Governor explains rationale behind 'tough calls' he's made to address state budget deficit
Lon Horwedel | AnnArbor.com
"Personally, these calls are difficult calls because you are impacting people's lives, and you are causing issues with people," he said. "But one of the things I'm proud to say is we stopped thinking short-term and we stopped thinking just about today."
Snyder's comments came during the AnnArbor.com Business Review's Economic Outlook Luncheon at Washtenaw Community College.
The governor explained his rationale behind proposing deep cuts that would impact schools, universities, cities, townships, counties, senior citizens and low-income wage earners, among other groups. He said there's no doubt going to be some short-term pain, but the result is a state budget that is fiscally sound, and that's going to be attractive to businesses.
"Not only is 2012 fiscally sound and balanced — with no accounting gimmicks, no monkey business, a solid budget —Â but I can look (state lawmakers) in the eye and say, 'With 2012 happening this way, 2013 is also balanced that same way,'" Snyder said. "I don't know of anytime in our lifetime we've had a governor that was able to say that."
Businesses would see a $1.8 billion tax break under Snyder's plan, though many will be impacted by the elimination of specific tax credits.
Snyder said Michigan needs to change its culture and look at itself through a new lens, one less focused on "me" — "about how I got affected by some budget provision or tax provision or what's in it for me" — and one more focused on a collective "we."
"It's easy to change a law; it's tough to change a culture," Snyder said. "And that's what we need to stay focused on."
During a question and answer session, Snyder addressed proposed cuts to state tax credits, such as the film incentives, saying the dollars could be better spent elsewhere — on items like roads and education. He also spoke generally about why he's so opposed to tax credits, saying they most often go to special interest groups with political clout.
"My view is have them walk in front of the appropriations committee, raise their hand, let democracy work, say why they're special and say why they should be written a check, and let's all know what those dollars are and where they're going," he said. "That's the way we should be running our government — not hiding things."
Snyder discussed his thoughts on a new study by Ernst & Young that showed for every $1 the state spends on film incentives it generates $6 in economic activity.
"If you look at it from the state level, we get back about 28 cents on the dollar from the checks we write to the film industry, so there's a significant loss to the state in terms of revenue from doing that," Snyder said, looking through a state budget lens. "It's not just a tax credit — it's literally writing checks for those amounts in a very difficult budget environment."
Snyder said he doesn't think the state has been fiscally responsible, given the amount of tax credits it has been doling out. Despite the cuts he aims to make, he said the state already has billions of dollars in tax credits it must honor over the next two decades.
"I don't think the average person understood how much money that is," he said. "Just the tax credits we've already issued for the next four fiscal years, 2012 through 2015, is $2 billion. And we have credits that are several billion dollars more that go through 2032."
Snyder talked about his plan to increase state revenues by $900 million by taxing the pensions of senior citizens. Michigan currently is one of only four states in the country with an income tax that doesn't tax pensions. Snyder said senior citizens make up about 13 percent of the state's population today, and that figure grows close to 20 percent over the next 20 years.
"So you have a situation where you have a significant portion of your population not paying tax today and having that grow to a much larger percentage," he said. "So who's going to bear the burden of that? It gets shifted to younger people and everyone else."
Continuing along those lines, Snyder framed the tax increase on seniors as a way to keep young people in the state and ensure that everyone is paying their fair share.
Snyder was asked if a Wisconsin-like struggle is in Michigan's future. He said it shouldn't be, but there is a need for employee concessions.
"Our goal is to work through collective bargaining in a positive, constructive way to achieve those goals, and I believe we should be able to do that," he said.
Snyder pointed out the state still has about $47 billion in debt it needs to address. He said his proposed budget for the next two fiscal years includes slightly more than the minimum payment on the state's post-retiree health care obligations.
"Just the post-retiree medical obligation in our state is $14.5 billion," he said. "By including that payment, finally making a minimum payment on our credit card, it drops that number by $5 billion if we consistently make that payment. That's planning for the future."
Snyder said he plans to take a hard look at the personal property taxes that businesses pay on equipment later this fall. His executive budget proposes an elimination of the Michigan Business Tax to be replaced by a flat 6 percent corporate income tax.
"If you look at business taxes, the MBT was the No. 1 target, but the No. 2 target is the personal property tax because it causes capital misallocations and it's not a fair tax, so we do need to address that," he said. "The reason we didn't do it specifically (in the governor's budget proposal) is because it's more a local tax, and so our goal is we're not going to tell the locals what to do, but we want to partner with them on coming up with a better long-term solution."
Speaking before Snyder today was economist George Fulton, a research professor at the University of Michigan and director of U-M's Center for Labor Market Research. Fulton offered an upbeat forecast for job growth in Washtenaw County in the coming years.
"It's now apparent we're facing a slow climb out of a deep hole," Fulton said, pointing to expected growth in the economy over the next few years.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at email@example.com or 734-623-2529. You also can follow him on Twitter or subscribe to AnnArbor.com's e-mail newsletters.