Cut State Spending

In fiscal year 1990, actual state spending from state sources (excluding federal revenue) was $12.8 billion. K-12 school aid was $2.99 billion. Excluding school aid, the bottom line was $9.95 billion.

In fiscal year 2000, state spending from state sources (excluding federal revenue) was $23.4 billion. Excluding $10.1 billion in net K-12 school aid funding, which was greatly increased when Proposal A transferred a significant portion of school funding from local property taxes to state revenues, the state spent some $13.6 billion in fiscal year 2000.

Between 1990 and 2000, the cost of living rose 31.7 percent. The state population rose 6.9 percent. If these figures are applied to 1990 spending levels, the result is an estimate of what the 2000 budget would have been had spending stayed constant. The amount is $13.8 billion. This means that, in current dollars, the actual $13.6 billion fiscal year 2000 spending total is some $181 million lower than the 1990 level.

On the surface this looks pretty good. Dig a bit deeper, though, and it appears that an opportunity was lost to make substantive cuts in the size of government. In 1990, Michigan was still recovering from a devastating retrenchment in the auto industry. The state unemployment rate was 8 percent. By 2000, this had fallen to 3.6 percent, well below the national average for the first time in decades. Welfare caseloads dropped from more than 200,000 to less than 100,000. Serious crime incidents fell from 549,344 to 401,398.(8)

Some contend that these improvements were the result of higher state spending: Higher prison spending may mean fewer crimes because career criminals are not free to target citizens while in jail. Lowering welfare caseloads may require more state spending on employment assistance. That's debatable, and in any event taxpayers understandably expected a dividend in the form of substantially lower state spending as economic growth accelerated. Instead, scores of inefficient and outmoded programs were left on "autopilot" as state leaders were unwilling to take on the contentious debates that cuts would entail.

The figures quoted above compare just 1990 to 2000. The year-to-year numbers reveal important details. Earlier in the decade, real spending came down smartly, but that trend reversed in 1997. Using a baseline of 1997 spending levels, real spending rose $157 million in 1998, $539 million in 1999, and $565 million in 2000. That's a grand total of $1.261 billion in spending growth during the economic boom years of the late 1990s-just when the demand for government services should have fallen the most. Instead, Lansing saw higher revenue as an excuse for a spending binge, among other things passing massive pork-laden supplemental spending bills in 1999 and 2000 ($412 million and $612 million).

As a result, state and local governments are still collecting $102.80 for every $1,000 of personal income, down only slightly from $106.10 in 1989. The state tax burden as a percentage of personal income rose from 7.2 to 8.6 percent in the 1990s. (This is overstated by the 1994 Proposal A shift from local to state school funding, but has also edged up since then.) According to the latest statistics from the Tax Foundation, Michigan's overall tax burden is still higher than the national average: 34 states take less from their citizens.

The lesson is that no opportunity should be missed to cut spending, especially in good times. Michigan's economy and state government both would be in better shape to meet today's budget challenges had this been done. In the future, state budget leaders need to redirect their "kinder and gentler" concerns to taxpayers in general, not the special interests that accrete around every spending program.

For more information, read the larger publication:
Keeping Michigan on Track: A Blueprint for a Freer, More Prosperous State