A crisis we can't afford to waste

Maybe some people are getting the message.

True, Michigan still has a flawed budget system that creates a billion dollar-plus structural deficit in the general fund every year.

Forecasts show state tax revenues are — no surprise — below projections, the consequence of our terrible economy made even worse by the nation’s financial crisis.

Experts say that without any money from the federal stimulus package, the fiscal 2010 state budget is facing a $1.4 billion deficit — or worse. For the first time, some of the politicians seem to get it.

More on that shortly. But first — if this bleak scene seems familiar, it is because it is. Two years ago, Michigan was facing a eerily similar situation. Governor Jennifer Granholm then summoned some of the smartest and most experienced folks in the state to serve on a Emergency Financial Advisory Board.

The board was co-chaired by former governors Bill Milliken and Jim Blanchard. “EFAP,” as it came to be called, produced a short, comprehensive and sensible report that called for far-reaching structural changes in government cost and organization.

Among them were recommendations to trim generous pension and fringe benefits enjoyed by state employees, achieve comprehensive health care reform and, encourage local governments and schools to share administrative services.

The report also called for Lansing to get a handle on the skyrocketing costs of our prison system. But to the administration and legislature’s disgrace, the report was quickly forgotten, and nearly all these highly sensible recommendations were ignored.

Now, after two years of vigorously kicking the can down the road, we face much the same situation.

This time, however, there are some encouraging signs of change.

Corrections spending offers a good example. Many groups recognize that our practice of spending $2 billion a year on warehousing felons – more than we spend in our colleges and universities – is a poor idea. Republicans have generally urged changes in prison management, including cutting down millions of dollars in overtime caused by rigid work rules for prison guards and privatizing some functions such as health care and food service. Democrats pointed to prisons bulging at the seams, something that is the product of rigid and tough sentencing guidelines.

Alas. nobody was willing to meet the other side halfway, and so year after year, nothing changed.

Then late last year, an unprecedented coalition of groups – including various chambers of commerce, Detroit Renaissance, the Small Business Association of Michigan, Michigan Municipal League, Michigan Nonprofit Association and The Center for Michigan – issued an open letter to Michigan citizens calling on the governor and legislature to cut “several hundreds of millions from corrections spending” over the next several years. Eyes widened in surprise.

There are signs that the Department of Corrections and legislative leaders may modify the workings of the parole system so as to get inmates out of the system, thereby saving $20 million to $30 million annually. Coalition members, while praising this as a good first step, are calling for more cuts.

On another front, Governor Granholm last week announced “nothing is off the table” when working to balance the budget, including possible major changes in the organization of state government. Lt. Gov. John Cherry let the obvious be known: That Michigan’s governmental structure is based on a 1950’s manufacturing model and needs to be brought into the 21st century.

There’s a long way to go: While the state today has 22,000 fewer workers than it had 30 years ago, it has three times the number of employees working in prisons.

Yet some valuable ideas are already beginning to percolate through Lansing. Kevin Prokop, co-chair of the Legislative Commission on Government Efficiency, said last week that his commission will be proposing $1.5 billion to $3 billion savings when it reports later this spring. And a group including Detroit Renaissance, The Center for Michigan and both the Detroit and Michigan Chambers of Commerce released this week a catalog of reform ideas that both parties in Lansing have largely resisted for years.

Without a doubt, Michigan must cut spending in order to get coming deficits under control. Far more important is the need to resolve the structural deficit that will mount to $10 billion by 2017 if nothing is done. Getting our financial house in order is an essential first step in a long-term program to put Michigan on the right track.

Another important step is to reform the tax system that was patched together with a new Michigan Business Tax two years ago.

The tax itself was at first seen as an improvement on the old Single Business Tax — till lawmakers couldn’t agree on a variety of other ways to raise necessary revenue. So at the last moment in September 2007, a 20% surcharge was slapped on top of the new MBT. That infuriated many businesses, who felt betrayed.

Solutions to structural deficits and tax problems can, and no doubt will, be found. But they are means to an end, not ends in themselves.

What matters is quality of life. And the basic objective must be to find ways to come up with the adequate resources to sustain public investment in the things that will provide lasting competitive advantages for Michigan’s long-term future: Our universities and schools; our natural resources and the climate to nurture a thriving and entrepreneurial economy.

Finally, though it has taken a long time coming, those we elect to lead us seem to be getting the message. This may sound like a cliche, but it just might be that in Michigan’s case, the crisis of 2009 may turn out to be much too valuable a thing to waste.

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Editor’s Note: Former newspaper publisher and University of Michigan Regent Phil Power is a longtime observer of Michigan politics and economics, and a former chairman of the Michigan chapter of the Nature Conservancy. He is also the founder and president of The Center for Michigan, a centrist think-and-do tank which publishes the Michigan Scorecard. The opinions expressed here are Power’s own and do not represent the official views of The Center. He welcomes your comments at ppower@thecenterformichigan.net.