There’s a troubling new development in the efforts of political and government establishments in this state to prevent downsizing in the face of a shrinking Michigan economy: They’re stealing from the future. Recent weeks have provided examples from the city of Detroit, the city of Lansing and the state capital.
A high-profile deal to "fix" an $800 million gap between desired spending and actual revenues in the current fiscal year’s state budget received the most attention. This came after five months of minimal progress that has frankly shocked longtime observers, given that every passing day makes the solution more difficult.
The inaction was due to a determination by the administration that the only solution was an immediate tax increase, and to the reluctance of both the Republican-controlled Senate and the Democratic-controlled House to go along, fearing the ire of voters or further damage to a state economy characterized by falling employment, income and home values.
However, as this companion article by Mackinac Center Policy Analyst Kenneth M. Braun details, the parties have also been unwilling to agree on downsizing and reforming an expensive state government too large for the shrinking economy that supports it.
On May 25 the system cracked under the pressure. Rather than address the real problems, the Legislature and governor entered a bipartisan deal with the devil to paper it over with debt, shortchanging pension contributions, raiding so-called "restricted funds" and pushing disbursements into the next year. It’s all distasteful, but the first two are the most troubling for the state’s future.
Specifically, the legislature decided to borrow $410 million against future revenue from the 1998 tobacco company lawsuit settlement, and also use another $100 million from a fund that borrows money to provide college loans. In addition, using an accounting gimmick that would probably mean jail time for a private sector pension manager, they will shortchange by $220 million the already inadequate annual contribution to cover state and school retiree benefits promises.
All told, it’s more than $700 million of stealing from the future to sustain excessive spending today.
Detroit’s doing it too, though squabbling over the details. Mayor Kwame Kilpatrick wants to "lease" future revenue from the Detroit-Windsor Tunnel for a $58 million up-front payment. The city council wants to just forthrightly borrow $55 million rather than trim a $1.4 billion budget.
And the Lansing City Council did it too, voting to further shortchange inadequate employee pension funds. Reportedly, the actuarially proper annual contribution is $8 million. The city had planned to contribute $3.1 million, but the council cut that by $500,000 to avoid closing city golf courses the mayor wants to sell.
Actually, the state and almost every local government are burdening the unborn in the same way as the city of Lansing. It’s estimated that the state has accumulated $35 billion in unfunded pension and retiree health care commitments. Municipalities owe billions more.
That governments tend to be sneaky and dishonest is not news. Possessing dangerous powers to coerce and take, they are operated in a flawed, short-sighted and self-interested manner. Recognizing this, our Founding Fathers sought to limit the power and scope of government. But they also expected that representatives "selected for wisdom" would "refine and enlarge the public views," in Madison’s words.
Like all of us, those representatives are immersed from birth in social institutions of intergenerational continuity like the family, which instill a sense of responsibility to the future. Traditionally, these created a climate of concern, guilt and shame that limited stealing from the future.
The vast expansion of the welfare state and the weakening of social institutions have created a different climate. In Washington, for almost 50 years the immediate demands of special interests motivated by a sense of entitlement have overwhelmed the weakening bonds of shame and guilt that restrained previous generations of lawmakers.These latest events suggest that public officials here have discovered creative new ways to free themselves from constitutional balanced budget requirements that create a stabilizing “expectational anchor against the fiscal adventurism of impermanent political coalitions,” in the words of Nobel-winning economist James Buchanan. Facing a distrustful and economically stressed public highly averse to tax increases, and desirous of protecting the privileged status of government employees, the governor, legislators and city council members are establishing dangerous precedents by stealing from the future.
Our Founders responded to taxation without representation with a revolution. How will unrepresented future generations taxed by this era’s failure to constrain government spending and promises respond?
(Note: This article is part of a two-day series discussing recent developments related to the Michigan budget. Part two will be published Tuesday and describes "The Ideas of March" in recent budget negotiations.)
Jack McHugh is a legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.