Before Gov. Gretchen Whitmer embarked on the Hamtramck Paczki Run on Saturday, she took a minute to address her next big challenge: presenting her first budget on Tuesday.
“I will be introducing it and I will have my budget director [Chris Kolb] with me,” she told the Advance. “He’ll do part of it and I’ll do part of it.”
That was her third 5K of the year, but the analogy doesn’t really hold up. Michigan’s budget process is more like a grueling marathon.
And Whitmer would know. She’s been through negotiations 14 times as a legislator — and played key roles as both the ranking state House Democrat on Appropriations and as Senate minority leader.
Last week, she said in Detroit that repairing infrastructure and closing the skills gap will be the “centerpieces” of her fiscal year 2020 budget.
And on Monday, the Advance reported key parts of her roads and education spending plan.
Whitmer’s budget will increase education funding in Michigan by $507 million, with weighted funding for different types of students.
That includes a 2.5 percent boost of $235 million in the base per-pupil funding mechanism. Every public school district in the state, including charters, receives an annual per-student allowance. The lowest level would increase from $7,871 to $8,051 under Whitmer’s proposal. That’s a $180 increase.
Whitmer’s roads plan rests on a 45-cent increase to the gas tax in three installments starting on Oct. 1 — the start of the next state fiscal year. The last increase will be a year later.
That will raise about $2.5 billion annually for roads. It’s similar to a plan put forth earlier this year by a bipartisan group of lawmakers. Business groups have also favored “user fees” as the best way to fix infrastructure.
Whitmer will have to present a balanced budget, which is required by law. While the federal government can run a deficit — which reached $779 billion last year — the state government can’t.
And she’ll have to grapple with decisions made her predecessor, GOP former Gov. Rick Snyder, and the last Republican-led Legislature. His last budget for fiscal year 2019 was roughly $56 billion.
As the Advance has reported, Whitmer will enter budget negotiations with the current GOP-led Legislature with $288.6 million more in state General Fund money than experts previously estimated, but the School Aid Fund is down by $23.9 million.
Michigan also will have an estimated $225 million more in fiscal year 2020 than previously estimated, according to that state’s latest forecast at the semi-annual Consensus Revenue Estimating Conference held in January.
And then there’s the $1.3 billion budget supplemental passed by the Republican-led Legislature during the Lame Duck session last December. It included $18 million for the state Senate to buy a parking ramp and $10 million for a ski jump in the Upper Peninsula.
That last-minute spending spree cost Whitmer about $500 million to work with in her first budget proposal, according to Kurt Weiss, spokesman for the Department of Technology, Management and Budget.
As a former accountant, Snyder was passionate about trying to reduce public retirement costs and build up the rainy day fund, which is now around $1 billion.
That’s a pot of money that past governors and legislatures often tapped rather than raising taxes. And it could come into play during this year’s budget negotiations.
Whitmer and the GOP-led Legislature must strike a deal on the budget before Oct. 1, the start of the next fiscal year.
Last month, she announced in her State of the State address that she wants the budget wrapped by summer, just as it was done under Snyder.
Twice in the previous decade — in 2007 and 2009 — the government briefly shut down when then-Gov. Jennifer Granholm, a Democrat, was at a budget impasse with the GOP-led state Senate. The state faced multi-billion-dollar deficits as revenue shrank during the Great Recession.
As Michigan’s economy is still in recovery, many are hopeful that this era of divided government won’t result in those kinds of budget theatrics.
Michigan’s budget is roughly $56 billion. It was about $46 billion in fiscal year 2012, which was Snyder’s first budget.
While conservatives grumbled about the increase in government spending during Granholm’s tenure, they’ve been quieter for the last eight years as Republicans have had total control of Michigan’s government.
The argument was always flawed, however. Budget spending increases have, by and large, happened because Michigan has received more funds from the federal government.
More than half of Michigan’s budget is in restricted funds, a 2017 report from the nonpartisan Citizens Research Council shows — meaning that lawmakers don’t have a say in how those dollars are spent.
The General Fund and School Aid Fund are the only areas over which lawmakers exercise real control. And those budget areas have actually taken a hit in the last two decades.
The General Fund budget is about $10 billion — which has been stagnant since 2000. Michigan State University economist Charles Ballard points out that when adjusted for inflation, the fund is actually down 30 percent.
The School Aid Fund budget is about $13 billion. According to a recent Michigan State University study, total education revenue also has declined by 30 percent since 2002, when adjusted for inflation.
Robert Kleine, Granholm’s former state treasurer, estimates that the state now would collect $4 billion to $5 billion more per year if Michigan had maintained its tax structure of the mid-1990s.
But after many years of tax cuts and tax credits for businesses, Whitmer faces tough funding choices.
The most dramatic change came in 2011, when the Legislature passed Snyder’s overhaul of business taxes, which resulted in a roughly $2 billion annual tax cut. That move reduced business taxes by about half. Some corporations also have started cashing in several hundred million dollars’ worth of economic development tax credits earned mostly during the Granholm administration.
As a result, the business community’s contribution to the General Fund stands at 2 to 3 percent in recent years, according to the State Treasurer’s office.
That’s one reason why the state is $10.4 billion below the Headlee tax limit. That was a law that Michigan voters passed over 40 years ago to limit the power of both state and local governments to tax residents. Conservatives wanted to rein in government spending — and it worked.
That means that even with Whitmer’s proposed gas tax increase — and potentially other tax hikes as part of her budget — the state won’t come close to hitting the constitutional limit.