Lansing – For all the talk about being “The Comeback State,” Michigan keeps falling behind in what separates winners from losers.
The state’s $10 billion general fund is roughly the same size as it was in 2000. Educational attainment lags rival states. Personal income growth between 2000 and 2013 is less than half the national average, with Michigan notching a gain of 31.1 percent compared to 66.1 percent nationally, according to numbers compiled by Public Sector Consultants.
And population? Fuhgedaboutit. Had Michigan’s population tracked the national growth rate since 2000, the Big Mitten would have 14 million residents, not 9.9 million, and it would be collecting roughly $9 billion more each year in tax revenue. That’s a lot more dough to fix roads and bridges, fund arts and foreign-language instruction in public schools, restrain tuition increases at public universities.
The upshot: Michigan comebacks aren’t what they used to be. The state that has witnessed a remarkable revival in its hometown auto industry, and the bankruptcy-led restructuring of its largest city, badly needs a big dose of growth. And it needs it sooner rather than later to cope with looming fiscal crises that will not be ignored.
Growth in taxpayer obligations to current and former public employees is outstripping growth in personal income and property values. The toxic combination means residents face a future of rising obligations and fewer services, especially in cities where heavy unionization drives costs even higher.
So-called “legacy costs” for municipal pensions and retiree health-care claim 19 percent of government revenues in payments that cities, townships and school systems must make for services rendered in the past — not the present. And state revenue-sharing payments for cities like Saginaw, Flint and Detroit are down around 25 percent or more between 2007 and 2016.
Michigan is the only state in the nation whose growth rate in municipal revenue between 2002 and 2012 is negative, down 8.5 percent, according to numbers compiled by the Michigan Municipal League. And revenue for cities and towns from state sources? Down 56 percent overall, the sharpest decline of any state in the country.
“Our system is just broken,” Tony Minghine, chief operating officer of the Michigan Municipal League, said at the Business Leaders for Michigan’s Leadership Summit on Fiscal Stability this week in Lansing. “We’re not equipped to deal with another recession. If we were to go into another recession right now, we’d see widespread communities failing.”
Under current state law, that would mean another wave of consent decrees with the state Treasury Department, more emergency manager appointments, renewed complaints about the loss of local control. Much of it would be traceable to the simple fact that Michigan’s taxable property is appreciating too slowly to support the cost of government and its obligations to current and former employees.
Consider this a wake-up call, people. Good times of a 17 million-unit car and truck market, low unemployment, affordable interest rates, cheap gas, a buoyant stock market and a revitalizing Detroit do not change the harsh realities of fiscal stress throughout Michigan’s public sector.
It’s real, and blame for the predicament is bipartisan. From ideologically rigid Republicans fixated with tax cuts and union bashing to Democrats deeply invested in perpetuating the Nanny State shaped with allies in organized labor, politics in Michigan amounts to a stalemate of irreconcilable differences.
The net effect is a state whose leaders and residents are disinclined to reckon with the financial state of Michigan as it actually is instead of what they want it to be. Said David Walker, former comptroller general of the United States: “Most of these numbers will get worse with the mere passage of time.”
Under Gov. Rick Snyder, the state budgets more smartly and on time. It’s paying into the teachers’ pension system and chipping away at long-term debt. It engineered the financial restructuring of Detroit even as similar efforts with Detroit Public Schools and the city of Flint faltered. It’s trying, with scant success, to address the abysmal condition of Michigan roads and bridges.
But ticking financial time bombs buried in state and local financial statements promise more stress ahead, especially if the polarized political leadership in Lansing keeps pegging decision-making to the next election cycle instead of the next generation. That’s much easier to do in a Legislature where term-limited lawmakers seldom serve long enough to live with the consequences of their actions.
The state’s long-term debt still hovers at close to $40 billion. Between 2007 and 2013, the taxable value of property declined by 8 percent in Grand Rapids, 12 percent in Detroit, 25 percent in Livonia, 32 percent in Warren. Wayne County values dropped 22 percent over the same period, according to Public Sector Consultants’ calculations, and Oakland County slid 24 percent.
Those plunging values whack tax collections hard. And they recover more slowly than market values because of generation-old Proposal A limits and other state laws like the Headlee Amendment that are intended to protect taxpayers from skyrocketing tax bills.
Not that the polarized political culture in Lansing, a mirror of national trends in the Era of Trump, can even agree on what ails growth. Nor do Republicans and Democrats in the term-limited Legislature agree very often on the smartest prescriptions to unleash badly needed growth.
Assigning blame is pointless; so is doing the same things, like continuing the same obligations and expecting some financial Hail Mary in the future to magically solve the problem. It won’t, any more than partisan finger-pointing will.
Business leaders are urging the governor and lawmakers to push policies that promote economic growth and improve the business environment; to address legacy costs by directing all new hires into defined-contribution plans and end taxpayer-paid health care when they retire; to establish rules governing borrowing, fund balances and fiscal management at the local level.
“Capital and businesses flee from unstable environments,” said John Nixon, Snyder’s first budget director who is now vice president of administrative services at the University of Utah. Emphasis on stability — which Michigan does a comparatively poor job of delivering.
For more than a generation, term limits in Lansing have ensured a constant churn in the Legislature that devalues expertise and disconnects lawmakers from accountability for their decision-making. As Senate Majority Arlan Meekhof said, how likely are investors to back a company whose management changes every six years?
“It’s about our consistent inconsistency,” said Doug Rothwell, CEO of Business Leaders for Michigan. “We change every time there is an election cycle. We put in good fiscal practice. Are we going to stick with it?”
The bigger question: are the irreconcilable forces in the Legislature prepared to face the financial challenges as they are and move to enact the kind of reforms that would attract investment, bolster growth and create jobs? They should, because these numbers don’t get better with time.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him at 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.