This article originally appeared in Crain’s Detroit Business August 22, 2023.

Michigan's budget is unsustainable. The large increases in the budget can't continue, because state spending has grown more than people's ability to pay. And lawmakers have approved a budget that spends more money than they are entitled to receive. The state government, its taxpayers and everyone who depends on it would be in a better position if lawmakers practiced a little restraint.

James Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.

The state constitution already has rules that encourage elected officials to practice restraint in their spending habits. Lawmakers must balance the state's budget each year. Legislators interpret that to mean that they get to spend as much as they expect to receive in revenue plus anything they've saved in the past. It prevents the state from getting deep into debt like the federal government, but legislators ought to do more than balance the budget.

They can still ensure that growth in the budget is steady and certain by adopting a growth target rather than spending what is available.

Legislators have already blown through most of the state's savings, and the recent jump in tax revenue is over. Administrators expect just a 3.4% increase in revenue for the following fiscal year, just above expected inflation. This is far less than the trends that have led lawmakers to spend 16% more than inflation since the pandemic began.

Legislators had to dip into savings this year to meet their priorities. Lawmakers started this year off with $9 billion in surplus funds due to spending restraint from last year. All of that is gone due to the multiple bouts of business subsidies, the tax changes, and the pork-laden budget.

Legislators will adjust. Every budget is about setting priorities for limited revenue. State officials have had more money to spend, but the ramp-up in growth over the past few years is unlikely to continue.

That's only one sense of sustainability. Another is more important.

State spending has increased from $34.4 billion before the pandemic to $47.0 billion budgeted for next year. That's roughly $4,000 to $4,700 per person adjusting for inflation, a 16% increase.

Maybe this would be sustainable if Michigan's residents were doing 16% better, but it's unclear that they are. The average income of Michigan residents increased just 1% when adjusted for inflation since 2019. The state still hasn't recovered all of the jobs lost during the pandemic.

State officials based their budget on the assumption that the income tax rate is going to increase next year. Gov. Whitmer and Democrats in the Legislature fought hard to preclude a tax trigger that lowered the income tax rate from 4.25% to 4.05% this year. Many residents might not have noticed this small tax cut, though, because Whitmer has refused to update state withholding tables to let people collect more from their paychecks. She also argued that the income tax pops back up to 4.25% next year. Attorney General Nessel explained the rationale in an opinion.

It is an inappropriate interpretation of a clear tax-cut statute. Even if legislators believe that Whitmer and Nessel are correct in their reading of the law, they should practice some prudence and not budget under the assumption that they are.

Perhaps these three levels of unsustainability would be worthwhile if the increases in spending produced good results for Michigan residents. Have residents gotten 16% better government for their money?

Roads are further from the point where they get repaired faster than they fall apart. School test scores are down even with added spending and fewer students. Universities teach fewer students and award fewer degrees.

It is hard to know what residents got in return for the spending increases. Elected officials run away from measures of the quality of government services. They tend to boast about increasing inputs rather than about the quality of outcomes.

Lawmakers should practice restraint and try to keep state spending to levels that residents can clearly afford. They should try to peg the growth of the state government to the proportion increases in the state's population plus the growth of inflation. Staying below this level ensures that residents can keep affording their own state government.

Extra restraint frees up money for unforeseen situations. Savings can be used to pay down debts, which reduces risk and saves taxpayers over the long term. It also ensures that taxpayers can keep up with taxes.

Restraint would serve residents better than a thrice-unsustainable budget.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.