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Snyder has changed how Michigan spends taxpayer dollars

By Lindsay VanHulle/Bridge Magazine • Feb 15, 2018 at 4:30 PM

A lot has been made about Gov. Rick Snyder’s decision early in his first term to shift more of Michigan’s tax burden from business to individual residents.

But the accountant-governor (along with fellow Republican lawmakers) has transformed how taxpayer money is spent in other significant ways since he took office in 2011, with a few surprises. During Snyder’s tenure:

The state’s prison population, and prison spending, have gone down.

Even though crime dropped over this period, the budget for Michigan State Police has risen sharply.

And while Lansing Republicans call for smaller government at every turn, that mantra has not applied to the governor’s and Legislature’s own budgets, which have increased since 2011.

As he unveils his final budget, a Bridge Magazine study of seven years of budget data under the term-limited Snyder shows Michigan is spending more money across nearly all state departments than at the beginning of his tenure. That’s largely a function of a steadily improving economy and corresponding increases in tax revenue.

Yet the state’s general fund, when adjusted for inflation, remains drastically below 2000-01 levels, when Michigan began to reckon with nearly a decade of economic malaise. Universities, for instance, saw funding cuts for years, including under Snyder’s predecessor, then-Gov. Jennifer Granholm. And under Snyder, higher education still receives less in total state spending than when Granholm left office at the end of 2010.

Snyder arrived in Lansing as Michigan was clawing out of an economic hole. He’ll leave next January having presided over an economy that has grown for eight straight years, and having imposed fiscal reforms that paid down debt and dramatically rebuilt the state’s rainy-day fund.

In his final spending proposal, Snyder plans to seek more money for roads and public schools, but there are headwinds. The chairman of the Senate’s powerful Republican-led appropriations committee, Sen. Dave Hildenbrand, told Bridge that Snyder’s proposal to accelerate state road funding has to be balanced against the expected loss of revenue from lawmakers’ plan to raise the state income tax exemption.

Here are six ways, large and small, that state budget priorities have changed since Snyder took office:

Fewer prisoners, less prison spending

Michigan spends close to $2 billion a year on its prison system. That’s about 19 percent of the state general fund. That’s a lot of money from the state budget to house prisoners; money that isn’t going to things like public schools, police troopers or road repairs.

When adjusted for inflation, Michigan’s corrections spending dipped by 5 percent from 2012 to 2018, according to state data and Bridge calculations.

Snyder and lawmakers have looked at the state corrections budget for years in an effort to control costs as the number of inmates has steadily fallen — from a high of 51,454 in 2006 to 41,122 in 2016, according to state data.

The Michigan Department of Corrections says the prison population dipped below 40,000 in 2017 for the first time in two decades.

Snyder has signed legislation reforming the parole system to reduce the chances of repeat offenders winding back up behind bars, and improving specialized courts that serve offenders with drug or mental health issues to focus on treatment rather than incarceration.

His administration also has invested in prisoner education programs and vocational training, including two dedicated workforce training programs in Ionia and Jackson prisons, in hopes that inmates can more successfully integrate back into society when released.

The state (under Snyder and, before him, Jennifer Granholm) has closed or merged 26 prison facilities since 2005, the department said. That has saved close to $400 million. A 1,280-bed prison in Muskegon is set to close in March, saving $18.8 million.

“Through programs such as Vocational Village, Michigan is now a model state for prison as a place to rehabilitate residents rather than just them lock up and hope for the best when they are released,” Snyder spokeswoman Anna Heaton said via email. “The Governor would like to see another Vocational Village facility in the works before the end of his term.”

Less crime, but more funding for State Police

The budget for Michigan State Police rose 37 percent over Gov. Rick Snyder’s first seven budgets, when factoring in inflation. The spike comes even as fewer people are going to prison, and violent crime is waning.

Snyder spokeswoman Anna Heaton and state Sen. Dave Hildenbrand, R-Lowell, said that’s partly due to an increase in the number of state troopers. Heaton said 60 percent of state troopers currently on the force have been hired since Snyder took office in 2011. That includes in cities that have partnered with the state for public safety, she said.

Hildenbrand said the Legislature has been interested in building up the State Police after staffing fell during the mid-2000s. State data show the number of active classified employees at the State Police went from a low of 2,360 in 2012 to 2,893 by 2017, the highest point since at least 2007.

That includes more troopers, more officers enforcing traffic laws for commercial vehicles, and more cyber crime analysts and forensic scientists, spokeswoman Shanon Banner said. Added funding also allowed State Police to process more sexual assault kits.

“We have found that more (spending) in law enforcement means a better effort in prevention of crime,” Hildenbrand said. “A lot of us, including me, believe that a better, stronger public safety (and) law enforcement side equates to a safer state and less people in prison, ultimately.”

Budgets for executive branch, Legislature grow

GOP lawmakers have espoused their belief in reining in government spending and offering tax cuts to residents for years.

Yet budgets for the Legislature and the governor’s office increased significantly during Gov. Rick Snyder’s time in office. Granted, their budgets are a drop in the ocean of overall state spending, but they raise questions when, as a Bridge analysis found, those increases exceeded 40 percent from 2012 to 2018, when adjusted for inflation.

Anna Heaton, the governor’s spokesperson, said much of the increase stems from some government offices and programs being moved into the executive branch’s budget.

For example, the Office of Urban Initiatives, which promotes economic development and job growth and has staffers in Detroit, Flint, Grand Rapids and Kalamazoo, moved to the executive office budget from the Michigan Department of Technology, Management and Budget in 2017.

In addition, she said, the Michigan Civil Service Commission approved a 3 percent pay raise for all state employees, including executive branch employees, in October 2017, the start of the current fiscal year.

The Legislative increase is primarily due to salary increases for legislative staffers, said Sen. Dave Hildenbrand, R-Lowell, chairman of the Senate's appropriations committee.

Lawmakers’ salaries are set at $71,685. A request for salary history of Senate staffers was not returned by deadline.

House Appropriations Chair Laura Cox, R-Livonia, did not respond to an interview request from Bridge.

“The key thing to point out is that it’s not the legislators, it’s the people who support the legislative system,” Hildenbrand said, adding that staffers went without raises in lean years. “It hasn’t come in exchange for (or) at the cost of any other important program. It hasn’t resulted in less in K-12 (education) or less in infrastructure or less in public safety.”

Business taxes fall, burden shifts to residents

Shortly after taking office in 2011, Gov. Rick Snyder signed legislation that replaced the state’s unpopular business tax with a flat new corporate tax. He eliminated most tax credits, though payouts of now-defunct Michigan Economic Growth Authority (MEGA) credits given to companies to create and save jobs during the recession will continue to strain the state’s budget for more than a decade.

Those business tax changes have altered the state’s revenue picture.

When adjusted for inflation, Michigan collected 5 percent less in overall taxes in 2016 than it did in 2008, during the Great Recession, according to a Bridge analysis of state data. That equates to more than $1.6 billion in lost revenue.

That decrease is led by more than $2 billion in business tax cuts over the same period, when adjusted for inflation. Property taxes, which fund public schools, fell by nearly $449 million, the second-largest decline in dollar figures. The new corporate tax is also volatile and depends on corporate profits and other economic factors.

The result is that Michigan now relies more heavily on individual taxes from residents. Nearly 70 percent of the revenue in the general fund budget this year comes from income taxes, up from 54.6 percent in the 2012 fiscal year.

Business taxes, meanwhile, are an estimated 1.9 percent of the state revenue pot this year, considerably less than 12.4 percent in 2012.

One potential problem with that shift to personal income taxes is that they, too, are vulnerable to swings in the economy. Should another downturn hit and unemployment begin to rise, income tax revenue will fall, creating more strain on general fund resources.

John Nixon, Snyder’s first budget director from 2011 until March 2014, said the motivation in reforming how companies pay taxes in Michigan wasn’t strictly to give tax breaks to businesses. Michigan desperately needed to create fiscal stability if it wanted to be able to attract new businesses, he said.

Simply put, he said, the old Michigan Business Tax was not competitive.

That’s not an argument that’s gained much traction with labor and other critics, who complain that businesses aren’t paying their fair share of taxes.

“I understand the labor argument,” said Nixon, now vice president for administrative services at the University of Utah, “because without the labor you don’t have the business, But without the business, you don’t have the labor.”

More spending, but Michigan government remains small

Majority Republican legislators in Michigan often cite their belief in limited government as a rationale for tax or funding cuts. But Michigan government is at once larger than when Gov. Rick Snyder took office, and small compared to how large it has been historically.

When adjusted for inflation, total state spending from all state resources — including taxes and other revenue sources, such as fees — is up about $2.8 billion, or 10 percent, this fiscal year compared to 2012, when Snyder implemented his first budget, a Bridge analysis shows. Some of that is due to economic tailwinds for much of the last decade, while a new road-funding package passed in 2015 has already started contributing new gas tax and vehicle registration revenue to pay for upkeep.

But the numbers belie context: Snyder took over as governor as the state was struggling with the effects of the Great Recession; and an improving economy has contributed to improving revenue forecasts.

And the state budget is still well below where it was at the turn of the millennium. The nonpartisan House Fiscal Agency estimated in August that state general fund revenue this year would be nearly 29 percent below where it was in the 2000 fiscal year when adjusted for inflation. (The chart headline below, from the House Fiscal Agency, refers to general fund revenue)

Also worth noting: Michigan’s combined state and local government workforce, of roughly 50,000, is second-smallest in the nation given our population.

The Michigan Constitution also limits how much money the state can take in and spend each year, a calculation that’s based on residents’ income. Michigan voters approved that limit in the 1970s, in what has come to be known as the Headlee Amendment.

Since 2000, total state revenue has fallen well below that limit — it’s estimated to be as much as $10.1 billion below in the 2018-19 fiscal year, the budget of which Snyder will present Wednesday.

Put another way: Michigan policymakers have the ability, if they wanted, to raise and spend $10 billion more than they are today under Headlee.

One reason for the Headlee gap is a weakening state economy during the 2000s, even before the 2007-09 recession, according to the Citizens Research Council. Some of it is due to tax cuts, exemptions and other constraints that have been written into the tax code.

Agriculture spending has spiked 64 percent since 2011

Michigan’s agriculture spending is a tiny piece of the total state budget, at about $103 million in total state spending, state data show. Yet agriculture spending has spiked by 64 percent from Snyder’s first budget to the current year’s budget, when adjusted for inflation.

Agriculture’s share of the general fund more than doubled since 2012.

Michigan is second only to California when it comes to the diversity of agricultural products grown here, and the sector is a big part of the state’s economy.

A document prepared by the Senate Fiscal Agency and provided by state Sen. Dave Hildenbrand shows the Michigan Department of Agriculture and Rural Development increased full-time employees by roughly 61, to nearly 500 workers, and invested in programs such as agriculture research, food and milk safety and animal disease prevention. The department also offers rural development grants that can help with expansion and worker training in such industries as food and agriculture, mining and forestry.

“Agriculture ‒ just like one of our other biggest industries, manufacturing ‒ is continually changing and Michigan needs to stay ahead of the curve,” Snyder spokeswoman Anna Heaton said via email.

Hildenbrand, chair of the Senate's appropriation's committee, offered another explanation: There are numerous state lawmakers with backgrounds in agriculture.

“It’s been something that a number of legislators have been fighting for just because of their background in agriculture, and they recognize it as such an important industry in our state,” he said.

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