Snyder Budget Grades (from Americans For Prosperity Michigan)

MEMORANDUM

  

DATE:      February 17, 2011

TO:           Americans For Prosperity-Michigan members

FROM:    Scott Hagerstrom, State Director, Americans For Prosperity-Michigan

RE:           Initial analysis of Governor Snyder's proposed budget

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Michigan Governor Rick Snyder presented his proposed budget today for the 2012 Fiscal year that begins Oct. 1, 2011. The total proposed spending for 2012 is $45.9 billion according to his documents. How does this compare to past years:

2011 - $47.04 billion

2010 - $45.6 billion

2007 - $41.87 billion

Governor Snyder’s budget does contain real cuts. He represents the 2012 budget as having a $1.26 billion gap “due to the end of federal recovery assistance, Medicaid and Family Independence Program caseload growth and other unavoidable spending pressures.”

The budget is $1.1 billion smaller than current year spending and $300 million more than 2010.

Tax Restructuring

The centerpiece of Gov. Snyder’s plan is the elimination of the MBT and replacement with a 6% tax on C Corporations.  All other business entities (LLC, Partnerships, S Corps) will not have to pay any business tax but will pay the 4.25 percent income tax. It will eliminate 95,000 businesses from having to file for any Michigan business tax.

This is a $1.8 billion tax cut. 

The Governor does propose tax increases -- what he calls "eliminating tax expenditures" -- that will make his budget “essentially revenue neutral” in 2013 after a net tax cut of $254 million for 2012 (Snyder’s actual numbers show a tax increase of $32 million in 2013).

The Governor’s income tax changes will net $820.9 million in 2012 and $1.86 billion in 2013.  The proposal is only scored for 2 years out so we do not know the net increase or decrease in tax revenues from this change beyond 2013.

Income tax changes include the taxing of private and public pensions; the elimination of a majority of tax credits and deductions; freezing the scheduled income tax reduction to 3.9 percent at 4.25 percent; and the phase out of personal deductions at the $75,000 and $150,000 level.

In 2009 the state income tax brought in approximately $6 billion.  With a net increase of $1.86 billion, Governor Snyder’s proposal will increase state income tax collections by about 28 percent.

The primary increase in income tax comes from taxing public and private pension income.  It has been settled law in Michigan that the state constitution prohibits the taxation of public pensions.  Because of this in 1994 Gov. Engler signed into law a $45,000 and $90,000 exemption on private pension income.

Notable Budget Changes

• Eliminates statutory revenue sharing and puts in its place a $200 million fund that rewards local governments that adopt best management practices
• Creates a $5 million fund to promote Information Technology internal incentives
• Holds community colleges harmless from cuts
• Cuts Higher Education by 15 percent
• Places Universities and Community College funding in the School Aid Fund for the first time
• Cuts K-12 per pupil grant by $470 per pupil
• Cuts Intermediate School District (ISDs) operations by $5 million
• Yet to be determined state employee concessions of $180 million
• $200 million payment towards the states $14.5 billion unfunded retiree health care benefits
• Eliminates $300 million annual Earned Income Tax Credit

Missed Opportunities?

The Mackinac Center and other organizations have suggested reforms and cuts that would save hundreds, if not, billions of dollars that did not make it into this proposal.  If some of these were to be adopted no income tax increases would be necessary.

These include:

• Prevailing Wage adoption $269 million in 2007 dollars
• Nolan Finley suggestion for the elimination of health care benefits for retired state employees - $982 million
• Pension, health care, and fringe benefits of state employees equal private sector - $5.7 billion ($708 state government; $2.45 billion public schools; $844 million colleges & universities; and $1.73 billion in local governments)
• Require schools to contract out transportation, food and custodial services at a savings of $300 million
• End annual 21^st  Century Fund appropriation - $75 million
• Devolve state police road patrols to county sheriff departments - $65 million
• Make incarceration rates equal to surrounding states - $400 million
• Medicaid coverage restrictions and other cuts - $100 million
• Move school elections to the fall ballot - $10 million
• Eliminate legislator retirement healthcare - $3.5 million
• Repeal PA 312 – Gov. Granholm 2006 panel said PA 312 raised cost of local govt. by 3 -5 percent
• Take cap off charter schools – On average charter schools educate a child for $2,000 less than traditional public schools

Implement full on-line in real time checkbook transparency for state government and local unit including public schools, community colleges and universities.  This will enable a full review by the public of all current expenditures and assist with identification of inefficient or wasteful spending.

Bottom Line

Is this budget about state government or about returning Michigan to a position of economic prowess? In 1965 Michigan was 9^th in per capita personal income; in 2009 MI was 37^th; and as of the 2^nd quarter of 2010 Michigan dropped to 39^th.  Michigan lost 54,000 residents in the past 10 years and nearly 1 million jobs. Michigan is competing with seven states that have no income tax and 22 states that are Right to Work.

Grade of Budget Proposal

Budget Cuts – Incomplete

Business Tax Cut – A

Income Tax Changes – F

 

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