The Granholm Administration: A Review of Year One

Evaluating a state’s chief executive is always easiest after he or she has left office. It’s only then that one is able to examine the full sweep of decisions and policies, and to assess how a governor handled situations and to determine whether or not he or she "grew" while in the job. But decisions made in the first year impact the state’s citizenry no less than those made in the third or fourth, and citizens have a right to expect their investment in a governor to yield positive returns from start to finish.

Michiganians, on balance, have reason to regard Gov. Jennifer Granholm’s administration with respect, though this first year has been checkered with both achievement and disappointment. For reasons that will be apparent in the balance of this essay, we believe the governor has earned the letter grade of "B-minus" for her first year — above average as governors go, but with plenty of room for improvement.

The soft economy and resulting lower-than-expected revenues dominated politics in Lansing this year as officials struggled to make the tough decisions needed to balance income and expenses. As the Mackinac Center pointed out in February, how the governor and Legislature responded would be determined by whether they saw our situation as a crisis to be survived by putting state government ahead of the people who pay for it and live under it, or as an opportunity to reinvent and downsize the Lansing establishment to make it less intrusive and more efficient and responsive.

Twenty years ago, a Democratic governor used a budget deficit as an excuse to dramatically boost taxes — a move which damaged Michigan’s image and competitiveness and led to Republican control of the Senate that remains in place to this day. Gov. Granholm, fortunately, pursued the different and more positive course of putting much of the budget-balancing emphasis on cutting excessive spending and avoiding dramatic, broad-based increases in the most economically destructive taxes.

Nonetheless, more can and should be done. As never before, state programs should be under the microscope, scrutinized in detail for waste, duplication, and their penchant for competing with or crowding out private initiative or currying favor with special interests. Priorities should be continually re-examined, and many more programs need to be eliminated. The state workforce can and should shrink further.

"Reinventing" Government

Gov. Granholm stated early in the year that she wanted to use the yawning budget deficit as an opportunity to "reinvent" government. That hasn’t really happened yet, as spending for most programs has been simply shaved or held steady (ready to grow again when revenues rise), and few have been actually eliminated. If Gov. Granholm is serious about reinventing government, then the rest of her term will have to focus on limiting Lansing’s reach and strengthening the capacity of the private sector to fill the void.

It has been refreshing that while many other states have responded to their budget deficits this year with general tax increases, Michigan has not done so. Both Gov. Granholm and certain members of the Republican-controlled Legislature deserve credit for that. They have read the political tea leaves and have sensed rightly that Michiganians do not believe they are undergoverned. Perhaps the governor and Legislature also recognize that state government is not the only entity in Michigan that’s having a difficult time. Hundreds of thousands of Michigan families, charities, and businesses are, too. Indeed, it’s precisely because those families and businesses are in trouble that the state is in trouble. We should never forget that the state has nothing to spend on anybody except what it first takes from somebody. The state’s first priority ought to be the fiscal health of the hard-working people who, as taxpayers, have to pay the state’s bills before they pay their own. When they are not unduly burdened by taxes, they have less need for assistance themselves and more ability to help those who do need assistance. (For 77 policy ideas for strengthening Michigan, see www.mackinac.org/4198.)

All across Michigan, citizens are coping with the lingering challenges of an ailing economy only now showing signs of an upswing. And they are coping by re-examining their spending. They are re-prioritizing, and doing without some things they’d love to have. They are spending less, and taking fewer and shorter vacations closer to home. They are stretching further the dollars they have, and generally exerting the discipline necessary to weather the storm. Why should state government not do the same? In fact, why wouldn’t we welcome this as an opportunity for officials to demonstrate the discipline and prudence we expect from them? Better than most of the country’s governors, Gov. Granholm has understood this and made decisions accordingly and appropriately, with a few exceptions.

Michigan vs. Ohio and Washington, D.C.

Indeed, the Granholm administration’s restraint on taxes and spending stands in stark contrast to what some others are doing elsewhere. In neighboring Ohio, Republican Gov. Bob Taft, after ballooning state spending in his first term, is busy jacking up taxes in his second. At the federal level, President George Bush has vetoed nothing and pushed for massive hikes in domestic, non-defense spending at more than double the rate the Clinton administration delivered.

When Gov. Granholm refused funding in her 2004 budget for a ridiculous program that gives away fruit and vegetables to visitors at the state’s roadside welcome centers in southwest Michigan, the Legislature tried to keep the program alive. The governor had to line-item veto it. She also wisely counseled against a costly program to provide laptop computers to sixth graders, an ill-conceived boondoggle originating in the House.

While we applaud many aspects of Gov. Granholm’s handling of the state budget deficit this year, we know that a new and important test on that front may be coming soon. What will the governor do when the nascent economic turnaround begins to yield higher revenues for Lansing? Will all the talk about reinventing government give way to pleasing traditional constituencies, throwing money at one perceived problem or another, expanding state programs that the citizenry would do better without? Will she set state government once again on the course of more spending, thereby making it all the more difficult for Michigan to weather the next downturn, whenever it comes? This remains to be seen.

Meanwhile, Michigan families and businesses are shouldering a tax burden that remains above the average among the 50 states. What we get in exchange is a mixed bag. We get decent roads and good schools in some areas. But more often than not we get excessive construction costs, inefficient bureaucracies, and schools that parents and children are desperate to escape.

Due in large measure to rising property tax rates and assessments, state and local taxes actually have risen since 1993, the year before Proposal A passed, from 10.7 percent of total personal income in Michigan to 10.8 percent in 2000, the most recent year for which numbers are available. The state’s Single Business Tax exacts a "take" that may represent a larger portion of business income than that of any corporate income tax in the other 49 states. Even a May 2002 report from the Michigan Economic Development Corporation showed that Michigan ranks 16th among 17 peer states in business costs (meaning that 15 of the 17 states with whom we compete have lower costs). Michigan simply must make more progress in reducing the financial burdens it imposes on its workers, families and businesses. Because we live in a competitive and highly mobile world, we cannot afford to do otherwise.

Strengthening Civil Society

Gov. Granholm should indeed make good on her pledge to reinvent state government. She should use her next three years to make a huge difference in what state government does — to regroup, stick to the basics and do them well, and trust the people. This is a time to strengthen civil society — that network of private institutions, community associations, schools and religious organizations, families and friends and coworkers, and all their voluntary, from-the-heart interactions. There is room for politics in our lives, but most of what enriches and defines us as a progressive and compassionate people emanates from other, deeper sources such as family, community, enterprise, church, and charity.

As government grows, civil society shrinks. When government moves beyond its core functions, it does not create things out of thin air so much as it displaces what a free people would otherwise choose to do. And it ends up performing too many tasks too poorly, including the ones we absolutely must rely upon for the sake of safety and basic, essential services. If this is a radical notion, then America was founded on radical notions.

How can we restore and strengthen the attitudes and institutions that formed the foundation of American civil society? Certainly, we can never do so by blindly embracing government programs that crowd out private initiative or by impugning the motives of those who raise legitimate questions about those government programs. We cannot restore civil society if we have no confidence in ourselves and believe that politicians and bureaucrats have a monopoly on compassion. We’ll never get there if we tax away large portions of people’s earnings and then, like children who never learned their arithmetic, complain that people can’t afford to meet some of their needs.

We can advance civil society only when people get serious about replacing government programs with private initiative, when discussion gets beyond such infantile reasoning as, "If you want to cut government spending for schools, you must be opposed to education." Civil society blossoms when we understand that "hiring" the expensive middleman of government is not the best way to "do good"; that it often breaks the connection between people in need and caring people who want to help. We make progress when the "government is the answer" cure is recognized for what it is: false charity, a cop-out, a simplistic non-answer that doesn’t get the job done well, even though it allows advocates to believe they’ve done the right thing.

The Good and the Not So Good

While the state budget deficit subsumed all other issues in importance in 2003, it was not the only issue. Nor is it the only factor in our overall evaluation of Gov. Granholm’s first year. There are two sides to that ledger and below we summarize the pluses and minuses of the governor and her administration’s policies:

On the Plus Side:

1. On a personal level, Gov. Granholm projects a positive, energetic image for Michigan. She has kept her ear to the ground and been accessible and receptive to most segments of the public.

2. The governor has generally chosen competent people to head departments, eschewing some of the more radical corners of her party. To date, from all appearances, they have run a clean and open administration.

3. As explained above, the governor has opted to balance the state budget without a large, broad-based tax hike, though the budget deal she struck with the Legislature providing for a six-month "pause" in a scheduled income tax rate cut is problematic. Some of the fee increases her administration advocated were reasonable and responsible because the fees had fallen behind inflation or were not covering the costs of providing services; others were actually disguised tax hikes and should not be counted in the "plus" column.

4. Gov. Granholm has questioned the sacred cow of public education funding by proposing modest reductions for both K-12 and higher education. Real, after-inflation spending on education has soared in Michigan since passage of Proposal A nearly a decade ago: Operating expenses were up by 13 percent between 1994 and 2002 while capital spending has more than doubled in the same time period. With the corrosive and self-serving influence of the Michigan Education Association union strong within the Democratic Party, a Democratic governor might have been expected to make education immune to spending reductions. That has not happened. If the result is that schools learn to live within the means of the taxpayers who fund them, it will be positive for Michigan.

5. The governor set an early and personal example when she announced more than $4 million in executive branch budget cuts within her first month in office. She did so with this declaration: "Michigan government has been spending beyond its means for too long. The account is overdrawn; we’ve got to quit writing checks whenever we can." She reduced the state’s motor fleet, cut employees’ cell phone usage, eliminated color copying, powered down state buildings, ordered a hiring freeze for most unfilled positions in state government, paused management bonuses and travel payments, and refused a pay increase for herself.

6. The governor tackled state employee unions and successfully secured more than $200 million in wage and benefit concessions, an entirely appropriate and necessary move in light of already generous state compensation and a recession economy.

7. Gov. Granholm moved authority over the Michigan Educational Assessment Program (MEAP) from the Department of Treasury to the Department of Education, and indicated she would positively consider scrapping MEAP altogether, in favor of one or more of the several "off-the-shelf" commercial tests already on the market. That would save Michigan millions of dollars, reduce the influence of bureaucracy and politics in the testing of our state’s students, and provide an opportunity to reduce the size and payroll at the Department of Education. See www.mackinac.org/4382.

8. The governor showed courage in cutting adult education, a program with a history of scandal that should have been eliminated back when Gov. Engler reduced its funding from $200 million to $80 million.

On the Minus Side:

1. Gov. Granholm’s spending reductions have not done much to reinvent government because for the most part, she has pared some programs back but has not eliminated or redesigned very many. For starters, she should muster the courage to whack away at corporate welfare at the Michigan Economic Development Corporation, sell the state fairgrounds, and get rid of special interest legislation that unions have promoted and which cost state and local governments and schools hundreds of millions of dollars unnecessarily. (Last February, the Mackinac Center for Public Policy released a comprehensive analysis of the budget and recommended far more in spending reductions than needed to balance the budget. See www.mackinac.org/5046.)

   Michigan’s Prevailing Wage Act, for example, annually forces schools to spend upwards of $150 million more than is necessary for construction and renovation. It makes little sense to bemoan cuts in school spending and ignore this mammoth waste. See www.mackinac.org/2380.

2. The governor wanted to close tax "loopholes" but some of her proposals upon closer inspection would actually have constituted new taxes on business. One would have enabled the state to impose taxes on out-of-state business with local affiliates; another would have increased the real estate transfer tax; yet another would have foisted the onerous Single Business Tax on the oil and gas industry, which already pays a special Severance Tax in lieu of other taxes. The Legislature wisely blocked these ill-advised tax hikes.

3. Gov. Granholm struck a deal with the legislature to pause the scheduled one-tenth of one percent reduction in the state income tax (from 4 percent to 3.9 percent). The cut is to be delayed by six months. Honest people can debate whether pausing a scheduled cut constitutes a tax hike or not. But in our view, when the government takes more money from you than it promised it would take from you, that’s a tax hike. Such a move will raise doubts about whether Michigan can muster the political will to restore our state’s competitiveness, doubts that fortunately will be partially allayed by another, helpful part of the budget deal: future reductions in the Single Business Tax. In any event, the Governor should have pressed for additional spending reductions so that the income tax cut could have taken place on schedule.

4. Education reform, desperately needed by the tens of thousands of Michigan children who are victims of failing public schools, represents easily the greatest disappointment of the governor’s first year. The administration’s performance in this critical area has been marked by incompetence, indecision and a singular lack of initiatives that would genuinely address the problem. Threatening charter schools with new regulation in the name of "accountability" and standing in the way of the expansion of the charter school option for parents has hurt the causes of parental choice and quality education. There have been no important administration initiatives that would improve education through greater choice, competition, and efficiency.

5. Without a doubt, the governor’s handling of a $200 million proposal by Plymouth philanthropist Robert Thompson to build 15 new and innovative charter schools in Detroit was her biggest leadership failure of the year. The children of Detroit are the losers because she did not stand up to the mayor and the school unions. It was a shameful spectacle of a political regime bungling a generous private offer to help where help is needed most.

6. Gov. Granholm has exhibited a penchant for policy-making-by-commission as opposed to direct leadership, and it sometimes comes across as a lack of personal substance and philosophy or even a desire to dodge tough decisions. We urge her to form fewer task forces for such nebulous concepts as "cool cities" and tackle head-on those issues that require a governor’s direction. Commissions, gimmicks and catch phrases are not good substitutes for sound, tangible policy.

7. The governor is an enthusiastic proponent of so-called "smart growth" and, as such, is prone to hyperbole. "We are gobbling up land at a rate that our population won’t support, the land base won’t maintain and that we can no longer tolerate," she said last summer. In reality, less than 10 percent of Michigan’s total land area is actually developed.

8. Gov. Granholm set the stage earlier this year for new land-use regulation by convening a panel to recommend state action to curb urban sprawl. The agenda of the Michigan Land Use Leadership Council was tightly controlled by advocates of expanded land-use regulation. For example, the council was charged with developing proposals to achieve "sustainability" and "equitable distribution of benefits," which effectively demand restrictions on private property rights. Moreover, diverse opinions weren’t as welcomed as some council members had hoped. The governor should be more concerned about undue assaults on property rights and more interested in non-emotional, market-friendly perspectives on land-use issues.

Gov. Jennifer Granholm can easily fix the shortcomings and build on the successes of her first year. She still enjoys a honeymoon of sorts with most Michiganians. We all want to see her be a good chief executive, moving Michigan forward for the good of all its citizens.

For 2003, Gov. Granholm earns a "B-" grade for overall performance. We wish her the very best for 2004 and sincerely hope we will be able to assign her an "A" at mid-term.

Lawrence W. Reed is president of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan. For in-depth analysis of Michigan issues and to keep an eye on legislative action in Lansing, visit the Center's two web sites at www.mackinac.org and www.MichiganVotes.org.