LANSING – Difficult budget times will continue for Michigan, and a long-term resolution of the state’s structural deficit will require not only an improved economy but an overall change in how the state taxes itself and delivers services, participants at a budget forum said Friday.
Former House Speaker Paul Hillegonds, a Republican, said the state will have to modernize its tax structure, especially its sales tax to reflect that the economy is now based less on goods and more on services.
Former Rep. Lynn Jondahl, a Democrat, said there is considerable economic evidence that continuous tax cuts has a greater negative effect on the economy than a positive effect because it hurts the state’s ability to invest in services like higher education. Both he and Hillegonds also said that tax cuts often have the effect of pushing total costs off on to local governments and other service providers.
The comments from Hillegonds, Jondahl and State Budget Director Mary Lannoye came at a Friday public policy forum in Lansing sponsored by the Michigan League for Human Services.
Michigan is hardly alone in facing structural deficit problems, Lannoye said. While a recent National Conference of State Legislatures study showed Michigan one of three states not likely to collect all the revenues anticipated, there are at least 12 other states facing budget shortfalls even though their revenues are up. California faces a shortfall of $6.7 billion, New Jersey faces shortfalls of $4 billion and New York could see shortfalls ranging from $3 billion to $6 billion.
The proposed budget for 2005-06 released last week by Governor Jennifer Granholm and her proposed 2004-05 budget executive order cuts showed how difficult the state’s fiscal situation is, Lannoye said.
While the administration attempted to be creative in developing solutions – for example, turning the potential need for 1,000 new prison beds into efforts to reduce recidivism, revise sentencing guidelines and house more prisoners in existing facilities where appropriate so the state should find itself needing fewer beds – Lannoye said she has heard complaints from all across the state over proposals on closing some State Police posts, university finances and the prison changes.
The complaints seem not to recognize that Granholm proposed to use cuts for only half the more than the $772.6 million anticipated shortfall.
Granholm’s budget also calls for more than $100 million – $64 million to the general fund – by closing a number of tax expenditures, but Jondahl said even as the administration proposes those revenue sources legislative Republicans propose more revenue cuts.
Just this week, he said, more than $80 million in tax cuts were proposed by the House Republicans in calling for a write-off of medical expenses in the Single Business Tax, the Senate Republicans calling for rural economic development initiatives, and a proposal to help both Delphi and Visteon companies keep their current tax breaks.
Tax cuts enacted over the last decade have significantly changed the state’s overall tax posture, said Jondahl, now executive director of the Michigan Prospect. In 1983, Michigan was the fifth highest in terms of per capita tax burden. By this year, it had fallen to thirty first.
Hillegonds, now president of Detroit Renaissance, said businesses want both competitive taxes and an attitude of investment. While the state does need to restructure its business tax setup to be more competitive, he said, the tax structure also has to recognize the changes in the economy and invest in those areas critical to the economy such as higher education and urban revitalization.
Even then, as the state’s budget problems continue, the state may face even more difficult budget decisions than it has to date, including closing or consolidating universities, Hillegonds said.
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