Which state is doing things right?

If tax cuts and privatization were the great elixir for economic recovery that some would like us to think, lots of job providers would be packing up and heading to Alabama to provide high-paying, secure jobs to the populace there.

Or, we could go only as far south as Indiana to witness the Great Lakes version of that model of government. Some have held up Indiana as the state Michigan should emulate.

The fifth edition of the Michigan Future annual report, Michigan’s Transition to a Knowledge-Based Economy, says that when we look at per capita income, the unemployment rate and the percent of residents with incomes below 150% of the poverty level, Minnesota is clearly the Midwest state we want to be more like, not Indiana. (more…)

Greetings from the new League president & CEO

From the League’s First Tuesday newsletter

As the new CEO/President of the Michigan League for Human Services, I want to take a moment to thank the Board of Directors for giving me the opportunity to lead the League into the next decade. 

I have been blessed to have inherited an incredible staff that prepares and showcases the information that policymakers and the new governor will need as they move forward over the coming months and years. And while I have huge shoes to fill upon Sharon Parks’ retirement as CEO, Sharon and her predecessor, Ann Marston, have left the League in great shape.

The foundation world continues to recognize our importance in the state and has maintained and increased our partnerships. Sharon and Ann’s vision, leadership and work with the League have been exemplary and we truly have become the nonpartisan “go to” organization for the data needed to make tough decisions.  

Gary Olson, retired head of the Senate Fiscal Agency, recently made a presentation at our annual meeting.  He began his talk with the phrase “Reality Matters,” and that must be the mantra for our state as we move ahead. We know Gov. Snyder will be dealing with a $1.85 billion deficit and his plans to repeal the Michigan Business Tax and replace it with a 6 percent tax on corporate profits will create an additional $1.5 billion hole. Reality matters.

We also know that despite some job gains, the families in Michigan continue to struggle to meet their basic needs. Many large Michigan counties have shown increases of more than 25 percent in Food Assistance Program cases, including a 38.1 percent increase in Oakland (one of the richest counties in the nation). The mortgage crisis continues to plague our families, friends and neighbors.  The economic insecurity in Michigan continues to be palpable.  Reality matters.

One out of four Michiganders is in need of some kind of public support. We have lost thousands of people, young and old, who have moved out of our state. Our demographics show that we are becoming an older population that will be in need of more services that are expensive to provide. The reduced census count means reduced federal funding for much needed services. Reality matters.

The Michigan League for Human Services will soon celebrate 100 years of service to our state and we plan to be around for the next 100 years. I want to offer the new administration and the new Legislature our continued help in being part of the solution. We pledge to provide data and recommendations in a balanced approach so that our policymakers can utilize facts, not ideologies, as they make the important decisions that will move Michigan forward.  Reality matters.

Michigan’s slice of the pie shrinking

We knew it would be bad, but did we know it would be this bad?  Michigan was the only state in the country to lose population over the last decade, according to 2010 U.S. Census Bureau numbers released today.

The state’s population declined 0.6 percent, while the nation’s population grew 9.7 percent. Michigan will lose one congressional seat, but perhaps the greatest loss will be felt in the loss of federal funds.

About 140 federal programs use census numbers to allocate funds to the states. These programs include Medicaid, Head Start, road funding and more. In 2008, Michigan received $16 billion in federal assistance based on census numbers.

Our part of the federal pie is going to be smaller for the next 10 years because of the loss of population the state has experienced.  While population is down, the need for services and programs is not.  As we all know, Michigan’s economy has suffered more than most. Demand for services will continue to be high as the state recovers more slowly than other states.

Today’s news presents another challenge to the incoming governor and  lawmakers, who already face a $1.7 billion budget gap. Michigan has relied heavily on federal funds in the last few years to help close budget gaps during tough economic times. There will be a lot less of that money available as work begins on the next state budget. 

The likely loss of federal dollars makes a balanced approach to solving the budget gap all the more important.

Exemptions, deductions and loopholes, oh my!

It’s budget time again in Michigan and unfortunately, as in previous years, the state is facing a shortfall of close to $2 billion.

There are several options on the table to remedy this situation, and not just in the short term. One of the solutions gaining traction is to end tax expenditures (also commonly referred to as loopholes or incentives) that no longer serve their purpose as discussed in a new League report.

Some lawmakers are supporting the idea of ending ineffective tax expenditures by linking departmental budget bills to their closure, and there is also public support. A recent poll by Epic MRA found that 72 percent support reducing the amount of tax breaks allowed to various corporations and other special interest groups. There is support for using those funds to ensure that important local and state programs can be funded.

Policymakers and residents of the state are coming to realize that tax revenue has a direct impact on how much can be spent. Constantly cutting and eliminating programs is not a solution — real structural reform must occur.

Each year, the amount that Michigan gives away in the form of credits, exemptions, deferrals, or exclusions continues to grow. From 2005 to 2009 tax expenditures grew over 21 percent while total tax revenue actually declined by 5 percent. We are giving more away than we are taking in.

It is becoming clear that if Michigan is serious about getting its fiscal house in order, and investing in education and training programs that prepare workers for a changing economy, we can no longer afford to give away tens of billions of dollars each year ($35.4 billion in fiscal year 2009, approximately four times the state’s entire general fund) in tax breaks that are out of sync with consumer spending or to businesses that fail to create new jobs.

Evaluating tax expenditures and ending some is an important part of a balanced approach to closing the budget gap.

-Jacqui Broughton

First Tuesday: Gov’s budget has balance

Check out the latest “First Tuesday” newsletter. Each month it features a column by League President & CEO Sharon Parks and offers short updates on the League’s work. To subscribe sign up here.

Here’s today’s column:

Last month when I wrote my First Tuesday column the governor was about a week away from presenting her final, and probably most difficult, budget. We’ve now had a chance to look at that budget and, while it is not all that we would like to see, it is a balanced approach. The FY2011 Executive Budget includes a mix of spending cuts, tax cuts for business, new revenues and reforms.

Although the League is very disturbed by the prospect of more cuts in spending and massive early retirements, we’re solidly in support of expanding the sales tax to services. (See story below “From Poodle Cuts to Pedicures…”) We are concerned, however, about lowering the sales tax rate to a point that the revenue yield is less than needed.

The League also supports the governor’s proposed physician’s tax as a means of averting another reduction in Medicaid reimbursement rates. We also believe the governor, like most of the nation’s governors, is right in assuming at least two more quarters of federal recovery money through a higher Federal Medical Assistance Percentage (FMAP) matching rate.

While the governor’s plan was in large part drawn from the Business Leaders for Michigan Turnaround Plan, the business community doesn’t like it — even though the budget calls for significant business tax cuts. And, despite this balanced approach, it appears by all accounts that the budget is dead on arrival in both the House and the Senate, as the House speaker and Senate majority leader both call for a cuts-only budget.

The prospects for folks who are desperately trying to make it in this brutal economy are bleak indeed. A cuts-only budget would not only continue the deep cuts made in the current year’s budget, but would further shred the safety net and curtail a wide range of services in local communities across the state.

So much is at stake. A generation of children needs the opportunity to realize their full potential. Tens of thousands of adults in Michigan need the opportunity to gain the skills and education to compete for a job in the workforce that pays a family-sustaining wage.  Communities that have seen their infrastructure ravaged by this economy need to be vibrant and safe once again.

The League has joined an important effort called A Better Michigan Future. The campaign’s platform also offers a balanced approach to solving Michigan’s fiscal problems.  It does so in way that modernizes the state’s tax structure and provides transparency and accountability. I hope everyone will look carefully at this approach and join in an effort to chart a new course for Michigan.

Working poor tax cuts should be part of debate

Congress will be debating soon whether to extend the controversial tax cut packages passed in 2001 and 2003.

These tax cuts are widely blamed for the deficit that President Obama inherited when he took office last year and are seen as one of the principal causes of the current deficit. Equally controversial to the hole in the federal budget they created was the fact that most of the tax cuts were aimed at affluent Americans.

One provision in this package, however, has benefited many families who are lower on the income scale: the provision making the child tax credit partially refundable to families making over $10,000 (meaning that these families can receive a partial credit even if the credit amount exceeds the amount they owe in tax).

The child tax credit, which gives families a $1,000 credit per child up to two children and a partial credit for additional children, has seen two other improvements since then. The first improvement was in 2008, when the income eligibility threshold was lowered to $8,500 for that tax year. Then, in 2009, the Recovery Act lowered the threshold to $3,000, making the credit available to many very poor families who would have otherwise been ineligible.

As a result of the 2009 change, a family with two children is now able to receive the full credit when its earnings reach $16,333 (as opposed to $21,993 in 2008 and $23,333 in 2001).

A report by the Center on Budget and Policy Priorities estimates that families of 584,000 children in Michigan would lose all or part of their child tax credit if Congress renews the Bush tax cuts without extending the 2001 and 2009 child tax credit improvements. Nationally, families with incomes above $10,000 would bear 80 percent of the tax credit losses.

It would be unfair to extend tax credits for the wealthy without also extending one that benefits the poor. Not only that, it would be irrational in light of the current economic situation. Like the earned income tax credit, the child tax credit given to low-income working families tends to get spent in local businesses and thus act as a stimulus to local economies. The child tax credit expansion was included in the Recovery Act because it is one of the fastest ways to get additional money flowing through communities, helping to save and create jobs.

Fortunately, the 2001 and 2009 improvements to the child tax credit are in the budget set out by President Obama and in legislation introduced by Senate Finance Committee chairman Max Baucus. However, as we have painfully seen many times in recent years, the sausage-making that goes on as a bill winds its way through committees, debates, floor votes, and conferencing can often result in certain elements of the bill getting dropped.

We need to make sure Congress does not short-change low-income workers as it passes its budgets for the upcoming fiscal year, and the Michigan League for Human Services will keep you informed if any mischief occurs with this credit.

– Peter Ruark

State of the State: Devil’s in the details

The devil is always in the details. Last night’s State of the State address laid out a vision for Michigan’s transformation, but very few details as to how to pay for the initiatives needed to move Michigan forward. We’ll have to wait for next Thursday’s budget presentation to learn how the  governor’s vision becomes reality.

In the meantime, a few things are worth noting about last night’s speech. The governor pointed to three things essential for Michigan’s transition: diversifying our economy, educating our people and protecting citizens along the way.

The latter—ensuring a strong safety net—received no attention whatsoever in the governor’s remarks. No mention of restoring last year’s Medicaid cuts, no mention of shoring up the state’s cash or emergency assistance programs, no mention of the need to pass unemployment insurance reforms that will help unemployed workers and garner $139 million in federal American Recovery and Reinvestment Act funds.

The governor also reiterated her plan, released last week, to prod approximately 7,000 state employees to retire and replace only two-thirds of these experienced workers.

This proposal is being made despite the fact that state employment, as Treasurer Bob Kleine points out in today’s Lansing State Journal, is already at its lowest level since the 1970s.

Michigan has 11,000 fewer employees than a decade ago—a reduction of 17 percent. Michigan now ranks near the bottom in national rankings of state and local employees in relation to population.

State government has already borne the brunt of two waves of early retirement.  Experience and institutional memory went out the door and most departments of state government have been hindered since in their ability to deliver services, and at the same time ensure accountability.  The governor’s proposal will only exacerbate this already difficult situation.

A new income tax credit intended to improve access to capital for small businesses is also troublesome, not because entrepreneurs don’t need venture capital to expand and create new jobs, but because the state lacks the revenue to pay for new tax credits.

One bright spot in the governor’s address is the announcement that the state, by the end of the year, will open 10 learning labs in the Detroit area to help workers who need to strengthen their basic literacy skills in order to succeed in education or technical training.

The learning labs will help these adult learners improve their reading, teach them English or help them get a high school diploma. Michigan has an enormous problem that must be tackled—fully one in three working-age adults read below a sixth-grade level.  This impediment precludes these adults from participating in federally funded job-training programs and also relegates them to noncredit remedial classes before they can enroll in classes that actually lead to jobs.

Having digested what the governor referenced in last night’s address, we’re now anxious for the details.  Hopefully we’ll hear about new revenues that will stem the tide of further cuts and make it possible for Michigan to finally begin to invest in its citizens and their communities.

– Sharon Parks

Crystal balls yield slightly more hope

State fiscal experts and economists gathered at the Capitol this morning to look into their crystal balls to project what state revenues and the economy will look like in the coming year. These meetings, known officially as Revenue Estimating Conferences, are generally held in January and May, but more often if it seems there has been a dramatic shift in state revenues.

The most recent meetings have been pretty gloomy. But the mood was slightly more hopeful this morning. Cautious, but hopeful, looking down the road.

There were lots of numbers and graphs, but the take-away message seemed to be that the state’s economy, while not great, will not be as bad this year as last year. Estimates were that general state revenue will grow by about 1 percent and the School Aid Fund will see a 0.2 percent increase.

Aside from the bottom-line revenue projection numbers that were released at the end of the meeting, there were several themes running through the presentations.

The federal Recovery Act passed last year by Congress had a positive impact in Michigan. As bad as things were in 2009, they would have been a lot worse without the federal fiscal relief. That was the good news. The bad news is that much of that relief will go away this year without further action by Congress, and it could have a devastating effect on Michigan’s economy and budget.

Despite slightly more upbeat economic projections for this year, state lawmakers and the governor will be facing difficult budget choices yet again. Deep cuts were made in the fiscal year 2010 budget and without changes to the tax structure, there will not be significantly higher revenues to reverse some of those cuts. In some scenarios, revenues will decline again in fiscal year 2011, forcing more tough decisions.

State revenues are down substantially from years past and they are not expected to climb significantly in the near future. When asked how the state could respond to this, Nigel Gault an economist for HIS Global Insight offered a solution. He said the general recipe for addressing declining revenues is a combination of broadening the tax base and reducing special exemptions.

All of this points to the need for a balanced approach. On top of all of the cuts that have been made to the state budget over the years, Michigan needs to modernize its tax structure to increase available revenues. The League highlights some ways to do that in its Facts Matter fact sheets.

– Karen Holcomb-Merrill