Michigan’s budget surplus: More money, more problems? Sure, but it beats the alternative

Jan 3, 2014

Lansing these days could be renamed Surplus City, where we’re just looking for ways to spend the money that Michigan is expected to rake in this year. It appears our deficit days are behind us; we are now looking at a tidy little budget surplus. Early estimates put the number in the hundreds of millions of dollars range but we’ll get an official projection a week from today when the state holds the next revenue estimating conference.

People come to the Capitol and watch as economists talk about, ya know, economic things and come up with an official budget number. And one thing is certain: No matter how big the surplus is, there will be more ideas on how to spend it than actual money to spend. And, there’s already a list including road funding and more money for schools and universities.

Democrats also say they want to restore the Earned Income Tax Credit and Homestead Property Tax Credit. And, there will likely be talk about more money for local governments. These are things that Democrats, as the minority party in the Capitol, would typically have little influence over. But they have a little more to work with right now. That’s because, for one thing, it’s an election year, if -- as expected -- Republicans put more money into schools and universities -- it becomes harder for Democrats to use those as campaign issues. There’s also controversial questions like road funding and auto insurance, issues that aren’t likely to get resolved without some measure of Democratic cooperation.

So, we are faced here, with a fiscal philosophical question: What is a budget surplus?

Some argue that it’s a windfall, a happy accident that you can use to spend on something you’ve been wanting for awhile -- certainly an attractive prospect, especially if you’re among the merry band of legislators sitting on the House and Senate appropriations committees.

Or, is a budget surplus something else? Is it an excess of revenue? The result of government overcharging its citizens? Is there an obligation to return it?

And, if so, how? Certainly, we’re hearing a lot of talk of tax cuts, especially the pension tax. Extending the income tax to pensions is one of the most damaging issues Democrats are prepared to wield against Republicans in this year’s elections. A lot of Republicans would like to mitigate, if not completely eliminate, it as a campaign issue.

But for Gov. Snyder, our CPA in chief, this tax on pensions was also a matter of tax fairness. Remember? 401-Ks are taxed, but pensions were not. The governor said not taxing pensions shifts that share of the tax burden to other types of retirement income, to, for instance, young families.

Snyder had to expend a fair amount of political capital to get the Legislature’s GOP majorities to go along with this.  And, it looks like he may have to spend even more political capital if he wants to keep the pension tax. In fact, we’re already seeing some Republicans using the pension tax in their primaries.

The next five or six weeks in Lansing will set the stage for the rest of the year -- an abbreviated legislative year before election campaigns take over everything. There’s the revenue estimating conference next week, followed by Snyder’s State of the State address the following week. Then the governor will deliver his budget proposal  in early February -- which will include his ideas on what to do with the state’s extra money.

The governor will have to be careful not to overpromise. These are estimates, after all.  It’s one of the perils of being the person in charge of the checkbook. But this is certainly a better problem to have than empty pockets in an election year.