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 The leading web portal for pharmacy resources, news, education and careers August 19, 2017
Pharmacy Choice - Pharmaceutical News - OPINION: Trouble ahead for the Michigan budget [Detroit Free Press] - August 19, 2017

Pharmacy News Article

 8/12/17 - OPINION: Trouble ahead for the Michigan budget [Detroit Free Press]

Aug. 12It's not like we couldn't have seen this one coming.

A new report by the nonpartisan Citizens Research Council is forecasting big economic trouble for Michigan, a $2-billion hole baked into the state budget, scheduled to hit by 2022.

More: Despite road deal, Michigan to spend less on freeways

More: Michigan taxes: Businesses pay less, you pay more

That's 20% of the state's $10-billion general fund the main account into which tax revenues are deposited, and from which the state doles out revenue sharing to cities and funds services and that's if all goes well.

What we're looking at is a tax increase, levied on folks who feel overtaxed already, or deep cuts. For years, we've written about "looming problems" in the state's budget, sinkholes created by poor planning and worse policy. Problems can only loom for so long before they catch up to you.

It could get worse

If the federal government cuts, for example, Medicaid funding, or food assistance programs that are a literal lifeline for hundreds of thousands of Michiganders that shortfall could grow to $5 billion, or 45% of the general fund.

When it comes to budget troubles, Gov. Rick Snyder likes to point to tax credits extended to business by the last gubernatorial administration, which the current administration must still pay out.

He's right. Those tax credits, granted when the state's loathed, Michigan Business Tax was in place, eat up almost all of the revenue generated by the Corporate Income Tax, Snyder's replacement for the MBT to the tune of about $500 million.

But there's more to it after Michigan voters defeated a 2015 ballot measure that would have levied a tax to fix the state's atrocious roads, the state Legislature passed a $600-million deal that skimmed money from the general fund. The Legislature also eliminated the personal property tax, paid on office and industrial equipment; the state promised to make whole cities whose budgets would be damaged by the revocation of that tax. That's another $500 million, paid out of the general fund.

And there are a host of smaller tax changes, like funneling aviation fuel taxes to the State Aeronautics Fund, eliminating taxes on data center equipment and the sale of over-the-counter medication. Some of those changes which pull dollars from the state's School Aid Fund require the state to contribute more to schools from the general fund. All told, such individually minor changes add up to millions less in general-fund revenue, the CRC found.

Kurt Weiss, a spokesman for the state's budget office, acknowledged the veracity of the CRC's report, but says the state is "accounting" for those financial pressures. Weiss pointed to the state's balanced budget, and said Michigan is in a "strong financial position."

Bad assumptions, bad policy

All of these decisions were premised on the theory that the state's economy would continue to grow, that tax revenues would swell, offsetting additional expenses or tax cuts.

Instead, it's plateaued. The state's revenue growth, and the amount of taxes the state collects on that revenue, is expected to remain at its current pace for at least the next three years. That's according to figures agreed on at the state's own Consensus Revenue Estimating Conference, an annual event at which state departments and outside economists weigh in on the state's financial future.

"The national economy hasn't grown, and certainly Michigan's economy hasn't grown, at the pace that would pay for these things," said Eric Lupher, president of the Citizens Research Council. "This is the hand we're dealt, and it's not good."

Remember, that $2-billion shortfall is the best-case scenario. Substantial federal cuts could boost the shortfall to $5 billion. And if there's another economic downturn, it'll get even worse the pool of tax dollars the state collects, and from which it pays all its obligations, will shrink.

In other words, we're on some pretty thin budgetary ice.

What now?

Without an as-yet unlikely economic boom, Michigan lawmakers, the CRC warns, will have to make "tough choices."

That's a nice way to put it.

"We'll either have to increase revenue, or we'll see deep cuts to services from the general fund," Lupher said. "A lot of things that people count on."

And without that economic boom, increasing revenue means raising taxes.

Snyder's signature policy was the aforementioned tax change. The Corporate Income Tax cut business tax revenue by nearly $1.7 billion, a cut paid for largely by increased taxes on individuals. For the last six years, the state has scrambled to play catch-up, plugging the budget holes resulting from this cut-and-shift.

It still is.

Toto, we're not in Kansas

Kansas tried an extreme version of this experiment in search of economic growth, enacting serious business tax cuts that Gov. Sam Brownback called a shot of adrenaline to the heart of the economy.

It didn't work. In June, facing down a two-year billion-dollar deficit, Kansas' state Legislature voted to adopt a more rational tax plan, one that could actually pay for state services, without the specter of never-quite-materializing growth.

Michigan's GOP-led state Legislature has proved more open to eliminating the state income tax which would, in essence, destroy state government than raising taxes. Whether the prospect of deep service cuts, looming in the next five years, will change that equation remains to be seen.

"Ten years ago we were going around the state trying to tell people our state has structural budget problems," Lupher said. "And 10 years later, we're doing the same thing."

If the state opts to raise revenue, Lupher says, "Bottom line, it's either on people or businesses. The Michigan Chamber of Commerce would tell you business don't pay taxes, people do. One way or the other, it's coming out of our pockets, or there's going to be less services."

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(c)2017 the Detroit Free Press

Visit the Detroit Free Press at www.freep.com

Distributed by Tribune Content Agency, LLC.




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