Gov. Rick Snyder’s proposed final state budget includes hundreds of millions of dollars in one-time investments, increased funding for roads and years-long fees to support environmental initiatives.
While observers say the budget is a reflection of Snyder’s attempt to paint a legacy of smart investments that pay off into the future, it’s unclear how long the spending priorities — if approved — would last beyond 2018.
Snyder, who disputes he’s working on his legacy, will face off against Democrats who say the investments don’t go far enough, and Republicans who are pushing for further tax cuts than are already scheduled to kick in next year.
Michigan business groups are generally supportive of Snyder’s plan and — like the governor — warn about the long-term implications of spending cuts without corresponding revenue increases.
Charlie Owens, Michigan state director of the National Federation of Independent Business, said Snyder’s plan to use “lapsed money,” which was appropriated but not used, is encouraging.
However, the NFIB and other business groups are concerned about various fee increases to pay for programs. In January, Snyder proposed $79 million in annual investments to replace the expired Clean Michigan Initiative Bond for cleaning contaminated sites. The program would be paid for through increased landfill dumping fees, averaging about $4.75 per year per household, according to the administration. Yet, Snyder has also reportedly acknowledged that the fee increases may be the most difficult to accomplish in an election year.
“I think he wants to leave the budget better than he found it,” Owens said. “It is night and day from when he started and when he is departing. He brought the state back from the brink.”
Andy Johnston, government affairs director for the Grand Rapids Area Chamber of Commerce, said Personal Property Tax reform, repealing the Michigan Business Tax, paying down unfunded liabilities and increasing revenue for road funding even when it “wasn’t warmly received” will have lasting budgetary impacts after Snyder leaves office.
Despite the spending priorities, Snyder “doesn’t worry about his legacy,” spokesperson Anna Heaton told MiBiz.
“It isn’t something that shapes priorities,” Heaton said. “He also doesn’t spend time worrying about opposition from either party. He just moves forward with what he believes are the best investments to improve quality of life long term for Michiganders.”
For fiscal year 2019, the general fund balance will remain relatively flat at $10.1 billion, while the overall budget is at $56.3 billion. Bridge Magazine reported that total state spending is up about $2.8 billion or 10 percent this fiscal year compared to 2012.
Johnston said his group is supportive of Snyder’s proposal for an additional $175 million in road funding beyond the $782 million set to kick in next fiscal year. Heaton said road funding is the “number one concern we hear” from residents.
“That investment in infrastructure is important from a business climate attraction and retention standpoint,” Johnston said.
He also pointed to Snyder’s proposed $40.9 million spending on skilled trades and other business-attraction efforts. Additionally, Snyder is expected to release a $100 million “Marshall Plan for Talent,” which Crain’s Detroit Business reported would bolster the number of I.T. workers in Michigan.
Snyder also proposes increased per-pupil funding for K-12 students as well as a 2.5 percent increase, or $36.6 million, for higher education operations.
“We certainly need sound investments (in education),” Johnston said. “We also want to have a conversation about how to improve the outcomes in K-12 education. More money — while it’s nice — isn’t necessarily going to help that problem.”
However, top Democrats characterized Snyder’s spending plan as too little, too late.
In a statement earlier this month, Senate Minority Leader Jim Ananich said: “The governor is throwing pennies at our roads and schools and crossing his fingers that it makes up for his legacy of shortchanging Michiganders.”
Michigan State University economist Charles Ballard said several items in Snyder’s plan “move marginally in the right direction,” including the greater emphasis on road funding.
“The bad news, from my perspective, is this is way less than what it is needed,” Ballard said. “It is on Rick Snyder’s watch that our infrastructure deteriorated badly.
“Similarly on education, I’m glad to see some increases in funding for K-12, but the education system I believe Michigan’s children deserve is one for which we’re not providing adequate funds.”
Moreover, the economy is “bigger than it’s ever been,” Ballard added. “If we’re funding higher education, K-12 education and infrastructure at levels I believe are inadequate, it’s not because we’re poor. Our obsession with tax cuts has left us as not as good of a state as we should be.”
A ‘GOOD PROBLEM TO HAVE’
Against the backdrop of Snyder’s proposed spending is a coalition of Republicans — including gubernatorial candidate and Attorney General Bill Schuette — calling for increased tax cuts for residents by increasing the state’s personal income tax exemption. However, critics warn of the corresponding impact on state services and budget pressures should revenues decline.
“It’s unfortunate that many members in the Legislature would like to further cut our safety net and make further cuts to education and infrastructure,” Ballard said. “This notion that if we just cut taxes further then there will be this explosion of economic growth and the tax cuts will pay for themselves — that’s just absurd.”
In his State of the State address last month, Snyder sought to find room between a spend-now versus cut-now approach to the budget.
“We have a broken culture in our political world where it’s OK to say ‘we can spend money,’ or ‘we can cut taxes,’ and do that now for short-term benefit and leave the bill for the kids that are beyond. I don’t think that is right either,” Snyder said.
However, Owens called it a “good problem to have. … I remember when everyone is fighting over how much of a tax hike there would be.”
“The challenge is always this: If you cut income, you either have to have a corresponding cut in expenses or some other way to make up for that. A lot of folks talk about cutting taxes. That’s OK, but show me what you’re going to cut to equal that amount,” Owens said. “When that results in deficit spending, then suddenly everyone is on the hunt for revenue.”
Johnston says the state goes through the “governor proposes, Legislature disposes” process every year, although this budget may receive more attention than normal in an election year.
“When you add more revenue enhancements, more one-time spending priorities, it may require additional conversations and deliberations,” he said.
Taken together, Snyder’s budget proposal places him in a “lonely space in the middle” of the political spectrum, Ballard said — between Republicans calling for further tax and spending cuts and Democrats calling for more investments.
“That puts Gov. Snyder in a tough spot,” Ballard said.
While the state economy has grown under Snyder “primarily because of national factors,” he added, the economy is also nearly at full employment.
“Yet because of our obsession with tax cuts, we have a budget that, in my view, falls far short of doing what we should,” Ballard said. “If you’re going to have an inadequate budget when you’re at full employment, where are you going to be when the next recession comes?”