I hate roller coasters—they make my head hurt and I can never get my feet back under me after riding one. But twice a year, I ride one as I wait to see whether state revenues will come in above projections, below targets or on track. Yesterday’s revenue estimating conference made it clear that we will have some tough budget decisions to make for next year, but the truth is that it shouldn’t be like this.
The good news is that revenues, year after year, are projected to grow. However, Michigan’s growth isn’t as robust as we originally predicted only five months ago. This means that there will be less to work with when deciding funding priorities in next year’s budget, potentially leaving many Michigan residents, communities and schools further behind. Thankfully, Michigan is able to get federal funds for various programs, and lawmakers should review the budget and fund those areas, such as child care and the Heat and Eat program, for maximum impact.
Thankfully budgets can be balanced in a single year, but we still need to look at our revenue structure to continue long-term economic growth. While we scrutinize and stress over every dollar spent in each budget annually, Michigan lawmakers neglect to regularly review silent spending. Tax expenditures, like budget expenses, spend state dollars on public purposes but do so through the tax code rather than during the annual budget process. Michigan is currently anticipated to forego $35 billion in state funds through state and local tax breaks, but this spending is rarely reviewed by legislators. In fact, once these provisions get written into our state tax laws, they tend to live on in perpetuity regardless of whether they continue to serve a good public purpose.
A recent report released by the League calls on Michigan’s legislators to review our tax expenditures to help Michigan’s strained revenue structure. The report makes the following recommendations to policymakers:
- Understand the costs of each tax policy change, including the expansion and creation of restricted funds, to ensure that there is enough funding left to deal with the state’s growing budgetary pressures.
- Review Michigan’s existing tax expenditures to ensure that their benefits still outweigh the costs to the state, and eliminate those that are no longer meeting their intended purposes or are no longer necessary.
- Make tax relief strategic and measurable by including measures to allow lawmakers to determine their usefulness, including sunsets, accountability measures or repayments if provisions are violated.
Providing more stability in Michigan’s revenue structure is good policy. It would help us to provide important funds to the things Michigan residents and businesses care most about: high-quality schools, safe communities, good roads and affordable postsecondary education. Unfortunately, unstable fiscal policy will only lead to the inability to address our state’s current crises—like the Flint water crisis and financial crisis in Detroit Public Schools—while creating more in other communities.
Many economists and tax policy experts argue that the best tax policy is one that has a broad base and a low rate. Thanks to unchecked credits, deductions and exemptions, our tax base is riddled with holes that need to be filled in order to ensure a more stable revenue structure. While some fluctuation and risk is involved with every revenue projection, Michigan’s rollercoaster needs to stop.
— Rachel Richards