Sustainable Michigan Budget would strengthen lawmakers’ hands

Originally published at Mackinac Center for Public Policy with James Hohman.

Restraint gives Michigan lawmakers more power than spending every dollar they have. They can prepare for an uncertain future. They can pay down existing debts. They can afford to let people pay less in taxes. Unfortunately, restraint has not been a priority for elected officials.

Michigan’s Democratic majority began its tenure with $9 billion in surplus money.

Their largest priorities were business subsidies and pork. The last two budgets authorized $3 billion in district grants and $4.7 billion in business subsidies. Residents are unlikely to get much in return.

The business subsidies have yet to create any jobs, and there is reason to believe that companies will fail to deliver on their promises. The state’s major business subsidy deals from 2000 to 2020 produced just 9% of the jobs promised. Even with large subsidies, the state fell behind the economic growth experienced in the rest of the country.

The point of letting legislators bring back cash to their districts is not to deliver good outcomes to state residents. It’s a reward where money does not go to its best purpose but to where it can provide a political return for particular elected officials.

The money spent on business subsidies and district grants would be better used on schools, roads, and key services, or it can be returned to taxpayers.

While it may sound contradictory, lawmakers can do more when they spend less. Restraint allows them to increase the budget when revenues decline because they’ve saved money in the past when the budget grew. Restraint can help get the state out of debt and provide more for services or tax relief.

That’s why lawmakers ought to pass a Sustainable Michigan Budget and increase the budget by no more than the rates of population growth and inflation. For the upcoming budget, this is no more than 3.6% growth in state spending.

Lawmakers make bad decisions when they refuse to pass sustainable budgets. Last year, for instance, this lack of restraint encouraged legislators to make irresponsible decisions such as deferring pension debts.

The state’s largest creditors are not banks or bondholders; they are the members of the state-operated retirement systems who are not supposed to be creditors. Unfortunately, lawmakers promised them pensions but did not set aside enough money to pay for them. As part of last year’s budget, elected officials took $670 million away from pension debt payments in order to put more money into other priorities. They wouldn’t have needed to do this if they had passed sustainable budgets.

This year may be different, as Republicans take over the majority in the state House of Representatives.

The new leadership would benefit from practicing restraint. State revenues increased after the COVID-19 pandemic and have remained high. In addition, the federal government showered the state with cash, and the extra money has now been spent.

Officials expect state revenue to grow this year, giving lawmakers more cash to play with even though surpluses were exhausted.

This is the right year to pass a Sustainable Michigan Budget. Restraint will allow the state to do more and help lawmakers avoid the bad decisions they’ve made in the past.