“Draconian” $304 million budget cut is 1.05 percent of state revenue

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(Cross-posed from Students for a Free Economy blog.)

Yesterday, responding to a $1.3 billion gap between how much state politicians like to spend vs. the amount of revenue they actually expect to collect (a.k.a. “the deficit”), the governor proposed and the legislative appropriations committees approved $304 million in state spending reductions. The balance of the spending gap will be filled in with federal “stimulus” money (called “Obamabucks” by Capitol wags).

The $304 million amounts to 1.05 percent of state revenue from state sources, which is around $28.9 billion. Federal money (not counting the “stimulus”) adds another $14.9 billion to make up the $43.8 billion “adjusted gross spending” budget.

Here’s how they spend the biggest chunks of the $28.9 billion raised in the state:

  • K-12 schools swallow $11.8 billion
  • Medicaid and related health-care welfare consume $4.9 billion
  • Universities and colleges get $2 billion
  • Prisons spend $2.0 billion
  • Gas tax and vehicle registration fee dollars set aside for roads are $2.1 billion
  • Regular welfare is $1.3 billion
  • Revenue sharing to local governments is $1.1 billion

The politicians and their friends in the media like to measure spending reductions as percentages of the “General Fund,” but that’s a game they play to fool the public. Much of so-called “restricted fund” money really isn’t very restricted. For example, $11.7 billion “school aid fund” money all goes to K-12 schools, but it could also be spent on colleges and universities (especially since the number of kids in public schools is falling).

Also, lots of state revenue never touches the general fund, but has been earmarked for other purposes (and can just as easily “un-earmarked”). That includes around $300 million in tobacco lawsuit settlement money, and $304 million from a 75-cents per pack cigarette tax hike passed in 2004. Most of the money from both of those goes to Medicaid and related health welfare.

If the road tax revenue is subtracted from the $28.9 billion the state takes from Michigan taxpayers, yesterday’s $304 million cut comes to 1.2 percent of the remainder. If school aid money is also subtracted it’s 2.0 percent

If they didn’t use “Obamabucks” and covered the entire $1.3 billion “deficit” with cuts, the reduction would be 4.5 percent.

Question: If you had to cut 1.05 percent or 4.5 percent from your family budget would it really be a life-altering hardship? 

It is said by some that this oversimplifies, and that it really is hard to cut the budget. It’s not hard. You just have to be willing to think outside the box and reject, “But that’s not the way we’ve done it in the past!”  If you are willing, then here’s how to cut $1.9 billion.

If you’re not willing then not only is it hard to cut spending – it’s impossible. And if it’s impossible, that leaves only one alternative – tax hikes. Which they are already whispering about around the Capitol.

That tax talk should cease. These cuts represent a penny to a nickel on a dollar of state spending. Isn’t protecting what few jobs Michigan has left from another economy-crushing tax hike worth more consideration than that?

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