by Neil Munro
October 1, 2008

The city of Pontiac, the seat of Oakland County, is just 69 miles from Lansing. But essential information about what happens under the Capitol dome too often never makes the trip.

Locally, the result can be annoying. But, most recently, the answers to the county’s questions are alarming.

Annually, the county receives approximately $60 million in federal grants passed through state government and in state grants. But reductions in these grants by Lansing, or the imposition of new spending obligations by Lansing, rarely reaches Pontiac voluntarily.

The result in all counties can be budgetary stress that almost invariably wastes money. For example, projects are started in good faith, and then must be stopped short when surprise spending cutbacks are made.

In addition, lawmakers impose new tasks on the counties, often without warning, and with no increase in appropriations from the state to pay for them. As a typical example, Oakland County Deputy County Executive for Special Projects Robert Daddow cites a proposed law changing the pay requirements for sheriff’s deputies who work as jail guards.

To better cope with the unanticipated demands, Oakland County Executive L. Brooks Patterson has the county draft its budget to cover two years at a time, a rare practice that can’t tame the Lansing lawmakers but does prompt a longer and closer look at the future. Trends in the economy can provide early warning of declining revenues.

The upshot is that Oakland County is on track to cope with them without having to make large and unexpected budget cuts, while neighboring Macomb County has had to announce a looming $33 million in red ink.

Most recently, Oakland’s practice of playing defense against state budget vagaries has helped it turn up what Daddow labels “A Perfect Storm.” That’s the title of a public presentation he’s put together to warn taxpayers. It describes state government’s genuinely ominous fiscal future.

And it’s more than a little reminiscent of the increasing flood of red ink in our nation’s Capitol.

Daddow says that the state recently borrowed $255 million from the federal government in order to cover benefits to the unemployed. The Michigan Unemployment Insurance Trust Fund is nearly dry. When it’s out of money a state payroll tax will be imposed automatically to keep the jobless benefits flowing.

The news gets worse. The state based its current budget on the assumption that the local auto companies would sell 15.8 million vehicles this year and that oil would cost $85 a barrel. The real numbers are going to be 13 million and $100 or so.

In other words, while state government in Michigan depends heavily on tax revenues generated by the local vehicle industry, it has yet to recognize or adjust to the fact that those tax revenues will go down dramatically.

To illustrate the scope of the decline, the stock markets now value Toyota at $147 billion while the “Detroit Three” and giant parts-makers Delphi and Visteon altogether are worth only about $23 billion.

Daddow adds that this collapse in value is on the heels of the billion-dollar 2007 state tax revenue shortfall, one “solution” of which was the receipt of $415 million in cash for tobacco revenues that would normally have been received over the next 44 years for the state’s school aid and general funds. Think about it: a smoker in the year 2052 will be helping to pay for the state’s 2007 operations. Such transfers have since been banned!

It gets worse still. Contributions to the state pension funds for schools are short $900 million over the last five years. And the School Aid Fund borrowed $681 million from the General Fund for 2007, Daddow says in his presentation. Given that the School Aid Fund has over-drawn its cash by over $1.3 billion and depends on the General Fund for operating subsidies, how can it repay the amounts owed — and this “asset” in the General Fund represents 70 percent of the General Fund’s net worth! The School Aid Fund is in dire straights.

A recent Senate Fiscal Agency report suggests that at the end of September 30, 2009, the equity of the School Aid Fund will be $2.1 million — on operations of $13.4 billion — or just 82 minutes of equity.

Unfunded school pension obligations, he adds, have increased from $4 billion to $10 billion just since Gov. Jennifer Granholm took office in 2003.

As Daddow notes in his presentation, the state eventually must run out of money if it continues its reckless borrowing from some internal funds to pay the obligations of others, from “Peter to pay Paul.”

Washington’s unaffordable financial obligations to future generations are obviously acquiring a counterpart in Lansing.

While gathering the data to head off a deficit in Oakland County, too, he also has found that the increases in taxable real estate values there have been declining since 2001, leading up to a zero increase at December 31, 2007, over 2006 levels. Of all the counties in Michigan, only Oakland has a central land records system to reveal this problem, Daddow says.

In any event, the county at least knows its revenues will be down nearly 18 percent through 2010, while the state still anticipates increases!

Much of the upcoming grief and aggravation at the local level could be avoided, but only if our state government voluntarily and routinely provides all counties, cities and so forth with as much timely information on projected revenues and spending requirements as Oakland County has been able to collect by itself.

Neil Munro is the retired editor of the Oakland Press in Pontiac.