Budget reforms put Michigan, Ann Arbor on sound fiscal ground

A year or two ago, one would never have expected a headline like this: “Snyder’s budget proposal reflects a return to financial stability for the state.’’ Or like this: “Ann Arbor city budget forecast: Future looks brighter.’’

Local and state officials must feel like they’ve just woken up from a nightmare. After years of struggling with declining revenue and painful service cuts, both the state and the city of Ann Arbor are seeing a brighter budget picture this year.

The economy in Michigan is picking up, and that helps. But there’s a bigger reason that the city and state have managed to drag themselves out of fiscal distress. They finally stopped pushing the problem forward year after year and enacted genuine, fundamental budget reform. Now, they’re realizing the benefits of that.

Gov. Rick Snyder, left, is joined by other Republican leaders during a 2011 press conference to talk about state budget reforms.

AP Photo | Al Goldis

When Gov. Rick Snyder and the Republican Party pushed a package of budget and tax reforms through the Legislature last spring, there were elements of the plan that we disagreed with, including the deep cuts to K-12 education. But the governor promised that his actions would end the budget gimmickry that had become all to common in Lansing and put the state on sound fiscal ground going forward.

He has delivered on that promise, and now instead of bracing for yet another round of cuts in the coming budget year, the challenge facing the state is how to allocate a projected surplus.

Ann Arbor has undergone a similar budget transformation. Year after year, it slashed the city workforce (dropping from more than 1,000 employees to about 735 by 2010), yet for much of that time, its general fund spending continued to go up because it couldn’t get a handle on employee benefit costs, particularly health-care costs.

Last summer, the Ann Arbor City Council approved a budget that eliminated 20 positions in the police and fire departments, and its two-year budget forecast called for another round of severe cuts this year. But that’s all changed now.

For one thing, the city managed to secure health-care cost concessions from the police officers’ union, one of its larger employee groups. In addition, the city took a difficult but bold step to consolidate central dispatch operations with Washtenaw County, a move that is projected to save $500,000 a year. We have criticized local governments and school districts in the fast for being far too tepid in consolidating services, given the potential savings that are available there. This is a prime example of how taking a step in that direction can change the budget reality of any local entity.

As a result of these and other moves, Ann Arbor now expects to avoid the deep budget-cutting that it had once anticipated for this year. In fact, it’s talking about hiring more police officers.

Granted, for both the city and the state, rising revenue is also a factor in their fiscal turnarounds. The city of Ann Arbor is expecting to see revenue increase by $900,000 compared to earlier projections. Similarly, the state expects an increase of $623 million in revenue. Such are the benefits of an improving economy.

But just as the city and state couldn’t cut their way out of a fiscal mess in past years, they can’t count on rising revenue alone to carry them to solvency going forward. Both had saddled themselves with budgets that were fundamentally unsustainable, and it wasn’t until they finally addressed their underlying problems that they were able to rebound. This is a lesson that other local governments and school districts should heed.

(This editorial was published in today's newspaper and reflects the opinion of the Editorial Board at AnnArbor.com.)