How bad is it? The short answer: Worse than you thought. Unfortunately, some of the impact was muted because of a distraction. That came during the main event yesterday, when Gov. Rick Snyder’s unveiled his long-awaited report on state finances.
There’s a lot of valuable information in it, but sadly, both politicians and the media fastened on one section which indicates that over the last decade, average state employee compensation increased, while average private sector pay fell.
Conservatives said this proved what they’d been saying all along, about out-of-control state spending. Union representatives said this wasn’t a fair comparison, since most state workers have college degrees, and most private sector workers don’t.
Those reactions were predictable. But that wasn’t the main message of the report, which documents in chilling detail the hidden fiscal irresponsibility of the Granholm Administration, and to some extent of the Engler Administration before it.
What do I mean by irresponsibility? The revelation, for example, that the state has had to quietly divert money into the School Aid Fund every year to keep the schools from shutting down. Then, later, the money quietly got put back, though it has gotten harder and harder to do so.
In eight of the last nine years, the state has had to resort to short-term borrowing at the end of every fiscal year, just to pay its bills. That money then has had to be paid back with interest, wasting more of the taxpayers’ money.
What’s been going on is sort of a perpetual giant shell game, which the stimulus money has helped keep going. Local governments have been part of the party too, by the way.
Last year, Michigan’s state and local governments spent a total of $2.3 billion more than they took in. You don’t have to be a math major to know that can’t go on. Snyder doesn’t intend to let it. “What we’re talking about is something that should have happened decades ago,“ the governor said. “It’s time for us to step up and take responsibility for the fiscal situation we’re in.”
Meanwhile, we also learned from a separate Senate Fiscal Agency report that the state’s public retirement systems, all in excellent shape ten years ago, now have combined unfunded liabilities of $15.4 billion dollars. When it comes to paying for these retirees‘ health care, the situation is even worse.
And finally, Treasurer Andy Dillon says the state needs a new law making it easier to intervene in communities that are on the point of financial collapse. He said at least five communities are in such bad shape they soon won’t be able to pay their employees.
Taken together, these three reports should have the effect of a bucket of cold water in our faces. For the last decade, we cut taxes and didn’t stop spending.
Now, we’ve come to the end of our ability to shuffle the cards. Whatever your politics, it’s hard not to agree when the governor said yesterday, “it’s not time to cry about it. It’s time to go to work.” When we see his budget later this month, we’ll know just what that means.
I heard and read significantly different things at the business leaders gathering 1.31.11 in Lansing. Jack thought the main message was documentation of the "hidden fiscal irresponsibility of Granholm, and to some extent of the Engler Administration before it." His example of this irresponsibility is that in 8 of the last 10 years the State has borrowed within each fiscal year to pay schools in a timely fashion and, within the same years, repaid the amount borrowed - paying interest on the short-term loans. Actually that is a common occurance because tax payments don't all come in at the beginning of the fiscal year when the schools need the money. I just looked at a report on the Senate Fiscal Agency site that tells us that between FY 1970-71 and FY 2006-07 (36 years) this occured in all but 12 years.
The other thing I heard and read at the session was the report from State Treasurer Dillon that Michigan taxes have declined since 1995, general fund spending has been reduced by 13% since 2001 (the least increase of the 50 states),Michigan ranks 48th among the states in number of employees per 10,000 population, and that Michigan is the only state in which general fund revenue has declined between 2000 and 2009. And I heard John Nixon, the State Budget Director, report: Michigan leads the nation in terms of pension reforms; became the first state to fully consolidate information technology services; Michigan has been recognized fourth best among the states as well managed during the economic crisis; Michigan's total expenditure growth between 2001-2008 was the least among the states.
What I heard and read doesn't lead me to conclude that the problem is the irresponsibility of the last two administrations. I'm rather more inclined to think the problem is having to cope with the loss of 850,000 jobs between 2001 and 2010. The responsibility is a good bit broader.
Posted by: Lynn Jondahl | February 01, 2011 at 04:50 PM