Town Hall meeting on the state budget

[From AAParentsforSchools.org] Washtenaw County legislators met with local citizens, city leaders and school officials tonight to explain the current state budget crisis and seek public support for their solutions. Speaking to a very interested audience, the four Democratic lawmakers underlined their commitment to finding new sources of revenue for the state budget and school aid fund rather than relying on further cuts to balance the budget.

The speakers included Sen. Liz Brater (D-Ann Arbor), Rep. Pam Byrnes (D-Chelsea), Rep. Alma Wheeler Smith (D-Ypsilanti), and Rep. Rebekah Warren (D-Ann Arbor). They were joined by Gary Olson, Director of the nonpartisan Senate Fiscal Agency. [Rep. Kathy Angerer (D-Dundee), was unable to attend.] Their purpose was to make clear the seriousness of the state's budget crisis, which Dr Olson did with a quick but detailed presentation about the current state of the budget and the Governor's proposals to address the problems (we'll link to the online version of his State Budget Update when it becomes available). Dr Olson reiterated that the main reason behind the current shortfalls was the continued deterioration of the Michigan economy, led by significant job losses - especially in the automotive segment of the manufacturing sector. The economic problems have both depressed revenues to the state from sales and income taxes as well as put upward pressure on state spending for Medicaid and similar programs. The FY07 budget was based on financial projections made last May, which turned out to have been too optimistic. Michigan's Constitution does not allow the state to run a budget deficit, and the Governor and Legislature are required to either make cuts or find new revenue to fill the gap.

In responding to audience questions, it was clear that the four lawmakers were all determined to solve the state's budget issues with new revenue. They all argued that significant cuts have already been made in each of the last several years, and that further cuts would simply undermine the crucial services - including schools - supported by the state. While the legislators declined to speculate about what the results of ongoing budget negotiations at the Capitol might be, they expressed confidence that some sort of increased revenue (taxes) would be part of the deal. While many of the questions revolved around the Governor's proposed 2% excise tax on services, the lawmakers also gave some indications that other alternatives, including changes to the income tax, might be getting serious consideration.

Rep. Smith argued that much of the state's current funding crisis might have been avoided had the Legislature not moved to make permanent cuts in the income tax and other taxes in the late 1990s when "we were flush" (rather than rebates or more temporary tax relief). Her legislative colleagues agreed, and Dr. Olson appeared to concur. Rep. Smith described some of her Republican colleagues as only now acknowledging the consequences of those earlier actions, which leads her to believe that momentum is building to repair earlier mistakes and put the state budget on a sounder fiscal footing.

Responding to questions about how changes to the state pension system for teachers (MPSERS) might take the pressure off school aid, Dr. Olson surprised many (including Rep. Byrnes) by saying that changes to the pension portion of the system were not likely to generate much savings. Moves such as switching from a "defined benefit" to a "defined contribution" system (see our article here) would not generate savings except perhaps in the very long run, he said. (Increasing health care and pension costs are blamed by many school administrators for the extreme financial pressures their districts face.) Changing the health care portion of the system might cut some costs, Dr. Olson indicated, if the MPSERS benefits vested more slowly, as they do in the current state employee plan. But even these changes would take some time before they would produce significant savings, in his opinion. Rep. Smith jumped in to say that teacher pension contributions used to be the responsibility of the state, but that they were handed over to the school districts after Proposal A was passed. For this reason, she argued, this was a problem that needed to be solved by the legislature rather than have it burden local schools. Sen. Brater argued that it was unfair to single out the health care costs of teachers as a problem, when the cost of health care is a problem for the whole economy and needs a broader solution. Looking to cuts costs by shrinking the health benefits of teachers would simply make it harder to find the qualified, talented people we need in the profession, the senator insisted.

Finally, when asked if the legislature would consider changing the system created by Proposal A, Sen. Brater replied that she doubted that any lawmaker, if asked privately, would deny that the school finance system had serious problems. On the one hand, many legislators (and their districts) continue to see taxes as the bigger problem, she said; on the other hand, this latest in a series of problems with school funding may have helped convince lawmakers that changes are needed. All four legislators on the panel emphasized that citizens from around the state needed to speak up and encourage their representatives to tackle the problem.