State Spending From State Sources Going Up Next Year

Despite headlines, the 2012 Michigan budget signed into law on June 22 actually hikes state spending by $758 million. In addition, a Senate Fiscal Agency analysis released last week understated this increase by leaving out so-called “one time” spending items (for example, $25 million for film subsidies, a figure that some lawmakers are already trying to increase).

Given all the news stories about “draconian cuts,” many might be surprised by this news. Yet only after accounting for the winding down of federal stimulus money does the state’s bottom line show a less costly government. In other words, when a new fiscal year starts in October, the state will be spending more money that’s taken directly from taxpayers here, and less that comes from the federal government.

A breakdown of the budget details shows that the lion’s share of the net increase in state spending from state revenue sources — $652 million — will be consumed by Medicaid and other health-related welfare programs in the Department of Community Health. In contrast, state universities will see $309 million fewer state dollars.

The budgeting for a state government employing nearly 50,000 people and spending $47 billion is complicated, and several footnotes must be attached to the figures.

For example, school districts will get around $130 million less next year, but that excludes a line item setting aside $133 million to help transition the retiree benefit system to a (hopefully) less costly and more sustainable alternative. If this is included, there will be practically no change in state spending on public schools next year. Either way, at most this spending will decline by just 1 percent — a far cry from the “devastation” claimed by the school employee unions. Even the 3 percent cut originally proposed by Gov. Rick Snyder would have been fairly modest, but Republican legislators responding to pressure from the teachers union nevertheless surrendered to its demands for more spending than the Governor requested.

Also, rather than an “expense,” a $255 million deposit to the rainy day fund represents a strengthening of the state’s balance sheet. For this reason, it is not included in the overall spending increase figure shown above.

Just before it was released in February, Lt. Gov. Brian Calley told an audience the budget would be like an “atomic bomb” going off among Lansing spending interests. The net effect appears more like a cap gun, however. A few particular interests may feel they’ve entered a nuclear winter, but apparently even nukes aren’t sufficient to change the state’s overall spending trajectory.