Governor Rick Snyder promotes his proposed budget as sharing the suffering required to fix the state’s structural deficit. Few local Democrats see it that way.
“I don’t think anyone disagrees that there has to be sacrifice,” says county commissioner Yousef Rabhi (D-Ann Arbor). “But there needs to be equal sacrifice, and this budget exempts business from that sacrifice.”
When it comes to individual taxpayers, the Republicans’ budget does ask something from everyone. To fill a $1.8 billion structural deficit, the lower class would lose more than $250 million through reductions in the Earned Income Tax Credit, the middle and upper classes would lose $900 million in personal exemptions and homestead property tax credits, and future seniors would lose $300 million when their pensions are taxed.
On top of that $1.8 billion fix, the GOP budget includes a $1.7 billion tax break for business. The bulk of that money would come from eliminating $400 million in existing targeted business tax credits; slashing $100 million from revenue sharing with local governments; reducing support to colleges and universities by $222 million, a 15 percent reduction; and cutting state aid to K-12 schools by $200 million, or $470 per pupil.
Lieutenant Governor Brian Calley says Snyder’s budget will not only fix the state’s structural deficit but also create jobs in the state with the country’s second-highest unemployment rate. And he says history shows that helping existing businesses is the way do it.
“We looked at two periods, one during the expansion economy of 1992 to 2000 and one during the contraction economy between 2002 and 2007,” explains Calley, a former banker and the second-youngest lieutenant governor in state history. “And in both, the new jobs that were created came from businesses that were already in the state. Our strategy is to create an environment for the business that’s already here.”
Few local leaders agree with that strategy, though few voice their disagreement as vehemently as commissioner Wes Prater (D-Saline). “The governor’s budget takes away from the poor and retirees and gives it to the wealthy and business!”
Snyder wants to see the budget adopted by the end of May. If his proposals pass, the impact on Michigan’s cities, counties, and– especially–schools will be tremendous and far-reaching.
“It’ll be devastating,” says Deb Mexicotte, president of the Ann Arbor Board of Education. “We looked at the proposed budget and came up with about a $15 million reduction; that’s approximately 8 or 9 percent of our total operating funds!”
Interim school district superintendent Robert Allen explains how it’ll happen. “Cutting $470 per pupil?–that’s about $8 million. [State-mandated spending for] retirement costs will rise 3.6 percent, so that’s another $4 million.” With other anticipated changes, Allen says, “we’ll have to prepare for a $15 to $16 million cut next year.”
To balance the budget, Allen says, the schools will have to look at cutting “anything outside of what we’re legally required to do.” And the interim superintendent thinks the consequences in some schools will be even worse. “Quite a few school districts across the state are right at the brink of being bankrupt, and this budget will definitely put some over the edge–for example, Detroit.
“We’re in a structural deficit,” says Allen, “and you cannot cut your way out of structural deficit. Right now, the district pays 24 percent of our salaries into a [state] retirement fund. And the school districts have no control over that; our only participation is to pay.”
“They’re right,” acknowledges Lt. Gov. Calley. “The total cost of the benefits and pensions to the school districts is unaffordable. It is a serious, serious problem that we are committed to addressing in the next couple of months.”
Whatever they come up with may help in the long run, but in the short run, the cuts will make more suffering by the state’s school districts inevitable.
Compared to the schools, Ann Arbor and Washtenaw County won’t be as devastated by the cuts in state revenue sharing. But they’ll still suffer.
“We’re pretty darned sure $600,000 is going away,” says mayor John Hieftje, “and we’re already down $5 million [in state revenue sharing] from 2002.” And that’s the best possible outcome, says departing city administrator Roger Fraser. “In the worst-case scenario, we could lose between $1.7 and $1.8 million.”
“We’re going to have to cut,” says Hieftje. “It could mean fewer firefighters and fewer police officers, and across-the-board service cuts.”
Prior to announcing his departure to work as deputy state treasurer for local government services, Fraser revealed Ann Arbor’s strategy for working with state government on the budget. “We’re testifying on this and other issues in Lansing,” says the soon-to-be-former administrator, “but we don’t testify too much. We believe, based on experience, that if you’re from Ann Arbor, testifying in Lansing has a negative effect simply because you’re from Ann Arbor.”
At the county level, administrator Verna McDaniel says, “we can still draw down $6.6 million from reserves for 2012, and $4.5 million in 2013. But we do not expect any additional monies from the state in 2013.” Nor does McDaniel see revenue sharing going back to previous levels, meaning at least $6 million less money from the state for the county starting in 2014.
And there will be an immediate impact on county services funded by the state. “We’ve seen it in various non- general-fund items, and in health and human services, because of reductions in various state programs, [in] certain large departments like public health and mental health,” McDaniel says.
County commission chair Conan Smith warns that the proposed budget could affect local governments in other ways as well. “Cities, townships, and villages are in the competition for the state’s money,” he says, “and we partner with many of them. For example, we partner extensively with Ann Arbor in human services, so if Ann Arbor takes a huge hit to revenue sharing, the human services burden shifts either to the private sector or to the public sector–and that’s us.”
Smith has another worry. “The governor said revenue sharing with smaller units of government should be determined by who uses the best practices, who does the most collaborations, and who has the most shared services with other local units of government,” he says. “If you’re already doing all your best practices, do you get 100 percent of your fund or none of it? We’re waiting with bated breath to find out.”
“We want to both provide an incentive for local government to consolidate services and reward those that already have consolidated services,” Calley responds. “To answer the question ‘Will I get credit for things that have already been done?’ the answer is ‘Yes.’ We want to encourage shared services and consolidated services, though we wouldn’t stand in the way of mergers of governments and school districts if that’s appropriate.”
Ann Arbor commissioner Leah Gunn calls Snyder’s budget “a disaster” and questions its premises. “He’s got no evidence that if you give business a tax break, they’ll spend it here. They’ll spend it wherever they get the best deal.”
“That’s a perfect example of why it’s no good now,” counters Calley. “If we had to provide a huge incentive to businesses to get them to come, after we end it, they’ll leave. For example, we gave a 42 percent tax incentive to the movie industry, so it’s no surprise that you’d have a bunch of people here making films. If you put a credit of that size in place, naturally you get growth in that industry.
“That’s why our focus is on companies already in Michigan,” Calley concludes. “This provides a good growth situation for them. They’ll have a better shot at doing their expansion here because they’re already here.”
If that growth materializes, it will help the state in the long run. But in the short term, the only sure winners are businesses.