Put State’s Budget Surplus to Work

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John Austin

Put State’s Budget Surplus to Work

January 13, 2012

The New Year brought Michigan good news: U of M and MSU won bowl games; Michigan’s manufacturing economy is leading the nation’s economic rebound; and, lo and behold, a state budget surplus emerges — realistically in the $400 million range. It is important, as the governor polishes his State of the State Address and the legislature reconvenes, to put the money where it matters most to drive Michigan’s economy.

I applaud Governor Snyder for leading tough changes in 2011 to honestly stabilize Michigan’s fiscal situation, simplify the tax structure, and drive reforms in state and local government services. And Michigan probably needs to go an extra mile, given our historic reputation as a high-cost state (no longer accurate) to signal that we are competitive.

But for long-term job creation, Michigan needs more than a “business-friendly” tax and regulatory environment. We need strategic investment in Michigan’s assets that are the foundations of economic growth, and that the private sector doesn’t pay for: well educated people; strong, affordable universities driving innovation; clean lakes and rivers; modern transportation and communications infrastructure; cities with vibrant arts, culture, parks and libraries.

After years of an eroding tax base, these Michigan assets are severely degraded, inhibiting the state’s ability to promote itself abroad or keep our “home-grown” talent. Witness the $1+ billion transportation funding deficit named by Gov. Snyder in November, and recent press accounts showing Michigan’s great public universities being priced out of reach.

At a New Year’s party I was talking with a friend, a mergers and acquisitions financier from Detroit. She was bemoaning the decision (then just announced, now reversed, sort of) not to build Detroit’s light-rail line on Woodward, keeping Detroit once again from joining the party of modern global cities.

She said: “Why would Lydia (referencing my college-age daughter) want to stay here, when we can’t even find a way to pay for that?” Coming from her, a successful international businesswoman, unsolicited, was a powerful reminder we need assets like transit that lead and create economic development.

Michigan’s inability to support economy-shaping public goods is a function of both diminished tax receipts due to Michigan’s down-economy and an eroded tax base. We’ve lowered the personal income tax rate for 12 years, we’re now $8 billion below the Headlee tax limit, and we aren’t applying state sales tax to the growing two-thirds of our economy (services). It’s no wonder we can’t pay for roads and bridges, schools and teachers!

Leaders in other states are creatively tackling similar deficits. They’re passing dedicated revenue streams: $2.3 billion for university-led innovation under Ohio’s 3rd Frontier program, which has been evaluated to show a $10-1 ROI; Minnesota’s $6 billion over 25 years for water, parks and arts, through a Clean Water, Land, and Legacy Amendment. In California, unlikely bedfellows, including Google’s Eric Schmidt, Eli Broad, Condoleezza Rice and George Schultz, are part of the “Think Long Committee” behind a $10 billion ballot initiative for public investment. A similar effort, the “Bright Colorado” Initiative, would put new taxes to work specifically for education in that state.

Now we suddenly have a budget surplus in Michigan. In deciding what to do with it, we must remember: money talks. Budgets reflect our state’s priorities. When we spend more on prisons than universities, when we cut K-12 schools and water clean-up, while lowering business taxes, it speaks to what we do and don’t value.

To be sure, put a good chunk of this one-time budget surplus into the rainy day fund (it will rain again). But take the bulk of it, and put it into visible down-payments on important priorities for the future. At a minimum, Governor, I hope you will send a clear signal that your talk of providing help for teachers, rebuilding cities, keeping young people in Michigan and protecting our great universities was more than just that, talk.

To that end here are a few specific suggestions — informed by what competitors are doing — of where to invest this money:

Education:

$25 million for 10,000 Master Teachers (like North Carolina, which has 18,000 National Board Certified Master Teachers in classrooms, to Michigan’s 381)

$10 million for dual-enrollment high school early college credit taking (like Utah, which pays the bill for “Any Time, Any Place, Any Pace Learning”)

$10 million for early childhood investment, a commitment that just helped nine states, including (gulp) Ohio, win $500 million in federal Race-to-the-Top funds that Michigan lost out on (again).

Innovation:

$25 million state match for competitive R&D won by our universities (like Indiana, which rewards “success” with success)

$25 million for University-Innovation Centers, supporting advanced manufacturing and commercialization of new technologies (like (gulp) Ohio’s Edison Centers)

$25 million for performance-based bonuses for colleges that deliver improved outcomes (like over a dozen states, including (gulp) Ohio, that today have more affordable universities than Michigan).

Infrastructure:

$50 million into the state infrastructure bank for strategic transportation funding (like California’s I-Bank and dozens of other states’ programs), for Detroit light rail and other strategic priorities.

Cities:

$25 million for Arts and Culture Funding (like Michigan invested when we were a national leader)

$40 million to jump-start urban redevelopment in core cities around anchor institutions like hospitals and universities (as Boston and New York City have done).

Outdoors:

$15 million more for the “Pure Michigan” campaign (no one else has “Pure Michigan”)

$25 million for water cleanup (like Minnesota), to make “Pure Michigan” actually true!

There, we’ve just smartly invested $275 million…and we don’t just feel better, we will be better at creating jobs and growing incomes.

All evidence points to the richest states, with rising incomes, aren’t lowest-tax or highest in “business-friendly” rankings. Instead, they have the best educated people, functional infrastructure, and they leverage their special assets, like our great universities, historic cities, Great Lakes and outdoors.

Michigan can succeed by making a reality of great schools, great universities, functional cities people want to live in, and a “Pure Michigan” lifestyle that is real, not a marketing campaign. Let’s use this budget to send that message.

John Austin is president of the Michigan State Board of Education.

January 12, 2012 · Filed under Austin

7 responses so far ↓

1 Anagnorisis // Jan 13, 2012 at 9:27 am

Well, yeah, you have to spend money to make money. Education is It in this post industrial era; nothing else will suffice. One must provide adequate and hopefully enticing infrastructure to attract people; and the cops, courts, corrections system has to be addressed with progressive ideas and commitments. From whence this surplus really comes is inscrutible but here it is on paper anyway, Rick Snyder having made his point sort of. Detroit’s toothache is not painful enough yet -so they say – to schedule a dentist appointment but we ought at least to prepare a train route for that emergency. For-profit colleges and universties, like for-profit health care insurance, are losing gambits if we expect excellence or at least competitive allure. Possibly The Audacity of Hope has partially paid off if one looks through kaleidoscopic 3-D glasses. Good starts though mean nothing without good finishes. To date Michigan has been the brilliant student who turned synthetic junkie while denying a medicinal plant to patients. Could education and health care be free the state would prosper beyond imagination.
2 George Moroz // Jan 13, 2012 at 10:33 am

I agree with John’s investment advice. The State needs to invest in its unique sets of natural, cultural and heritage resources if it is to attract and retain the talent it needs now, and will need in the future. By “heritage resources,” I mean those things for which Michigan was once known and envied and which served as attractors for both talent and the inflow of capital. They include our educational system and the culture of innovation and entrepreneurialism that helped define our state as a frontier of opportunity offering the chance for both personal and collective prosperity. The one thing I would add to John’s recommended list would be for the State to invest in its “engines for culture change,” those organizations, initiatives or operations that are helping to create, strengthen and sustain the optimistic, entrepreneurial, “can-do” mindset that can build our state’s reputation as a center for American innovation. We’ve got to be smart enough to recognizes what and where those catalysts are, and then have the will to support them through wise State investment.
3 R Al Bain // Jan 13, 2012 at 11:04 am

Budget surplus! What budget surplus? We owed the U.S. Treasury $3.2 billion for the unemployment trust fund so we sold bonds to the tune of $3.3 billion as to pay this off. So we increased our debt by $.1 billion. In understanding bonds, the seller of the bonds, the State of Michigan are the borrowers, with the buyers of these bonds as the lenders, how could we possibly have a surplus? If only I could use this same system of financial gimmicky as to pay-off my mortgage it would afford me the opportunity to stimulate Michigan’s economy!
4 Nonya Business // Jan 13, 2012 at 12:32 pm

So … Michigan digs itself into a hole by spending money hand over fist on do-nothing, feel-good programs which make administrators and liberal financiers happy (and rich) while the working citizens suffer and businesses flee to places not circling the drain.

Thanks to the cutting of all these petty bureaucracies and projects, Michigan may actually realize a surplus.

Time to bring back all the cool, hip sounding projects, says Mr. Austin. Let the kids in Detroit walk between burned out crackhouses; as long as little hip projects provide little enclaves of art and coolness for the financiers and elite power brokers, they don’t have to notice how the rest of the state has been faring.

Here’s how to make Michigan attractive. DON’T spend like college kids with Daddy’s credit card. Stabilize Michigan’s finances, continue to overturn the established power arrangements in Detroit and other cities, and keep personal and corporate taxes set to attract people here.

Then, wealth derives from the bottom up — from real people making real living wages. Those people will then, themselves and in their communities, do all the things Mr. Austin claims only Big Government can do.

Government should be in the business of providing liberty. Trying to make it the dispenser of good feelings is like makeup on a pig; it doesn’t work and annoys the pig.
5 Suzy // Jan 15, 2012 at 3:12 pm

Spend 25 million for master teachers? The best and the brightest do not, and have not, gone into education. Where else can you have two master’s degrees and get paid half of what others in the private sector earn? Until teachers have opportunities for success like other professionals do, you’ll be attempting to make silk purses out of sows’ ears. You get what you pay for…and the smartest candidates stay away from the classroom.
6 Progress on public investments? :: Michigan Future Inc. // Jan 16, 2012 at 6:08 am

[...] Austin, chair of the State Board of Education, in a Dome article lays out a more expansive public investment agenda in an article that provides ideas on how to use [...]
7 Warren C. Gregory // Jan 21, 2012 at 3:19 pm

Warren C. Gregory
You would think that after so many harrowing years, Michigan lawmakers would begin to face its number one challenge—insufficient revenues to meet its growing needs. The state must do so quickly for time is running out. I recently completed a publication that compares Pennsylvania and Michigan, two states with a lot of similarities. In the past decade, each state took a different path in their struggle to achieve economic competitiveness. Pennsylvania followed an investment approach by heavily investing in its infrastructure. Not only did this investment make Pennsylvania’s infrastructure far better but, equally as important, it was a central part of its economic agenda. Michigan has followed the trickle-down approach in the past with Governor Snyder’s reduction to the corporate tax burden providing the most recent example. Michigan will pay for this approximate $1.5 billion in corporate largesse by increasing the individual income tax on retiree benefits and those earning the low Income Tax Credit. Strangely, Michigan’s tax burden on corporations was already one of the nation’s lowest. Where were the flood of jobs then?
Essentially, there are three sources for improved productivity: (1) a growing labor force, (2) improving the quality of the labor force, and (3) better physical capital—both public and private behind each worker. The Pennsylvania labor force grew 4.6 percent from 2000-2010 while Michigan’s declined 6.9 percent. Pennsylvania’s real education funding increased by 17.3 percent over that period while Michigan’s declined 10.9 percent. Michigan’s relative lack of job skill improvement opportunities makes it far less attractive for potential employers. Pennsylvania infrastructure investment increased 163.5 percent over the decade, to $9.39 per capita while Michigan’s funding declined by 0.6 percent to $4.47 per capita—last among the states.
Michigan became second tier while Pennsylvania easily bested it in every economic indicator, from income to jobs created. Michigan lawmakers have known for decades that our economy needed to diversify and, since the early1980s, every Michigan governor has adhered to a trickle-down approach to improving the economy. Each has failed and Governor Snyder is heading in the same direction. Trickle-down is a deeply flawed approach that always has and always will lead the state into economic disaster. We cannot continue doing the same thing and expect different results.
Michigan’s growing responsibilities for education and job training, police and fire, and infrastructure investment must be funded if we are going to regain our competitive edge. Michigan must begin a thorough review of its tax bases to find what it has not had in a long-time—sufficient revenues to invest in this state. Michigan has wasted billions of hard earned taxpayer dollars on trickle-down tax giveaways to big business and the wealthy, but it has not invested a dime in those crucial areas that can make our economy and its workforce competitive again.

Put State’s Budget Surplus to Work

7 responses so far ↓

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