CHUCK MOSS

   ^{State Representative    40th District}

Toll-Free  877-707-MOSS

^{CONTACT ME!              STATE OF MICHIGAN             EYE ON OAKLAND}

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COLUMNS

You Gotta Be Kidding!!!

DO WHAT I DO, NOT WHAT I SAY, DEPT. 

THE BUDGET CRISIS

Public finance is simple to understand. You draw a vertical line, put a plus on one side, and a minus on the other. The plus side is "revenue" the minus is spending.

+                         -   

When the plus side is bigger than the minus, you're in good shape. When the minus side is bigger, you're in trouble.

This is good. It's called "running a surplus."

+             - 

$10                                        $8

This is bad. It's called "running a deficit."

+             - 

$8                                        $10

I'm not trying to be a smart-aleck or talk down to you. It really is that simple. 

Now, in Number 2, that $2 difference on the minus side is called the "deficit." Michigan has run a deficit for the last seven years. This started under John Engler, accelerated under Granholm, and was sustained by Republican majorities in the House and Senate--so it's a bipartisan problem. 

To keep Michigan going, we've paid for that $2--that deficit--by borrowing and spending our saved money in bank accounts--called cash reserves. Now we've reached our limits on borrowing and have spent down $2 billion in cash reserves. 

To make things worse, the State has what we call "legacy costs," or unfunded retiree benefit costs. This is like GM, or anywhere: the state made promises to it's largely unionized employees--including teachers--that these employees would have pension and health care benefits on retirement. The pensions aren't a problem, because that cost is pretty well fixed. The health care benefits are a huge problem, because they've been going up drastically. New accounting rules will place great pressure on governments to start funding these plans, rather paying the costs as you go. Michigan's unfunded retiree liabilities as estimated at minimum $2.750 billion and as high as $40 billion. The $40 billion is almost as much as the entire assets of the state--if we sold the Mackinaw Bridge, the highways, the Capitol building, the parks, everything--we would just barely pay for it.

Now, let's talk about the 2008 budget. Everyone says it's $1.7 to $1.9 Billion in deficit. That's deceptive. Actually, at least a third of the "deficit" represents spending increases. Imagine you have an income of $1000. You draw up a plan that spends $1200, then announce that your budget has a deficit of $200. Well, yeah. I suppose that's technically correct. But when you're trying to make the plus equal the minus, adding new spending to the minus side doesn't help

Now, when you run a deficit, there are only three ways to go. Cut spending, raise revenue, or a combination of the two. "Raising revenue" can only be done two ways: raise taxes, or have more taxpayers--business and people-- making more money, and thus paying more. With our auto recession, less people are making money, and so can't pay taxes.

This is where the gridlock comes in. There are people--mostly, but not all, Democrats--who believe that the spending is all very important things that can't possibly be cut. The other people--mainly, but not all, Republicans--who believe that we're already spending too much, that taxes drive away the job creating businesses we need, and that the taxpayers are hard-pressed enough as it is. I'm with the second group, and also I think we shouldn't raise taxes for current spending until we know how much we're going to have to pay for the unfunded retiree obligations.

Last piece of the puzzle: Michigan's Constitution requires the budget be balanced by October 1st.

Right now, the Governor is demanding a tax hike to boost the plus side. Citing the $1.9 Billion "deficit" she says if she doesn't get the tax hike to pay for the new programs she says we need, she'll order a government shutdown. This would be a terrible, damaging thing for Michigan. Everything would stop. Everything. Bond payments, checks to schools, doctor reimbursements, everything. It's the equivalent of an atom bomb or a labor strike--or technically a lockout.

I believe that a shutdown is dangerous, irresponsible, and unnecessary.

Unnecessary. There's a way to avoid this disaster, and that's to pass a temporary, or "continuation" budget, to keep the state running while both sides work out the compromises. I agree this should have been done last May, but it wasn't, so here we are. After all, you have rookies running the House (term limits. Another story.)  I'm supporting a "continuation budget" and utterly opposed to a shutdown. The Governor has threatened to veto a continuation budget, the better to pressure the legislature to agree to a tax hike. I hope that's just posturing. Right now the Senate is working on a continuation budget, and I hope everybody just keeps talking, negotiating, and working out the disputes.

So that's the story.

  I'm With Chuck!! 

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