How Fees Fuel Big Government

When Michigan government's outsized waistline fails to shrink, there's often very definitive actions and votes that tell the tale. Just two of many recent examples include 2007's billion-plus-dollar tax hikes and politicians too timid to make modest reforms last fall that would have saved hundreds of millions of dollars in K-12 spending.

But it isn't always so clear.

Outside of those "big meals," there are other high-fat morsels that keep the state from adopting a sensible diet.  A good place to find these "midnight snacks" is wherever a lawmaker is talking about a "fee" like it is different from a tax. While there are certainly examples of fees being used only for very specific and valid purposes, when any big pot of money is created in Lansing, what is "right" one day has a habit of morphing into "wrong" in a hurry.

Consider the case of 2009 Senate Bill 375, which authorizes spending $500,000 to conduct a survey and remarking - "remonumentation" - of the Michigan-Indiana border. On May 6 of last year, the Michigan Senate approved this bill on a vote of 34-1.

It now awaits attention in the Michigan House.

Properly identifying property boundaries - be they state lines or the fence you share with your neighbor - is an important component of maintaining both property rights and the rule of law. It is a legitimate function of government in a self-governing society. And because of this, Michigan government created a State Survey and Remonumentation Fund for this purpose. Money for this fund comes from a $4 fee assessed when property deed and mortgage paperwork is filed with the registers of deeds in Michigan counties.

Ideally, this is supposed to be a user fee: The people who benefit most from clearly marked property lines - property owners - pay the bill for keeping those lines maintained. But according to an analysis done by the House Fiscal Agency, SB 375 doesn't propose to take the $500,000 from the remonumentation fund.  In fact, it explicitly says that the money should NOT come from that fund.

Why would this be?

Perhaps because there's not enough money in the fund to get the job done. To find out why, consider the sad history of that $4 remonumentation fee.  

It was originally a $2 fee and was part of a state law passed in 1990 that required counties to complete their remonumentation work by 2013. By 2002 counties had determined that the fund was not collecting cash fast enough to allow completion of the work in a timely fashion, so they asked for a fee hike to expedite the process. The legislation used to increase the fee was 2002 House Bill 6490.

The fee hike, like the work, was set to expire in 2013.

But then in 2006, lawmakers desperate for tax dollars to fund a government that taxpayers could no longer afford enacted 2006 Senate Bill 959. According to a Senate Fiscal Agency analysis, it did the following:

"This bill provided for a one-time transfer of $15.0 million of the unreserved balance of the Land Survey and Remonumentation Fund to the General Fund."

"General Fund" is government-speak for "largest pot of cash that lawmakers can spend on whatever they can get the votes for." Moving remonumentation money there made it possible to avoid cuts to other portions of state spending. State spending for 2006 was more than $1.4 billion higher than it had been the prior fiscal year. This was an increase of 5.4 percent.

And what about that remonumentation job - the original purpose for the fee and the subsequent fee hike?

The job that was originally started in 1990 and was supposed to be finished by 2013?

A House Fiscal Agency  memo for SB 959 described the impact of transferring $15 million out of the program:

"... the 20-year Remonumentation program is already estimated to be under-funded by approximately $52 million and behind schedule. This will transfer require an 18-month extension of the program itself and the associated fee revenue."

And so, a dedicated fee and fund that was supposed to be used for marking boundary lines within the state and on its borders probably doesn't have the money to mark the Michigan-Indiana border and appears to now need a special appropriation from some other source to get the work done.

But money for the protection of property rights is far from the only piggy bank that has been raided by lawmakers. Here is another from earlier this month, as explained by MichiganVotes.org:

2009 House Bill 5599 (Authorize 9-1-1 phone tax "fund raid" )

Passed in the House (63 to 44) on September 14, 2010, to take $7 million each year in the next two fiscal years from telephone tax money levied to pay for 9-1-1 emergency phone service infrastructure, and use it instead to displace state general fund money in the State Police budget, thus avoiding the need to cut or reform other state spending. The infrastructure this phone tax was intended to create was completed several years ago and the tax was supposed to end, but was extended through 2014 in 2008. The fund this money goes into was previously "raided" in 2004, and again in 2006.

This one passed without a single GOP vote in the House. But this past Wednesday, the bill moved to the Senate, where it was modified slightly, so as to take only $5 million the first year and $7 million the second. The Senate approved it overwhelmingly with this change, with a bi-partisan majority supporting it on a vote of 35-2. The only dissenting votes were both Republicans. This modified version returns to the House for its consideration, and it seems likely that some version of this fund raid will eventually be sent to the governor.

After all, as noted above, the real purpose for the fee has long since ended and it now lives only as a cash source for the general fund.

This originally began as a 52-cent per month cell phone fee.  The 2004 raid took $12 million from it to help displace other general fund spending, and the bill in 2006 took another $15 million for essentially the same trick. The 2008 bill lowered the "fee" - which was by this point a "tax" in all but name - and extended its life.

Lawmakers have been quite aggressive in using these fee/fund raids recently. This latest 9-1-1 infrastructure raid is just one of FOUR examples that have happened in the Michigan Legislature during the past two weeks.

On Sept. 16, the Michigan Senate voted 37-0 in favor of Senate Bill 1267. It now awaits attention from the Michigan House. MichiganVotes describes it as follows:

"[Continues] to impose a 7/8ths cent-per-gallon gas and refined petroleum tax scheduled to expire on Dec. 31, 2010. The tax was originally levied for the cleanup of underground fuel tanks, but was diverted to other government spending following a 2004 "fund raid" enacted to avoid state spending cuts and reforms, and continues to be used for that purpose. The bill would extend the tax through 2012."

Another example happened in the Michigan House on Sept. 23, this past Thursday, when House Bill 6120 was approved on a vote of 65-39. Four Republicans joined the majority of Democrats to support the bill. One Democrat voted with the majority of Republicans who opposed it. It now goes to the Michigan Senate for consideration. The MichiganVotes description is as follows:

"[Would] divert $2.6 million in certain court and other fees dedicated to a state "juror compensation reimbursement fund," so that it instead goes into a state "court equity fund," which would allow legislators to use general fund money that currently goes to the court equity fund to avoid spending cuts and reforms in the Fiscal Year 2010-2011."

Finally, and also on Sept. 23, House Bill 6461 was approved by the House on a vote of 76-28. There were 17 Republicans joining the majority of Democrats supporting this fund raid. Three Democrats joined the majority of Republicans in opposition. This too is now under consideration by the Michigan Senate. The MichiganVotes description is as follows:

"[Would] divert $5 million in tobacco, hotel and liquor tax revenue intended to pay debt service on convention facilities like Cobo Hall to the state general fund, which would allow legislators to avoid spending cuts and reforms in in Fiscal Year 2010-2011 budget."

Whatever the stated original purpose of these fees, the bottom line is that they have now become tax hikes that fuel general spending. Many of the lawmakers who voted to create the fees in the first place and those who later voted repeatedly to divert the spending to other uses would likely not consider themselves responsible for raising taxes.

But that is the practical result of their efforts.

Taxpayers who wish to hold lawmakers accountable for the bloat of state government would be well advised to look more closely and not let politicians so easily off the hook when they talk about "fees" as if they are different from taxes.