State Budget Expert Paints Grim Picture

Michigan is the only state in the country experiencing an “incessant deterioration” in economic activity – a problem it can’t expect to “grow out of” with accelerated revenues or solve with spending cuts alone. That was the overriding message from Thomas Clay of the Citizens Research Center. He said it will take both of those options, along with increased taxes, to bring Michigan out of its recession.

Clay worked 31 years for the State of Michigan, including 15 as director of the executive budget office and six as deputy state treasurer. In 1997 he joined the Citizens Research Council, which is Michigan's oldest non-partisan economic and government research think tank. Clay illustrated the dire fiscal crisis before a full house at Reynolds Recital Hall on April 30.

Shortfalls in general fund revenue and the school aid fund total about $1 billion for the current year. Those deficits will be exacerbated by the looming elimination of the Single Business Tax (SBT) in December, Clay said, putting the starting point for the FY2008 budget at about $2.7 billion in the red.

“Some claim we’re a high business tax state, but we’re the exact opposite of that,” he added. “Last year, the Council on State Taxation calculated that there were 31 states that had a higher business tax burden. So we’re below the national average.”

Clay said Gov. Jennifer Granholm has proposed a comprehensive two-year solution that relies primarily on changing the tax structure to replace lost revenue from the SBT, as well as other revenue increases and more than $600 million in spending reductions. The Senate is proposing a year-by-year approach, solving the FY2007 problem entirely with cuts.

In terms of higher education, Clay said only three states – Colorado, Iowa and West Virginia – have increased their support for public higher education more slowly than Michigan in the last 10 years.

“The most recent statistics have us below average for state appropriations per student,” he said. “Michigan ranks 26th. Having been around state finances since the mid ‘60s, I can tell you we used to rank much higher. We’ve slipped relative to other states and we’re below the nationwide average.”

Clay offered the following comparison: Michigan invests about the same amount in its universities, which educate an estimated 386,000 fiscal-year equated students, as it does in the corrections system, which houses 50,000 prisoners.

To see the full presentation, visit Thomas Clay.