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Summary of Research on Michigan’s Budget

April 23, 2007 | By Carolyn Kelly
Great Lakes Bulletin News Service

Budget and Tax Information
Michigan’s Defining Moment: Report of the Michigan Emergency Financial Advisory Panel

If Michigan is to resolve its budget crisis, we will need to make significant structural changes. We have already made aggressive budget cuts and exhausted almost all one-time revenue sources, including the state’s rainy day fund. We can’t solve the problem through cuts, reforms, or taxes alone. We’ll need all three. In particularly, additional tax revenue is necessary to pay for essential services and invest in education and quality of life—the cornerstones of a 21st-century economy.

Michigan’s Budget Crisis and the Prospect for the Future
Citizen Research Council

Michigan’s budget deficit is structural as well as cyclical, which means that an expanding economy won’t fix it. Short term revenue fixes, such as Michigan’s rainy day fund, are depleted.

Michigan has already cut public services aggressively, but a structural deficits still persist: spending cuts alone will not eliminate the budget deficit. The state could save significant money on corrections if we reduced our incarceration rate to the level of neighboring states, which now have higher crime rates and lower incarceration rates than Michigan. Benchmarking public employees’ benefits to the private sector and to other states could also cut costs.

Michigan needs to raise more revenue to pay for essential services. That means reforming our tax structure to reflect the 21st-century, service-oriented economy, broadening the tax base and raising some taxes. We need to invest heavily in education, which will determine our long- run economic competitiveness.

General fund revenues dropped by 15.6% between 2000 and 2005.
Revenue sharing for cities, townships, villages, and counties have been slashed by over 56.3% and counties no longer get any revenue sharing whatsoever.
The state now has fewer employees than it did in 1974.
Higher education funding was reduced by 11% between 2000 and 2005.
If our incarceration rate were reduced to the average of the Great Lakes states, that would save $500 million, or over 5% of the general fund.
1/3 of Michigan’s prisoners are nonviolent offenders.
Between fiscal year 2001 and fiscal year 2005, $6.6 billion in one-time funds (rainy day, surpluses, etc.) were spent.

A New Model Michigan: 8 Ways to Structurally Change how Michigan does the public’s business in these difficult economic times
The Center for Michigan

Consolidate school districts, institute performance metrics. Increase cooperation, service sharing, and consolidation of local governments. Reduce spending on prisons—"tough on crime" approaches and lengthy sentences don’t substantially reduce crime rates, and one-third of Michigan prisoners are nonviolent offenders.

Compare the salaries and benefits of Michigan’s public employees with public employees in other states and employees in the private sector. Reduce the benefits of Michigan public employees to those levels. Repeal Act 312, which requires binding arbitration.

Broaden the sales tax to include services. Broaden the base and lower the rate for business taxes; completely replace the revenue previously generated by the single business tax. Institute a graduated income tax, either through voter approved constitutional amendment, or by raising the tax rate and graduating exemptions. Increase the beer tax and institute a soft drink tax.

Outline of Michigan’s Tax System
Citizen Research Council of Michigan

Comprehensive information about every tax levied in the state of Michigan.

Economic Development
Regional Approaches to Economic Development Feb 2007

Citizen Research Council of Michigan

Economic development needs to be regional because labor markets, money markets, real estate markets, transportation systems, and natural resources are regional. Fragmented systems of local, township, and county governments, each with their own set of land use regulations, tax revenues, and capital improvement programs, hinders economic competitiveness. The state should help define regional areas, promote cooperation within and between regions, initiate private-public partnerships, and make relevant data available to communities.

Michigan has over 200 private and public economic development organizations at the state, local, and regional level. Strong local control, an inability to share commercial and industrial property taxes, mistrust of county or regional efforts, and local competition generate numerous local economic development organizations. This often leads to duplicated or fragmented services that a regional organization could deliver more effectively.

Increasingly, private, non-profit organizations with diverse boards—business leaders, government officials, nonprofit leaders, educators, foundations, etc.—are playing a role in regional economic development, because they transcend traditional divisions between the private, public, and non-profit sectors and between political jurisdictions. The report suggests that such organizations could develop regional strategic plans, marshal resources, build regional identity, develop and market the assets and opportunities of the region, and refine operations. Foundations can support for regional economic development groups and initiate politically risky analysis.

The report discusses several economic development strategies, including diversification, education, and innovation, and recommends an organized, regional approach to economic development that builds on each region’s assets. It also points out that globalization makes competing with other regions through tax incentives, low labor costs, or natural resources much more difficult—there will always be countries where labor is much cheaper, taxes are lower, and environmental regulations are lax.

We’ve been talking about the need to diversify since the 1950s, when the automobile industry first began its slow decline.

Productivity is no longer linked to wage growth for the bottom 90% of the population.

Michigan Economic Development Corporation
Michigan’s business taxes are lower, and growing slower, than the national average.

For details on the single business tax, property taxes, sales and use taxes, workers compensation, unemployment insurance, employer tax, and personal income tax, click here:

MI Econ Dev Corp. Workforce Info

MI Econ Dev Corp. Education Info

A List of Michigan Programs to Help Businesses

Specific Issues: Land Use, Commerce Centers, Cities, and Schools
State of Michigan Cities: An Index of Urban ProsperityMichigan Higher Education Land Policy Consortium

Michigan cities lag behind the state in most prosperity indicators, and most Michigan cities rank far behind other U.S. cities, but Michigan cities attract and retain more young people than the rest of the state and have lost jobs more slowly. This, along with research on the economic importance of great cities and the creative class, suggests that Michigan cities could be a resource to the state, with increased investment in urban areas. But tax revenue directed towards the cities declined by 2% and cities lost between 17% and 49% of state revenue sharing between 2000 and 2005.

Michigan ranks 49th in retaining young adults.

The Fiscal Impacts of Alternative Single Family Housing Densities: Infrastructure CostsLand Policy Institute, Michigan State University

Lifetime infrastructure costs are higher for low density developments than high density developments. Yet annual payments for services like sewers were lower in low density developments than high density developments. A lack of data and resources may prevent communities from making these cost-benefit analyses—leading to wasteful decisions.

Preserving Farmland and Achieving Agricultural Viability in the State of Michigan
Land Policy Institute, Michigan State University

Agriculture is an important part of the state’s economy and quality of life. However, development pressure, low or negative profits, and aging farmers are leading to the loss and development of farmland. We need state support to preserve farmland, but the state farmland preservation fund of $2 million is inadequate. The report discusses how many acres should be preserved, which land should be preserved first, and how much it would cost.

Commerce Centers in Michigan: Data and Analysis to Support Policy Decisions
Land Policy Institute, Michigan State University

Prosperous cities are essential to a thriving economy, but Michigan’s public funds have often subsidized sprawl and shortchanged existing communities. A bill to help "commerce centers" improve land use policy while stimulating economic development could reverse this trend. The bill should encourage diverse commercial opportunities and small business development, build on communities’ unique strengths, and tie economic resources to land use policies. Finally, rural preservation must accompany urban revitalization to achieve statewide prosperity.

Adequacy, Equity, and Capital Spending in Michigan Schools: The Unfinished Business of Proposal A

While Proposal A decreased inequality in per-pupil spending, it didn’t address capital costs for building and maintaining school facilities—capital costs are still funded at the local level. This creates tremendous disparities in the quality of school facilities because the value of taxable property per pupil varies from under $50,000 in Detroit and five other districts to over $500,000 in Michigan’s 29 wealthiest school districts. The state must help meet capital expenses in order to reduce or eliminate this disparity, if we are to have a uniformly well-educated workforce.

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