The State Budget: A bigger piece of the pie?

Once again, it’s that hopeful time of year in Michigan when energy, enthusiasm and optimism fill the air, bringing a renewed sense of purpose, drive and excitement. A special time when we strive for that precarious balance between prioritizing our responsibilities and needs with our passions and wants. Yes, it’s State Budget Season in Michigan.

Michigan’s fiscal year runs October-September, yet Gov. Rick Snyder is adamant about passing the budget in June. Why? It’s not just because he’s a self-proclaimed nerd and numbers guy; it also benefits the majority of school districts and municipalities whose fiscal year begins July 1. Prior to 2011, most schools, counties and cities did not know their state funding levels until at least the end of their first quarter.

Let’s review national, state and local stats, to add perspective:

2016 Population: U.S., 323.1 million; Michigan, 9.92 million; Grand Traverse County, 92,084

Median Household Income: U.S., $53,889; Michigan, $49,576; G.T. County, $52,950

2017 Estimated Budget: Federal, $3.21 trillion; Michigan, $56.3 billion; G.T. County, $83.5 million

Sources: Vintage 2016 population estimates; 2011-2015 ACS 5-year estimates; Govt., state, county websites.

Think of our state budget like your own household budget. You have income or revenue coming in and bills or expenses going out ­­– some expenses are mandatory, some are discretionary. You and your family establish priorities, allocating your money accordingly. You have planned, longer-term debt (a mortgage or car loan), try to stash some cash for emergencies (vehicle repairs and home maintenance) and save for long-term goals (college or retirement). Even though you have them, you know that living on your credit cards and hoping to pay them off is not a sound financial strategy.

Governmental budgets run the same except their income or revenue is actually your money in the form of the taxes you pay. Since it’s your money, you should have a say in how it’s spent, right? In theory. Let’s look at Michigan: 2017 begins with an estimated revenue of $56.3 billion, of that 41 percent comes from the Feds. To be clear, federal money is not a gift bestowed on our fine state by a generous benefactor. I make this point as too often we hear, “It’s federal money!” like we just won the lotto or received a windfall. Federal funding is YOUR money, some of your tax dollars coming back to the state. So 41 percent, roughly $23 billion, of “revenue” from federal funding sounds like a lot of money to work with. And it is. Except any funding from the federal government comes with strings attached, so that falls into the mandatory spending column with almost all of it going to fund health and human services, mainly Medicaid. OK, Medicaid is important; it gets $23 billion. We still have $33 billion to work with, right? Not so much.

Check out the following graphics from FY 2016-17: one shows revenue sources, the other shows expenditures. (*Source: Senate Fiscal Agency)

To stay with our household budget analogy, most of the revenue sources have mandatory expenses attached: transportation, school aid funding, prisons and revenue sharing with the municipalities. In theory, the General Fund, or roughly $10.3 billion, is for discretionary spending. In reality, most of that $10 billion is already committed to priorities including agriculture, environment, civil rights, safety, education…so what’s really left? Out of the state’s $56.3 billion budget, about $4.8 billion can be used for discretionary spending.

Great, let’s go shopping! Back to our household budget analogy, we’ve got some credit card debt to pay off. By law, Michigan must pass a balanced budget. Gov. Snyder and the legislature made tough choices for the last six years, worked to build our state’s “savings account” and paid down almost $20 billion in debt. That’s a big deal. Here’s the thing, there’s more. Michigan ranks around 30th of the 50 states with approximately $26.6 billion in State debt. Add to that $50.8 billion in unfunded healthcare and pension liabilities. Let’s just say, maybe now isn’t the time to go shopping. And that is exactly what the proposed Michigan House of Representatives income tax cut feels like.

The House proposed reducing the income tax from 4.25 percent to 3.9 percent, whether it’s a step down over a few years or all at once, consider the impact in your paycheck and the impact on the state budget. Let’s look at three representative taxpayers: Single, married/no kids, and a family of four, each earning $50k per year. With the proposed cut, the single gets an extra $161, the couple an extra $147, the family, $119. Per Year. The state budget would be reduced by $1.2 billion per year. That piece of pie out of the state budget for each of us to take a bite, well, it’s just hard to swallow.

It’s your House budget. I encourage you to contact your legislators and share your solutions.

Bonnie Alfonso is President of Alfie Logo Gear in Traverse City.  Bonnie serves as the Chair of the Traverse City Chamber of Commerce and on the Legislative Action Committee of the Small Business Association of Michigan.