Our Editorial: Dark clouds on the horizon
Bob Daddow is a living, breathing wake-up call. Oakland County’s financial mastermind has made it his calling to keep tabs on the fiscal health of the state and its local communities. And it’s his opinion that the patients are failing fast.
Daddow, L. Brooks Patterson’s deputy county executive, presented some really bad numbers to Oakland County school officials last week concerning how the state’s finances could ultimately affect them. School districts get most of their funds from the state, so any stress on the state budget hits schools hard.
First on the list is pension liability. The pension fund for school employees is only 63 percent funded, and is $25 billion short of what it needs to meet promised benefits. The shortfall is up from $8 billion in 2004.
Combined with the unmet obligation of the other state pension funds, the gap is $51.5 billion.
That’s on top of health care bills the state will have to scrounge for money to pay.
With no changes at the federal level to Obamacare, the Healthy Michigan Medicaid expansion is headed toward a $400 million deficit.
If plans are carried out to raise the current 10 percent state match to 35 percent, the hole grows to $1 billion, which would have to come out of the General Fund.
New and proposed legislation will also raise the cost of state government.
If Gov. Rick Snyder follows through with a plan to cover income tax refunds out of the School Aid Fund, it could cost roughly $400 million, though the governor says it’s a matter of accounting, rather than a real shift.
But the cost of carrying out the new indigent defense bill is real, and could cost the General Fund another $100 million, plus raise expenses at the local level. Daddow pegs Oakland County’s obligation at $15 million.
Snyder wants more money for infrastructure repair — his commission suggests $4 billion more a year. Unless additional taxes are passed, that, too will come out of the General Fund.
Then there are the things that are harder to predict.
Daddow worries the auto industry may be at the top of its cycle, and revenue from business and income taxes from that segment will begin to decline.
Future job projections for all industries have been revised downward. Actual job creation in 2016 was 26,000 less than predicted by the University of Michigan.
Oakland County, one of the most prosperous in Michigan, still has not recovered fully from the 2008 real estate crash. True cash value of all property in the county remains 21.3 percent below 2007 levels.
And who knows whether the national economy is headed for a surge under new President Donald Trump or a collapse?
A recession changes all the equations for the worse.
The point is that while Michigan has been on the upswing since the Great Recession, it still faces enormous fiscal challenges, as Snyder noted in his State of the State address last week.
Facing financial reality is essential in Lansing, and at the local level. Hard choices still must be made to keep Michigan viable in the future.