Who has "fact issues"?

Gov. Rick Snyder claims that that he and his administration have been investing in kids, that there has been “no reduction” in state support for K-12 education.

He says that “it’s not about partisanship, let’s just do the right thing.” We agree with those sentiments: support for strong, community-governed public education should not be a partisan issue, and we should definitely “do the right thing.” We’re still waiting for the governor to propose, and the legislature to pass, a budget that does right by the children of Michigan.

Gov. Snyder then goes on to say that people who argue he’s been cutting K-12 education “have fact issues.” But it is the governor’s facts which need a second look.

Bottom line: Gov. Snyder’s budgets took advantage of the depth of the recession to dig the hole even deeper in the first year to accomplish business tax cuts and other changes, allowing the weak recovery in subsequent years to look much better by comparison – but only if you ignore what things were like before or what things might have been like today had different choices been made. Between the end of earmarked school aid revenue from the Michigan Business Tax, and the diversion of funds to pay for colleges and universities, K-12 schools lost over $1.1 billion, or nearly $740 per pupil, each year because of the changes Gov. Snyder pushed through in 2011.

In a 29 May interview with WXYZ’s Stephen Clark, on the veranda of the Grand Hotel on Mackinac Island, Gov. Snyder opined:

Gov. Snyder: Well, if you stop and look at education funding, that’s a great illustration. We’re…the facts need to get out there. Ever since I’ve been governor, if you compare to 2011, which was not a budget I did, if you look at 2012, 2013 and 2014 we’ve added money to K through 12 with state dollars each and every year. We’re up over $632, over a 9% increase, and there has been no reduction. In fact, the only reduction that took place in that time frame was about half a billion dollars of Federal stimulus money that disappeared, that was not meant to be long-term money. So, get the facts out. We’ve been investing in education, smartly so, and adding early childhood – that’s exciting.

Clark: Why do they keep saying you’re cutting education?

Snyder: I don’t know. They have fact issues. So, that’s where I come back, and I’m a data-driven person. Again, it’s not about partisanship, let’s just do the right thing, and we need to focus on the kids and on student growth, and we’ve been investing in our kids.

As we wrote in an earlier article, the governor is cherry-picking his data. There are three main problems with the governor’s picture of his administration’ record on K-12 spending:

• The choice not to maintain school spending, and treating the Federal stimulus (ARRA) funds like a “bonus” rather than the “Band-aid” they were;
• The choice to focus on tax cuts rather than finding ways of maintaining services;
• “Earnings management” and concentrating the pain early to make later years look better by comparison.

First off, let’s look at the numbers. Gov. Snyder likes to focus on his own budgets, but it’s important to see long-term trends in Michigan education spending.

At the bottom, there’s nowhere to go but up

There is no question that the Great Recession hit Michigan hard, after close to a decade of faltering economic growth in our state. At the high-water mark, the FY 2006-7 school aid budget (passed in an election year, please note), total State spending on K-12 education totaled $11.6 billion. With a dip in between, spending for FY 2008-09 (another election year budget) was set to be $11.7 billion. But during that year, the bottom fell out of revenue collection, and that spending level was only maintained with close to $600 million of federal stimulus money. That was not a “bonus” – it was used solely to plug the hole that opened mid-year in the school aid budget, avoiding a $370 per pupil cut to remaining payments that would have hit schools right near the end of the school year.

The following year, FY 2009-10, total K-12 spending dipped to $11.1 billion and only reached that level with the use of $450 million in Federal stimulus dollars. In the final budget of the Granholm Administration, FY 2010-11, state spending recovered slightly to $11.3 billion, but only with the use of over $500 million in Federal ARRA and Ed Jobs stimulus funds, which ended that year.

At this point, state funding from state sources (not Federal stimulus) was down some $780 million from the levels of four years earlier, or about $495 per pupil. The fact that actual cuts totaled only about $300 per pupil was almost entirely due to the Federal stimulus funding assistance.

Now we hit the Snyder years. The Governor correctly notes that his first budget, FY 2011-12, was the first to be made with no Federal stimulus funding. At just a touch over $11 billion, K-12 spending for 2011-12 was about $300 million less than the year before, but about $200 million more than the previous year would have been without Federal help. Each of the Governor’s next two budgets have added about $200 million to the total K-12 spending, landing at some $11.4 billion budgeted for next year (FY 2013-14).

What about the dog that did not bark?

This picture leaves out some critical information that applies to the Snyder years. Has the Snyder administration increased K-12 spending from its absolute low point in 2011-12? Yes. But the increases are far less than they might have been.

At the same time that Gov. Snyder was working to balance the budget in FY2011-12, he was also acting on his promise to drastically reduce business taxes. The Michigan Business Tax was ended, and replaced by a Corporate Income Tax that generated far less revenue. At the same time, taxes on pensions were increased and individual tax credits were reduced or ended, in part to pay for the business tax cut. Former House Fiscal Agency director Mitchell Bean described the changes this way last week, according to Gongwer: “In his entire career with the state, he said, he had never seen such a huge tax shift from business to individuals.”

One consequence of the elimination of the MBT was to cut off revenues earmarked for the School Aid Fund, which the new CIT did not replace. According to the most recent consensus revenue estimation conference, this change has cost the School Aid Fund some $730 million each year since 2011, or about $477 per pupil that would have been there had the MBT’s earmarked funds been replaced.

At the same time, Gov. Snyder made permanent – and doubled in size – the diversion of School Aid Fund dollars to community colleges and state universities – something that had been done as a one-time emergency measure by Gov. Granholm in the recession budget two years earlier. Gov. Snyder and the Legislature did this to shore up the General Fund budget, which had traditionally carried higher education expenses, without having to admit that they needed new revenue. That diversion, now in its third year, amounts to $400 million that is removed from K-12 spending.

“Earnings management” – how to run government like a business

Many of the Governor’s moves have echoed the kinds of business practices that are aimed at making investors happier by making their earnings look better. One key to this is to lump all the pain in one year, allowing subsequent years to look better. By taking the first budget after the end of Federal stimulus money and then piling on revenue cuts from the end of the MBT and the diversion of money to colleges and universities, that entire period can later be written off as a consequence of the recession and the loss of Federal dollars. Michigan’s slow recovery would likely bring more revenue into the School Aid Fund, allowing the Governor and legislative leaders to claim credit for “investing in education,” even though actual spending is much lower than it might have been.

On top of that strategy, the Governor also used the trick of the “cookie jar,” a pot of funds saved in some years and spent in others to make corporate earnings look “smooth,” to the delight of investors. In this case, the Governor proposed skimming off $171 million in School Aid Fund revenue over two years and placing it in a state school pension system (MPSERS) reform “reserve” fund ($133 million in 2011-12 and $41 million in 2012-13). This made school spending somewhat lower in those years than it otherwise would have been.

For the coming year, the Governor proposed withdrawing $150 million from that “reserve” and applying it to the FY 2013-14 school aid budget. In his charts and descriptions, the Governor describes this as new spending, even though it is actually money diverted from school aid in previous years. In fact, this $150 million represented nearly three quarters of the Governor’s proposed school aid spending increase this year, and still represents 40% of the increase – the rest made possible largely from greater than expected revenue collections to the SAF.

One thing this dip into the cookie jar accomplished was to disguise the fact that the state’s assumption of a portion of pension costs – mandated under the pension restructuring act passed last year – is not coming from outside but is instead simply redirecting school aid money that in the past would have made the round trip to local districts. Had they money not gone into the cookie jar, it would have gone to districts – and then had to be taken away again in order to pay for the “state portion” of mandatory pension payments.

“You have a right to your own opinion, but not your own facts.”

In the television interview, Gov. Snyder said that his critics have “fact issues.” Members of the legislative majority, when debating everything from the school aid budget to bills that would permit the state to dissolve districts in deficit, have made parallel arguments. Unfortunately, it is not the critics who have “fact issues,” but our political leaders themselves. In these days of spin and sound bites, is it really too much to ask for the leaders of our state to speak with common honesty?