State budget director discusses road to 'fixing Michigan'

By Frank Weir

Legal News

Michigan's new state budget director John Nixon brought Gov. Snyder's gospel of economic rejuvenation to Jackson.

Nixon's spoke on ''Right-Setting Michigan -- The State Is Now Set for Michigan's Recovery,'' a meeting of the Jackson Chamber of Commerce's Economic Club.

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 noted that Michigan's ongoing high unemployment rate coupled with a continuing drop in personal income has meant ''less revenue is coming into the state to fund services.''

''It has been a very difficult economic environment here over the last 10 years,'' he said. ''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 Michigan, we spend more on corrections than on higher education. That's a real problem,'' he said. ''In 1982, corrections represented 5 percent of the budget to almost 25 percent today while Medicaid takes up another 25 percent. 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.

Snyder's ''strategy to fix Michigan'' includes three key principles:

* 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. 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.''

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.

''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 that the burgeoning retiree population ''makes it harder on college grads and those staying in the state. We are saying that we are in a new environment and we need to look at linking up our tax structure with the new Michigan to provide a solid foundation going forward.''

In a question posed after his formal presentation, Nixon said that most states currently tax pensions.

''Only two or three states don't tax pensions. 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. But we want to get people to start thinking long term about pension costs. Nixon added that unfunded pension and healthcare benefits are receiving a ''lot of national attention. 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.

He said that with the passage of the budget on May 26, it was the ''first time in 30 years that a budget passed that early. We've got the budget in balance. We aren't done but we aren't in crisis management anymore.''

National rating agencies are impressed with Michigan's budget efforts thus far and he hopes to see the state's credit rating upgraded.

''Most states are rated Double A. Michigan is Double A Minus, or 2 in different rating systems. One agency analyst told me in New York last week that our reliance on one-time gimmicks is the reason we aren't Double A."

Nixon reminded the audience that an improvement in the state's credit rating means a savings of ''millions of dollars in interest costs over 30 years.''

''In investment terms, Michigan's stock is a strong buy right now. We have a lot to offer here and that's what brought me here. Gov. Snyder is actually doing what he said he would do. He has set off on a mission and he really believes what we are doing is going to bring long term sustainability to our state and help everyone at the local level.''

Published: Mon, Jul 4, 2011

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