably shrinking, privatization of services is not significantly expanding, and the incentive for ongoing reforms is evaporating.

This budget promises to give state government a generous windfall. More than half of the $1.4 billion tax increase will go to cover the budget deficit pushed forward last year.

Once that bill is paid, nearly $800 million will be available in coming years to spend on new programs.

The expansion of the sales tax to certain services also gives lawmakers a convenient vehicle for raising future taxes. Expect the number of services covered to grow whenever the government needs more money.

No one has measured the impact of the huge tax hikes -- including the $600 million in additional business taxes -- on the faltering state economy. If the taxes hasten the state's economic slide, it will only compound future fiscal problems.

There was no better time to reform state government. But Michigan's leaders did not have the will or the courage to seize the opportunity.

The best that can be hoped for now is that they've learned something from this painful ordeal, and will apply that knowledge in the coming months to truly addressing Michigan's structural deficit. But that's a distant hope.
~The Detroit News

[Kathy]

Get your own column, anonymous and quit posting such long tirades. The Free Press puts this issue into it's proper perspective:

New tax burden? Chill out and hear the truth

http://freep.com/apps/pbcs.dll/article?AID=/20071004/COL06/710040436&theme=BUDGETCRISIS092007

[Matt Howell]

GAG ME! What, Mr. Dillion deserves a chapter in “Profiles of Courage” and a Nobel Prize with this new services tax? Most of the businesses involved are mostly unsophisticated cash concerns that will show very little of their actual revenue anyway and will show even less after this services tax takes hold. Instead the real burden will fall on a very few businesses. For one, self storage facilitieits, an extremely competitive and over built industry that largely serves poor people in some time of crisis - home foreclosures, job losses, and divorces. The ski industry??? Talk about hanging on by your fingernails??? Business services? Will this help keep jobs in Michigan? What great courage and …. Mr. Dillon is a lawyer AND accountant TOO!! … Both of which are exempt from the new tax. What a gem, I’ll bet he plays golf and buys lots tickets too.

It takes tremendous courage to exempt all your rich buddies and kick a bunch of struggling people and industries while they’re down.

[Anonymous]

Kathy, Tom Walsh's apologia for tax-raising Michigan Democrats (his Free Press campaigned almost as hard as Mr. Lessenberry did to promote a large tax increase, just as that newspaper had campaigned to elect and re-elect Jennifer Granholm as governor) doesn't move me one bit.

Walsh criticizes the Tax Foundation for oversating tax burdens. But the simple fallacy of that 'argument' is that all anybody has ever used Tax Foundation data for is to COMPARE Michigan with other states. And by any measure you want to choose, Michigan is not a low-taxing state. Thanks to Governor Engler, Michigan moved somewhat lower in all of the many national rankings of highest-taxing states. But it never moved out of the top half, by almost all estimates. And with regard to the number of Michigan state government employees, would anybody seriously argue that the vast majority of state bureaucracy reductions were the result of Engler tax-cutting and Republican privatization of state services? Odd, isn't it, that even if one accepts the fact that Michigan has one of the lowest ratios of state employees to general population, we still have one of the highest structural budgets among all states?
And so, the Detroit News editors quite rightly wondered, where is the vision, the transformation, the "blow you away" that Jennifer Granholm promised us? What I see is Democrat party politics as usual.
I should also say, I am unimpressed with any recall threats. I don't support those efforts at all. Instead of recalls, I'd like to see a slow building of outrage for the state House elections in 2008 and then the state Senate and gubernatorial elections in 2010. By that time, Michiganians will have filed a couple of tax returns. And they can properly channel their outrage into the kind of term limits that even Jack Lessenberry and the Detroit Free Press support; General Elections. Don't like your new Granholm taxes? Vote for your favorite Republican. I hope for, and predict, a new Republican revolution in Michigan in 2010, which will be a very good time indeed to protect much of what Governor Engler gave us in the 1990's, in terms of judicial appointments, tort reform legislation, and a host of other essential measures to save a Michgigan economy.

[Jack Lessenberry]

In the old days, people who handed out Republican propaganda leaflets were generally not afraid to give their names, but I can well understand anonymous's cowardice now. The only thing worth remarking on is his constant lie about Michigan as a high-tax state; the non-partisan experts from the universally praised Citizens Research Council can set anyone straight as to the facts as to where the state ranks.

[Anonymous]

For a journalism professor, Mr. Lessenberry is a pretty poor reporter of facts on his own (or Michigan Radio's) weblog.

I never insisted Michigan was currently a "high tax" state. Indeed, what I suggested, and what is true, was that without the years of Engler tax-cutting and reductions in the size of Michigan's state government, Michigan would have continued to hold its former rank among the higher-taxing states, as it did during the Milliken-Blanchard years. The Engler tax cuts, by most reasonable estimates that I am aware of, ultimately put Michigan somwhere in the middle of rankings of overall state tax burdens. But then of course what I did was to invite other citations to other sources' rankings; I never simply insisted that one particular ranking of competitive state tax burdens was the only one to be considered.

I did challenge Mr. Lessenberry, and other supporters of large Michigan income tax increases, to point to evidence that Michigan had become a ruinously low-tax state simply as a result of Engler-era reforms. No one took up that challenge.

My concluding point was that if Michigan's overall taxing status was somewhere in the middle, and if Michigan's greatest goal was to attract new business development and investment, why not look at the structural budgetary problems by which Michigan was spending more than it was taking in through taxes.

This was an issue-based discussion. I did not, as Mr. Lessenberry now has, revert to name-calling at the level of "cowardice," nor did I challenge Mr. Lessneberry's own commentary as "lies." It is too bad, that as someone entrusted with a University-sponsored soap box, mr. Lessenberry has taken the debate in that direction.