Gov. Snyder And Michigan's Financial Health

By Maureen Mespell

Gov. Snyder And Michigan's Financial Health

March 10, 2011

LANSING, MI - Governor Rick Snyder today unveiled the "Citizen's Guide to Michigan's Financial Health" at the Business Leaders for Michigan's Leadership Summit in Lansing. The Citizen's Guide is an easy to understand, comprehensive look at the current state of finances in Michigan.

"We are committed to bringing transparency to state and local finances and the Citizen's Guide provides taxpayers with a complete picture," Snyder said. "We put the facts in plain terms and made them easy to understand. A person shouldn't have to be a CPA or an economist to understand how taxpayer dollars flow in and out of government."

The governor also unveiled tools to be used by local governments so they can produce similar guides allowing for greater transparency and increased understanding of spending at local levels. The tools for locals can be modified to account for each municipality's funding sources so the public has a comprehensive view of local finances. The Citizen's Guide and the Local Transparency Tool can be found at www.michigan.gov/snyder.

"While some municipalities release financial reports, others do not have the resources or tools to do so," Snyder said. "The transparency tools for locals are now available online so local governments can easily input their data and generate localized Citizen's Guides for their residents."

The Citizen's Guide includes sections on How Governments Use Your Money; Michigan's Economic and Demographic Trends; How Taxpayer Money is Spent; and Michigan's Fiscal Health. It includes:
• How taxes and fees are collected and used across the state;
• The long-term consequences of today's budget decisions-borrowing, debt levels, budget reserves; and
• Bills that are mounting for the future, such as public employee pensions and federal loans.

How Governments Use Your Money:
For every $7 earned in Michigan, $1 is sent to state and local government in the form of taxes, fees, and charges for services. State and local governments collect money in the form of taxes and fees and use it to coordinate delivery of public services such as roads, bridges, local public health, mental health services, Medicaid, child foster care, disability insurance, cash assistance, food stamps, corrections and law enforcement, elementary and high school education, community colleges and universities, planning, zoning and economic development.

Michigan's Economic and Demographic Trends:
Michigan has lost more jobs than any other state. Michigan private sector job losses were equivalent to two-thirds of all jobs lost in the U.S. during the past decade. Michigan workers earn less than in almost every other state. Michigan ranks 37th in per capita income among all 50 states while 10 years ago, Michigan was 18th. Michigan's population is aging which means fewer younger workers are available to support the state's economic activities and finance the high cost of government.

How Taxpayer Money is Spent:
Many governments in Michigan regularly spent more money than they took in and have done so since 2001. State and local governments (including public schools) received $82.5 billion in revenue and spent $84.8 billion in fiscal year 2010 resulting in a shortfall of $2.3 billion.

Michigan has been unable to invest in its future. State government expenditures on infrastructure and higher education have declined over the past decade. The demand for safety net services has increased dramatically. Spending in these human services and community health categories increased at twice the rate of inflation.

State and local government employee compensation in Michigan has grown while private sector compensation has fallen. Between 2000 and 2009, compensation of the average private sector worker fell 13 percent while it increased 19 percent for state government employees and 13 percent for local government employees. Public school teacher compensation has fallen by 4 percent in real terms since 2000. The average annual compensation of state employees (including salary, wages and benefits) was over twice the average annual compensation of private sector workers in 2009. The average state worker gets $53,453 in salary, $31,623 in fringe benefits each year and it costs for the state $13,000 per employee for group insurance (medical, dental, vision, life, and long-term disability).

Michigan's Fiscal Health:
The state has depleted its savings and now must engage in complex accounting practices to meet its obligations. At the current level of $2.2 million, the balance in the state's "Rainy Day Fund" is not enough to cover the cost of state government operations for 30 minutes.

Each year, the schools stay open only because money that had originally been designated for other purposes is temporarily re-routed into the School Aid Fund.

Public agencies in Michigan borrow extensively and have accumulated unfunded pension and retiree health care liabilities. The state has borrowed money at a faster rate than personal incomes have grown over the past 20 years. The level of state debt per person has increased from $724 per person in 1979 to over $2,430 per Michigan resident in 2009. Local and school debt makes that number even higher.

To make ends meet, governments have stopped setting aside enough money to fully fund future retirement obligations for public employees. This shortfall, coupled with rising benefits, poor market conditions, and stagnant or slowly rising contributions have made a perilous situation even worse.

Retiree health care benefits are also inadequately funded. The state's two largest systems have unfunded obligations of more than $40 billion. Add the unfunded obligations to the current shortfalls, and Michigan's total cumulative budget gap at the end of FY 2009 was $43.3 billion.

Years of high unemployment have rendered our unemployment compensation fund insolvent and created a greater demand for government services. In 2009 and 2010, Michigan borrowed a combined $3.5 billion from the federal government in order to continue making payments on unemployment insurance claims. By the end of 2010, Michigan's unemployment trust fund was in the red by $3 billion.

State government data used in this report is from the Michigan Comprehensive Annual Financial Report (CAFR), the FY 2009 Annual Report of the Michigan State Treasurer, and the CAFRs of the public pension systems (MERS, MPSERS, and MSERS). Local government data is from US Census and Governments State and Local Finance survey. Business Leaders for Michigan led the development of the Citizen's Guide with Anderson Economic Group, Citizens Research Council of Michigan, the Michigan Association of Certified Public Accountants and the Michigan Government Finance Officers Association.

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