Reports


The balanced budget amendment: A harmful and unnecessary proposal

pdficonJuly 2018
Charlotte Jonkman, Intern

Requiring a federal balanced budget through a Balanced Budget Amendment (BBA) is a bad idea that continues to resurface year after year. The BBA would result in cuts to valued programs like Social Security and Medicaid, limit the federal government’s ability to respond to crises—economic and otherwise—and cause significant reductions in federal funding for such priorities as roads and highways, the Great Lakes, and K-12 education. Such an amendment would primarily impact the most vulnerable Americans, pairing increasingly difficult economic conditions with rapidly decreasing assistance from their government. In addition, the process of adopting the BBA is filled with unknowns and the potential for unpredictable alterations to the U.S. Constitution. A Balanced Budget Amendment is a bad idea for our nation and has no place in Michigan.

What is the Balanced Budget Amendment? The Balanced Budget Amendment would constitutionally prohibit federal expenditures from exceeding total revenue for any fiscal year, resulting in a balanced budget at the end of each year. Most versions of the amendment include a debt cap, spending cuts and exceptions for emergencies like natural disasters or security threats. Notably, Michigan is one of the majority of states requiring that their state budgets be balanced.

HJR V: This joint resolution in the Michigan legislature is the latest in a series of attempts to begin the process of adopting the BBA. It calls on Congress to convene an Article V Convention with the broad goals of imposing fiscal restraints on the federal government, limiting the power and jurisdiction of the federal government and imposing term limits on federal officials and members of Congress.

  • What is an Article V Convention? An Article V Convention is one of two ways in which the U.S. Constitution can be amended. It requires that two-thirds (34) of the states call on Congress to convene the convention, at which an amendment may be proposed. Amendments must then be ratified by three-fourths (38) of the states in order to become part of the Constitution.
  • A New Name for an Old Idea: Michigan has been here before. Not only has the idea of an Article V Convention on this topic been debated for many years, but previous resolutions passed by the Legislature make the adoption of House Joint Resolution (HJR) V a redundant and unnecessary step.

A new name for an old idea
Why the Balanced Budget Amendment Is a Threat to Michigan

  • A danger to Michigan’s Schools, Roads and Parks: The rigid balancing of costs and revenues under the BBA would undoubtedly result in a tilt toward cutting federal funding for state priorities and programs. Some versions of the BBA even specifically incentivize spending cuts by making it more difficult for lawmakers to raise or levy new taxes. As a result, the federal funding Michigan relies on for such vital priorities as K-12 education, environmental protection of our Great Lakes and wildlife and our residents’ health could face dramatic cuts due to the BBA. Michigan’s already underfunded schools and crumbling infrastructure could only be further harmed by such drastic measures. In Michigan, aid to families with low incomes, seniors, and persons with disabilities faces the gravest threat.

Federal Funds as a Percent of MI Bdgt

  • Exacerbating Economic Struggles: The BBA would also limit the government’s ability to respond to economic downturns by prohibiting increased spending in times of crisis. Not only would this prevent the government from employing the fiscal policies successfully used to lessen the effects of and ultimately end economic downturns in the past, but it would also prevent families from receiving the assistance they need. Reduced tax revenues would result in further cutting of the federal programs those families rely on, exacerbating the hardships they face. In addition, capping the gross public debt prohibits programs like Social Security from drawing on previously saved funds, making cuts to residents’ payments nearly unavoidable. Under the BBA, Social Security would be cut by about $325 billion in 2025 and by $2.6 trillion through 2028.1
    • Michigan families depend on these programs in times of crisis: During the Great Recession, Michiganders increasingly relied on programs like Unemployment Insurance and SNAP to help provide for their families. With the BBA in place, those families would have suffered even further and would be left without assistance in future crises.

— Unemployment Insurance in Michigan2

1st Quarter FY 2008 – Initial Claims: 239,459 … Benefits Paid: $633, 436
1st Quarter FY 2009 – Initial Claims: 457, 102 … Benefits Paid: $1,144,370

— SNAP in Michigan3

FY 2008 – Monthly Participants: 1,256,373 … Issuance: $1,506,032,208
FY 2009 – Monthly Participants: 1,450,272 … Issuance: $2,106,871,076

  • The Unknowns: Due to the variation between proposed versions of the BBA, there are many undetermined factors of the amendment that could cause even further harm. For example, there is no guarantee that adequate exceptions for natural disasters, national security threats and other emergencies would be included. It is also possible that the BBA would include such provisions as a limit on total expenditures, forcing even more drastic and immediate cuts to total federal spending.
  • Endangering our Constitution: Convention of States’ proposal employs language making an Article V Convention convened at its request especially threatening to the U.S. Constitution. Their deliberately non-specific goals for the convention—notably encompassing any proposal that limits the power and jurisdiction of the federal government—allow for unexpected and potentially devastating changes. As a result, the passage of HJR V would open the door not only for the BBA to wreak havoc on Michigan’s economy and the programs we depend on but also for undemocratic forces to make significant alterations to our nation’s founding document.

Endnotes:

  1. Kogan, Richard, Balanced Budget Amendment Could Lead to Extreme Budget Cuts, Center on Budget and Policy Priorities (April 2018)
  2. United States Department of Labor
  3. United States Department of Agriculture

Highlights of the 2019 state budget

pdficon             Budget Brief JPG USE THIS ONE                   June 2018

BB-Hilghts of the 2019 State Bdgt graph 1The 2019 state budget bills have been approved by the Michigan Legislature and Governor Rick Snyder. Below are some of the major highlights of the 2019 budget, along with some of the issues not yet addressed. For more on the state budget and the League’s priorities, go to www.milhs.org.

HUMAN SERVICES

Access to Healthy Food

  • “Heat and eat” policy continued. The “heat and eat” policy increases food assistance benefits for thousands of Michigan residents with low incomes. In April of 2018, nearly 1.3 million Michigan residents received food assistance, including over half a million children. African American and Latinx families are more likely to face food shortages, as well as live in high-poverty neighborhoods with few sources of healthy food.
  • The asset test currently in place for food assistance was retained. The League has supported the removal of the current asset test because it can discourage families with low incomes from saving enough to weather a temporary crisis. Since 2002, approximately 35 states have eliminated their asset tests.
  • Override of waivers exempting food assistance recipients from work was included. The governor’s recommendation did not include language about waivers from work requirements for persons receiving food assistance through the Supplemental Nutrition Assistance Program (SNAP). The Legislature added language to override any federal waiver requested by the department that would allow able-bodied adults without dependents to receive SNAP benefits for more than three months out of a three-year period if they are not meeting the 20-hour-per-week work requirements for those months during times of high unemployment.

Income and Family Support

  • The governor’s proposal to increase income assistance grants slightly was rejected. The Legislature rejected the governor’s recommendation to increase Family Independence Program (FIP) grants by approximately $2 per person per month at a cost of $1 million. Since 1996, there have been only a few very small increases in FIP grants, and their purchasing power has fallen from 42% of poverty to only 29%.
  • The FIP school clothing allowance was increased. The Legislature approved $960,000 for an increase in the FIP school clothing allowance. Based on the current year budget, families receiving public assistance were eligible for $156 per child for clothes at the beginning of the school year. The governor provided no new funding for the school clothing allowance in his 2019 budget, but in prior budget years had recommended that the school clothing allowance be raised to $200 per child.

Child and Adult Safety

  • Overall funding for foster care and other child welfare programs continues to grow. In recent years, funding for foster care and other out-of-home placements for children has grown, in part because of litigation against the state for its failure to find safe and secure permanent homes for children in a timely manner. For 2019, the Legislature approved an increase of $19.5 million ($16.5 million state General Fund dollars) to cover expected caseloads for foster care, adoption subsidies, the Child Care Fund, guardianship assistance and the Family Support Subsidy. In addition, the Legislature included $16 million in state funding to comply with a court decision requiring the state to pay the foster care maintenance rate to unlicensed relative foster care providers.
  • Funding for child abuse and neglect prevention programs increased slightly. The Legislature approved a total increase of $1 million for child abuse and neglect prevention programs funded by the Children’s Trust Fund (CTF). Of that total, $800,000 was authorized for the CTF to spend current cash reserves for grants over the next three years. The additional $200,000 in state General Fund dollars approved by the Legislature is accompanied by budget language that at least half of the $1 million expansion in services is to be used for programs that address substance use disorders.
  • Funding for runaway and homeless youth services expanded. The Legislature approved $500,000 to expand funding for services and housing for runaway and homeless youth.

HEALTH

Healthy Michigan

  • Healthy Michigan funded despite threats. With the likely signing of legislation requiring work requirements and other proposed changes, the Healthy Michigan program faces a number of threats, but in the meantime the Legislature and governor have continued to fund the state’s share of the program. The budget, however, does discontinue $50 gift cards intended to incentivize those with income below 100% of the federal poverty level to complete a health risk assessment.

Public Health

  • Flint investment continues. As Flint continues to deal with the ongoing water crisis and its aftermath, state support for the city remains critical. Through the final 2019 budget, the governor and Legislature have reduced funding to the city by $16.9 million in ongoing funding, but have allocated one-time funding for food and nutrition services, health services at adolescent centers and schools, and lead poisoning prevention and related services.
  • Funding approved to address PFAS concerns. The budget provides funding to address the environmental contamination of perfluoroalkyl and polyfluoroalkyl substances (PFAS) in state water sources. Funding is to be used for laboratory capacity and services, environmental health toxicology and response, and local health department response grants.
  • Lead Poisoning Prevention Board continues work. The board created in 2016 has recommended over 80 actions the state can take to prevent lead poisoning. In order to continue implementation of the recommendations the board received $1.25 million.

Support for Michigan Seniors

  • Senior community service programs increased. $2.5 million was approved in order to provide community service programs for seniors, including in-home services.
  • Long-term insurance options to be studied. The League has been active in advocating for HB 4674, which would assess the current landscape of long-term care, including costs, and would explore potential policy and budget solutions. The Legislature will match private funds of up to $100,000 to begin to address these issues.
  • PACE sees boost in funding. Over $41 million is allocated to expand the state’s Program of All-Inclusive Care for the Elderly (PACE) program to approximately 950 Michigan seniors. PACE programs provide all medically necessary care and services to often medically frail seniors—encouraging them to stay in their homes, which is both more comfortable and cost-effective.

Behavioral Health

  • Pay increased for state psychiatrists. In order to bring wages more in line with other states, the governor proposed and the Legislature approved $1.4 million to increase pay for psychiatrists at state hospitals. This increase is expected to help attract and retain staff, which will ultimately lessen wait times at these facilities.
  • Non-Medicaid mental health services become whole. $5.5 million is provided to community mental health service programs to ensure that the revised funding formula does not result in a reduction of funding for non-Medicaid mental health services.
  • Specialty programs receive funding. The budget included funding for an autism navigator, opioid outreach coordination and an autism train-the-trainer program. The Legislature eliminated funding for university autism programs, along with one-time funding for the Special Olympics.

K-12 AND EARLY EDUCATION

Per-Pupil Spending

  • Per-pupil spending is increased. The Legislature increased the per-pupil payment to schools by between $120 and $240, with the largest increases for districts currently receiving the lowest payments. This is the increase recommended by the governor for 2019 and brings the minimum School Aid payment to $7,871 per student and the maximum to $8,409, at a total cost of $312 million.
  • Increased payments for high school students are continued. In recognition of the higher cost of instruction for high school students, the Legislature provided $11 million this year for a new bonus payment of $25 per pupil in grades nine through 12. That payment is continued in the 2019 budget.
  • Funding for cyber schools and shared-time nonpublic/homeschooled students continued. For a second year, the Legislature rejected the governor’s proposed cuts in funding for cyber schools, as well as shared-time programs for nonpublic and homeschooled students. The governor had proposed a reduction of 25% in funding to cyber-schools to reflect lower facility and transportation costs, and a cap on shared-time payments.

Partnership Districts

  • Funding for partnership districts increased slightly. The Legislature approved a $1 million increase in funding for partnership districts that are working to improve student achievement, bringing total funding to $7 million. The governor had requested an increase of $2 million.
  • New accountability measures adopted for partnership districts. The final budget established new accountability measures for low-performing partnership districts, including: 1) partnership agreements with the state must include measurable academic outcomes to be achieved within 18 and 36 months; 2) accountability measures must be outlined and may include either school closure or reconstitution, with reconstitution defined as significant changes to instruction and other school programs, the replacement of at least 25% of faculty and staff, and the hiring of new principals.

Programs for Students Academically At-Risk

  • No new funding was approved for the At-Risk School Aid program. The Legislature adopted the governor’s recommendation for level funding for the At-Risk School Aid program ($499 million). Despite increases in the last two budget years, funding for services for students who are academically at-risk remains below what would be required to meet the statutory formula, leaving many schools in high-poverty communities struggling to reduce educational inequities.
  • Some of the intended uses of At-Risk funding are changed. Currently, At-Risk funding is to be used to ensure that third grade students are reading proficiently, and high school graduates are career and college ready. The Legislature broadened the goals of the program to include literacy and math in grades K-12; added additional accountability metrics, including proficiency in math by the end of eighth grade; and included a new focus on academic growth along with proficiency (effective in 2020).

Early Intervention

  • New state funding for Early On. The Legislature approved $5 million in state funding for Michigan’s early intervention program—the first state funding provided for the program. Early On identifies and serves infants and toddlers with developmental delays, but the lack of state funding has resulted in an inability to provide comprehensive services to all children who are identified as needing intervention. The governor recommended $5 million for competitive grants, but the Legislature opted to distribute the funds through the same formula used for federal Early On dollars.

Early Literacy

  • Total funding for early literacy was increased slightly. The Legislature added $500,000 for a summer reading pilot program and maintained $2.5 million for the Michigan Education Corps—bringing total early literacy funding to $29.9 million. In the final budget, $19.9 million is available for additional instructional time for students needing support, and $7 million for teacher coaches. The governor recommended $6 million for teacher coaches and $20.0 million for extra instructional time for students needing support, but eliminated $2.5 million for the Michigan Education Corps.

School Nutrition

  • Increased funding to encourage healthy foods in schools. The governor removed funding ($375,000) for the 10 Cents a Meal program that provides up to 20 cents for every meal served in schools that includes locally-grown fruits and vegetables. Priority for funding is given to school districts with high percentages of students eligible for free lunches, and is currently available in three of the state’s Prosperity Regions (Northwest Michigan, West Michigan and Southeast Michigan). The Legislature increased funding for the program by $200,000 to a total of $575,000, allocating $125,000 each to the Northwest, West, East and Southeast Prosperity Regions, and $75,000 to the Southwest region.

Early Childhood Education and Care

  • Level funding was provided for the Great Start Readiness preschool program (GSRP). While the Legislature agreed with the governor to continue the GSRP at current funding levels ($243.9 million), it shifted $1 million of funding that is currently allocated for direct preschool services to professional development for early childhood educators in programs implementing new curricula in the 2020 budget year. The Legislature also added budget language requiring the Department of Education to evaluate and approve GSRP curricula that are in compliance with the early childhood standards of quality for prekindergarten adopted by the State Board of Education.
  • A new payment system for child care subsidies was adopted. The final budget spends part of the approximately $65 million annually of new federal Child Care Development Block Grant (CCDBG) funds coming into Michigan. In recognition of the fact that few child care providers bill families by the hour, the budget adds $15 million to establish biweekly payments to child care providers with the following schedule: 1) providers caring for children up to 30 hours every two weeks will continue to be paid hourly for their services; 2) those between 31 and 60 hours are paid at 60 hours; 3) between 61 and 80 hours receive payments for 80 hours; and 4) for 81 to 90 hours, payments are for 90 hours of care. The new payment schedule takes effect in December of 2018. Child care providers, many of whom operate small businesses at the margin, have struggled to provide care to children receiving state subsidies because of the administrative time required to track hours of care, as well as the inability to accurately project their business income.
  • No increase in income eligibility levels for child care subsidies or payments to providers. The final budget did not include a Senate proposal to increase the state’s income eligibility level for child care from 130% of poverty to 150%. Also rejected was a Senate increase of $10.7 million to raise payments to providers.

Adult Education

  • Statewide adult education programs received a small funding increase. The Legislature increased adult education programs by $1 million. The governor had not provided additional funding for adult education programs, despite the reality that state support has dropped from $80 million in 2001 to only $25 million this year and still falls short of the need.
  • Additional funding was provided for adult education and career/technical education (CTE) collaborations. The Legislature increased funding for adult education/CTE collaborations by $2 million to a total of $4 million, with funding used to transform current pilot projects into ongoing grants to Intermediate School Districts. In addition to the program funding, $500,000 will be available for related administrative costs.

Flint Water Crisis

  • School Aid funding for Flint was reduced. The Legislature agreed with the governor and reduced School Aid funding for Flint by $5.5 million, from $8.7 million this year to $3.2 million in 2019. Also approved was $15 million in contingency fund authorization—funds that are not available to spend unless transferred by the Legislature at a later time. A total of $2.6 million of the total $3.2 million appropriation is to be used by the Flint School District for school nurses and social workers, as well as a newly allowable use of the funding—hiring additional classroom aides. Removed from the budget are $2.5 million for early childhood and nutrition services, as well as $3 million for universal preschool for Flint children regardless of income.

School Safety

  • New School Mental Health and Support Services Fund created. The Legislature created a new fund of $30 million for school mental health and support services. The fund is created in the current year budget, with legislative approval required before any funds can be spent. Funds not spent are allowed to be carried over into subsequent budget years.

POSTSECONDARY EDUCATION

Financial Aid

  • No state financial aid for older students. Neither the governor nor the Legislature included funding for the Part?Time Independent Student Grant, which helps students who have been out of high school more than 10 years.
  • Tuition Incentive Program serving Medicaid-eligible students gets a larger than expected increase. Although the House and Senate both approved the governor’s $1.5 million (2.6%) increase in funding for the Tuition Incentive Program, the conference committee increased funding by $6 million (10.3%), for a total of $64.3 million. This grant is funded 100% with TANF dollars.
  • Tuition Grant serving students at private, not-for-profit colleges stays flat. Although the governor’s budget had cut funding for this grant by $6 million, the Legislature retained the current funding level of $38 million, of which all except $6.4 million is paid with TANF funds.
  • Michigan Competitive Scholarship gets an increase: The Legislature increased funding for this scholarship at the $6 million recommended by the governor, for a total of $32.4 million. All except $8 million is funded with TANF dollars.

BB-Hilghts of the 2019 State Bdgt graph 2School Aid Fund Dollars Diverted to Postsecondary Education

  • Postsecondary education gets more than $900 million intended for K-12 public schools. The Legislature more than doubled the amount of School Aid Fund dollars going to universities from $238 million to $500 million, far more than the level recommended by the governor. The Legislature followed the governor’s recommendation to pull $408.2 million from the School Aid Fund and put it into community colleges, comprising 100% of state financial support for community colleges. This adds up to a total of $908.3 million for Budget Year 2019 that the Legislature pulled from the School Aid Fund intended for K-12 schools and students, the largest amount ever diverted and a 43% increase over the current year. The money is used for college and university operations, shoring up the employee retirement program, and reimbursing community colleges for the loss of revenue resulting from Renaissance Zone tax breaks.

Tuition Restraint

  • Tuition restraint gets small adjustment. Currently, a university may not raise its resident undergraduate tuition and fees by more than 3.8% or $475, whichever is greater. The governor updated the tuition restraint cap to 3.8% or $490, whichever is greater, and the Legislature adopted this change.

CORRECTIONS

Prison Operations

  • Cut to prison operations to reflect future prison closure. The governor funded prison operations at a total of approximately $1.08 billion spread across the state’s 28 prison facilities, including regional support systems for those facilities. He did not recommend another prison closure for the 2019 budget. The Legislature, however, cut funding for prison operations by $19.2 million to reflect the future closure of another, undetermined prison in the 2019 budget year. The Legislature will fund prison operations at a total of approximately $1.06 billion.
  • Additional funding to move prison food services in-house. The governor retained current-year funding for prison food services, and recommended an additional $13.7 million General Fund dollars, as well as the authorization of 352 state employee positions, to terminate the current contract for food service operations and return to the delivery of services by state employees. The Legislature reduced the 2019 appropriation for the transition to $13.2 million. Additionally, the Legislature will fund annual prison kitchen inspections at $50,000.

Residential Alternative to Prison Program

  • Residential Alternative to Prison program is maintained. The governor maintained $1.5 million for the Residential Alternative to Prison program, which expanded to counties in West Michigan last year. The program provides vocational, educational and cognitive programming for probation violators who might otherwise be sentenced to prison. The Legislature supported the governor’s proposal.

Education and Job Training for Prisoners

  • Funding for Vocational Village maintained. The governor maintained $3.3 million in funding for the Vocational Village program in Jackson and Ionia. The program trains prisoners in the skilled trades. A third Vocational Village program set to open in Huron Valley is still in the planning and development stages. The Legislature did not make a specific recommendation for the program, but funding for Vocational Village and other education and career readiness programs is not reduced, so it is assumed that program funding will not change from the current year.
  • Online High School Equivalency Pilot Program funding reduced. The governor proposed eliminating the program, which offers career-based online high school diplomas. The funding was first included in the 2018 budget with the intention of serving up to 400 inmates. The Legislature reduced funding for 2019 from $1 million to $500,000.
  • Goodwill Flip the Script funding maintained. The governor eliminated funding for the Flip the Script program ($1.5 million) operated by Goodwill Industries in Wayne County. The program has been funded since the 2015 budget year and provides education, job training and mentoring to 16- to 39-year-olds who have entered the criminal justice system, with the goal of keeping them out of the prison system. The Legislature disagreed with the governor and retained current year funding for the program.
  • Education Programs for Higher Security Prisoners funding maintained. The governor recommended $4 million ($2.4 million one-time and $1.6 million ongoing) to expand education programs to higher-security level prisoners with the intention of ensuring that more inmates are able to gain job readiness skills and prepare for reentry into communities. The Legislature included only $2.4 million in one-time spending for education programs for higher security prisoners.
  • Enhanced Food Technology Program funded. The Legislature included $2 million for a new enhanced food technology program that would enable program participants to complete on-the-job training hours through work in the prison kitchens.

Health-Related Services

  • Funding for hepatitis C treatment maintained. The governor maintained $6.7 million in funding for drug treatment of prisoners with hepatitis C. The Legislature approved the governor’s funding.
  • Funding increase for Federally Qualified Health Center Pilot Program. The governor eliminated the pilot program that helps ensure that behavioral and physical health needs of parolees and probationers are met. The Legislature disagreed and included an additional $175,000 in funding for a total appropriation of $250,000 for the program.
  • Substance Abuse Parole Certain Sanction Program funding maintained. The governor eliminated the program ($1.4 million in funding) for accredited rehabilitation organizations offering services to parole violators with a history of heroin and methamphetamine abuse. The Legislature retained current year funding of $1.4 million.
  • Funding increase for Medication-Assisted Treatment Reentry Pilot Program. The governor did not fund an expansion for the pilot program which provides pre-release treatment and post-release referral for opioid- and alcohol-addicted offenders. The Legislature included an additional $500,000 to expand the program, bringing total funding to $1 million.

 

A crack in Michigan’s foundation

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Michigan families are experiencing a crisis-level shortage of affordable housing, a symptom of the income inequality that has been growing in the state for decades. Since the 1980s, incomes have declined for 99% of the state’s households1 and African-American and Latinx households have lost 75% and 50% of their wealth, respectively.2 Despite Michigan’s recovery from the Great Recession, many families still must make difficult choices between shelter and other basics, leading to poor health, critical life disruptions that limit achievement in school and at work, and significant losses to the economy.

This opening installment of the Home, Health, Hope  series provides an overview of Michigan’s affordable housing crisis. Future installments will examine the situations in Detroit and Grand Rapids, as well as the underlying factors that make it hard to secure healthy housing at a manageable cost, including discrimination, unaffordable utility bills and barriers confronting people with disabilities and other health conditions.

To ensure adequate homes for all Michiganders, government must reverse its decades-old strategy of underinvestment in housing, address discriminatory policy designed to create inequitable housing access, and support measures that promote economic opportunity for families with low incomes.a crack in Michigans foundation chart 1

BREAKING THE BUDGET

Housing (including utilities) is considered “affordable” when it costs no more than 30% of household income. Many families, however, are housing cost-burdened, meaning they spend even more than that. More than 1.5 million Michigan households don’t earn enough to meet their basic needs,3 and in Detroit and Grand Rapids, housing costs put an even greater strain on family budgets. The average household wage necessary to afford a modest two-bedroom rental unit in Michigan is $16.85 per hour—almost twice the state minimum wage ($9.25 per hour at the time of this calculation).4

 

a crack in Michigans foundation chart 2

Throughout the state, the demand for affordable housing exceeds the supply, especially among renters and the most economically disadvantaged households.

Unlike a number of other means-tested services, federal housing programs receive a finite amount of funding every year.

a crack in Michigans foundation chart 3

THE CYCLE OF POOR HEALTH, LOST OPPORTUNITY & POVERTY

High housing costs drive the cycle of generational poverty by threatening health, creating toxic stress and limiting academic achievement, work productivity and earning potential.

 

a crack in Michigans foundation chart 4Policy designed to promote racial segregation has led to the concentration of poverty and low-quality housing stock in certain neighborhoods, as well as disinvestment in these areas by both government and the private sector. The result is a lack of amenities that promote health, education and employment. Revitalization efforts are often focused on attracting wealthier people to the area, displacing current residents and potentially leaving them with no place to go.

POLICY RECOMMENDATIONS

Federal housing services have been underfunded for decades and the 2017 tax overhaul’s impact on the Low-Income Housing Tax Credit—historically, the primary incentive for private-sector development of affordable housing—could discourage the production of more than 3,600 affordable units in Michigan over the next 10 years.5 To ensure quality homes for all Michiganders so they can stay healthy, be productive students and workers and keep the state competitive in the global economy, it’s critical that state policy creates a friendly environment for local housing efforts and empowers families facing housing challenges.

Promote inclusionary zoning (IZ): Local IZ ordinances call for a number of units in new housing developments to be priced affordably for people of modest means. Such ordinances can easily be tailored to address conditions in a particular community and can be either mandatory, applicable to all development projects meeting the criteria set by the local unit, or voluntary, meaning developers can agree to provide an affordable set-aside in exchange for certain benefits from the municipality, such as a tax break, flexibility regarding certain land use regulations or a discount on the purchase of public land.

Michigan law prohibits local units of government from adopting rent control policies, including mandatory IZ, and does not make it clear that communities may offer incentives to encourage the development of affordable housing. A handful of Michigan communities have adopted voluntary IZ (also known as incentive zoning). At a minimum, the state should clarify that voluntary IZ does not violate the rent control ban. Ideally, Michigan should give local units the option to adopt mandatory IZ, which overall has been shown to produce more affordable units than incentive zoning.6

Fund Michigan’s housing trust fund (HTF): State HTFs can supplement federal housing programs, fund projects and services precluded by federal program rules, and support nonprofit organizations in implementing affordable solutions for a market that’s often under-served by for-profit developers.7 On average, every dollar a state HTF invests in the creation, rehabilitation and preservation of affordable housing generates $7 in further public and private investment.8 Since its creation, the Michigan Housing and Community Development Fund (MHCDF) has received only two rounds of one-time, limited funding—in 2008 and 2012. Funded projects attracted as much as $11 in new investment for every $1 of MHCDF money and created thousands of jobs.9 Michigan should examine HTF funding methods used in other states and identify a robust, sustainable revenue stream for the MHCDF.

Prohibit source-of-income (SOI) discrimination: The federal Housing Choice Voucher (HCV) program is designed to diffuse concentrated poverty and desegregate neighborhoods by giving families with low incomes the option to move to neighborhoods with better opportunities for health, education and employment. Some landlords, however, are unwilling to rent to HCV holders. In some cases, SOI discrimination may provide cover for landlords to violate fair housing laws. Local anti-SOI discrimination ordinances (which already exist in several Michigan communities) are linked to an increase in the HCV use rate and neighborhood racial integration.10 A state-level ban should be enacted to protect all Michigan families using HCVs no matter where they live and reduce the long waiting lists for vouchers that exist in many communities.

Promote economic opportunity for struggling families: The state should raise the minimum wage and invest more in measures that promote health, improve outcomes for children and boost adult earning capacity, such as quality child care, the Healthy Michigan program and the earned income tax credit. In particular, the state should invest more in adult education, career and technical education and job training to ensure that Michigan’s workforce can meet the high demand for skilled labor. This would prepare individuals for family-supporting jobs and alleviate the shortage of construction and other trade workers that is contributing to housing scarcity and further driving up home prices.

ENDNOTES

  1. Richards, R. Michigan League for Public Policy. (2016, July). Time to end income inequality: Michigan’s top 1% makes 22 times more than rest of workers. Retrieved from http://www.milhs.org/time-to-end-income-inequality.
  2. Asante-Muhammad, D., Collins, C., Hoxie, J., & Nieves, E. Prosperity Now & Institute for Policy Studies. (2017, September). The road to zero wealth: How the racial wealth divide is hollowing out America’s middle class. Retrieved from https://prosperitynow.org/files/PDFs/road_to_zero_wealth.pdf.
  3. United Ways of Michigan. (2017). ALICE Study of Financial Hardship: 2017 Update. Retrieved from https://www.uwmich.org/alice/.
  4. National Low Income Housing Coalition. (2018). Out of Reach 2018. Retrieved from http://nlihc.org/oor.
  5. Novogradoc, M. Novogradoc & Company, LLP. (2017, December 17). See how many jobs, affordable rental homes each state would lose under the final tax reform bill. Retrieved from https://www.novoco.com/notes-from-novogradac/see-how-many-jobs-affordable-rental-homes-each-state-would-lose-under-final-tax-reform-bill.
  6. Brunick, N.J. (2004, September). The inclusionary housing debate: The effectiveness of mandatory programs over voluntary programs. Zoning Practice, (9)1, 1-7. Retrieved from http://www.china-up.com:8080/international/case/case/1342.pdf.
  7. Larsen, L. (2004, June). State housing trust funds in the U.S.: A comparative study, presented at the International Housing Research Conference, Toronto, Canada. Retrieved from http://www.urbancenter.utoronto.ca/pdfs/housingconference/Larsen_State_Housing_Trust_.pdf.
  8. Center for Community Change, Housing Trust Fund Project. (2018). State housing trust funds. Retrieved from https://housingtrustfundproject.org/housing-trust-funds/state-housing-trust-funds/.
  9. AcMoody, J. Community Economic Development Association of Michigan. (2018, July 13). Fund the Fund: Why Michigan’s Housing and Community Development Fund needs support. Retrieved from http://cedamichigan.org/2018/06/michigans-community-development-fund/.
  10. Freeman, L. U.S. Department of Housing and Urban Development, Office of Policy Development and Research. (2011). The impact of source of income laws on voucher utilization and locational outcomes. Retrieved from https://www.huduser.gov/publications/pdf/freeman_impactlaws_assistedhousingrcr06.pdf.

 

 

Ask your candidates

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taxes and revenues

1

Since the 1970s, the federal Earned Income Tax Credit (EITC) has been considered a significant poverty reduction tool that encourages individuals to work. In 2006, Michigan created its own state-level EITC based on 20% of the federal tax credit. The governor and state lawmakers scaled back the Michigan EITC to 6% in 2011.

Would you support fully or partially restoring the state-level EITC to 10%-20% of the federal tax credit?

2Michigan is one of only seven states that continues to rely on a flat income tax rather than a graduated income tax, like the federal income tax. States with graduated income tax structures tax at higher rates as income rises, making it a more modern and equitable system.

Would you support reforming Michigan’s income tax structure from a flat income tax rate to a graduated one?

3Sales taxes are typically considered to be the most regressive type of tax, costing individuals earning low wages a larger proportion of their income compared to wealthier individuals. Expanding the sales tax to apply to services can serve to both increase revenue and make the sales tax less regressive. Even still, the sales tax will remain regressive, which is the reason some states offer sales tax credits to provide relief for individuals who earn the least.

Would you support extending the state’s sales tax to services with a sales tax credit for filers with low wages?

4While Michigan’s actual tax revenues have grown year after year, when adjusted for inflation General Fund revenues are below 1968 levels and the School Aid Fund is below levels set in 1995. State lawmakers have continually pulled funds away from general state coffers to fund specific programs, such as road funding and the personal property tax repeal reimbursements. At the same time, the costs of providing Michigan residents the most basic services have grown, increasing pressure on our budget. This has meant that programs have had to be funded at the expense of others, furthering Michigan’s disinvestment in its communities, education and other services on which its residents and businesses rely.

Would you support exploring new revenue sources or expanding existing ones, for example eliminating outdated and unnecessary tax exemptions or credits, to fund vital state services?

5Michigan’s personal income tax contributes nearly $10 billion to our state coffers. It provides nearly one-third of our total state revenues, more than 1 in 5 of every state dollar for schools and more than $7 out of every $10 of our state General Fund. Some lawmakers have proposed steep cuts to—or systematically rolling back to 0—our state income tax rate. This would put at risk billions of dollars that are currently used to invest in our schools, public universities, community colleges, infrastructure, healthcare and public safety. On top of limiting our ability to invest in the things we all rely on, income tax rate cuts disproportionately benefit high-income earners while providing little to families with low incomes.

Would you oppose efforts to significantly cut or roll back Michigan’s income tax rate?

6

A triggered income tax rate reduction was implemented as part of the 2015 road funding plan. Starting in 2023, income tax rates will reduce if state General Fund revenues grow faster than the rate of inflation (the law puts in place a General Fund cap that is calculated by adjusting base year revenues by 1.425 times the cumulative inflation; General Fund growth above this cap would trigger an income tax rate reduction). Triggered rate reductions may ultimately hurt Michigan’s economy, budget and residents because we do not know whether they will be affordable once triggered, they can trigger during economic downturns or other times when revenues are badly needed, they primarily benefit the top 1% of taxpayers, and they enable policymakers to claim credit for cutting taxes while avoiding accountability for the consequences.

Would you support repealing the triggered income tax cuts and instead look at tax policies that encourage economic growth and help families with low incomes make ends meet, such as a graduated income tax or restoration of the Earned Income Tax Credit?

Help for

7

Michigan provides families with low incomes a small amount of heating assistance to allow them to qualify for additional federal food assistance (“heat and eat” policy). This has allowed these families to qualify for an additional $76 in food assistance per month.

Do you favor the continued support of the “heat and eat” policy that allows families with low incomes to receive additional food assistance?

8Given the high cost of child care, without assistance many parents find themselves in the difficult position of relying on unstable or even unsafe arrangements for their children or placing their jobs in jeopardy. And, we now know that high-quality child care can help children develop and be more ready for preschool and ultimately for school success. The number of families receiving child care assistance has dropped dramatically in Michigan in part because of state-set eligibility rules and because payments to providers are low.

Would you support the use of state and available federal funds to expand child care subsidies to more families with low incomes, increase payments to providers and improve the quality of child care?

9Food assistance (through the Supplemental Nutrition Assistance Program) helps families experiencing financial difficulties purchase food, helping parents feed and provide for their children without disrupting their lives. In 2012, Michigan passed a law that required the state to limit the amount of assets a person could have in order to qualify for food assistance. This was implemented just as the state was exiting a decade-long recession and at a time when most states (about two-thirds plus D.C.) were eliminating their own asset tests. This penalizes families that have saved for emergencies, their retirements or their children’s futures by requiring them to spend their assets in order to receive food assistance.

Would you support legislation or policy changes that either increase the asset limit on food assistance or completely eliminate the requirement, joining most other states in the nation in doing so?

10Children in families that must rely temporarily on state income assistance live in increasingly deep poverty as a result of the very low payments provided by the state (a maximum of $492/month for a family of three). Michigan provides a one-time payment of $156 for all school-age children in families receiving FIP so children can start school with at least a decent set of clothes, but with current prices this doesn’t carry children far into the school year.

Would you support an increase in the annual school clothing allowance to ensure that children can purchase the clothes, shoes and overcoats needed for school?

Addressing child poverty

11More than half (55.9%) of Michigan third-graders did not demonstrate proficiency in English Language Arts (reading and writing) in 2017. There are significant disparities in outcomes by income, race and ethnicity with higher rates of children of color and children in families with low incomes scoring “not proficient.” Beginning in school year 2019-2020, state law will require that third-graders who are not proficient in English Language Arts, as measured by the state test, could be required to repeat the grade; however, if the student is proficient in other subjects, then instruction for those may be given in a fourth-grade classroom. Alternate tests and portfolios may be used to document reading skills and some good cause exemptions are provided; however, the school superintendent would make the final decision. The law also outlines interventions and steps that schools must take to improve third-grade reading proficiency.

Would you support support adequate funding to support implementation of the law with targeted efforts in areas with the most need?

12Child poverty in Michigan has escalated by almost 60% over the last 15 years. More than 1 of every 5 children in the state lives in a family with income below the poverty level: $19,000 for a family of three and $24,000 for a family of four. Several policy initiatives to alleviate child poverty have been suggested, such as reinstating the state Earned Income Tax Credit to 20% of the federal EITC, expanding adult education and other workforce development opportunities, and raising the child care subsidy and eligibility so parents earning low wages can have access to child care.

Would you support any of these initiatives?

13Michigan has been a leader in investments in preschool programs for 4-year-olds, but funding for families with infants and toddlers living in poverty or near poverty has declined—despite scientific evidence that the first three years of life are when children’s brains are growing most rapidly, affecting their lifelong development, learning and achievement.

Would you support additional state funds for proven programs for parents of very young children, including home visiting, parenting programs and Early On?

14The rate of children confirmed as victims of abuse and neglect has steadily risen over recent years with a rate increase of over 30% between 2010 and 2016. Children of color and young children are at higher risk of being confirmed as victims and being placed in out-of-home care due to abuse or neglect. The trauma experienced can impact child development and health outcomes.

Would you support state investment to prevent child abuse and neglect and comprehensive strategies that have shown to reduce abuse and neglect, including an expansion of home visiting programs?

Flit water crisis

15In April 2014, Flint switched its drinking water source to the highly corrosive Flint River, and a decision to not properly treat the water caused lead to be leached from the pipes into the water. This resulted in thousands of Flint residents, including children, being poisoned by the water they drink daily. Unfortunately, lead poisoning has no cure and all Flint residents, especially children, will require lifelong services to help detect and treat developmental and educational delays and health problems caused by lead. Furthermore, lead continues to be a problem in almost all of our communities, either through lead pipes or lead in paint in older homes, and it needs to be remedied statewide.

Would you support continuing to provide long-term funding to help residents affected by the Flint water crisis? Would you also support looking at a statewide solution to abate existing lead, prevent future poisoning and provide services to those already affected?

jobs and the economy

16Workers  who are laid off, or who work in low-paying jobs, can often improve their financial situation by building skills and getting recognized credentials. This is especially important for those raising children. However, Michigan’s financial aid grants are not available to workers who have been out of high school more than 10 years who wish to get a degree from a community college or public university. The Part-Time Independent Student Grant, which was discontinued in 2009, helped these workers go back to school and get a degree. There is support for this grant in both parties, and there have been recent bipartisan attempts to reinstate it in the budget at a cost affordable to the state ($2-4 million).

Would you support the reinstatement of the Part-Time Independent Student Grant to help older workers get the skills they need for family-supporting jobs?

17Although Michigan’s economy and unemployment rate have improved, there are many workers still seeking work, and there continue to be businesses that for some reason or another face difficulty and need to lay off workers. Yet, Michigan is one of a very few states that allows unemployed workers to receive up to only 20 weeks of Unemployment Insurance (UI) while they look for jobs—nearly all other states have a maximum of 26 allowable weeks of UI. While many or most unemployed workers find another job within 20 weeks of becoming unemployed, it is important that they have additional weeks if they do not, to prevent further family disruption.

Would you support reinstating the 26-week maximum for unemployed workers to receive UI while they look for work?

18More than 1.7 million (44%) Michigan workers cannot take time off with pay when they or one of their children are ill. Becoming sick puts these workers in the difficult position of having to either stay home and lose wages, or go to work and risk becoming sicker and exposing coworkers (and sometimes the public) to illness. Parents feel pressure to forgo needed medical care for themselves and their children and to send their child to school sick because they cannot miss work to care for them. An earned sick leave law similar to what several other states and cities have would help Michigan workers by requiring most employers to bank sick time for their workers based on the number of hours they have worked.

Would you support a Michigan earned sick leave law to help hardworking employees and their families recuperate and get the medical care they need without losing needed wages?

Healthcare

19The Trump administration has announced that it will strongly consider—and has already approved—some waivers that would allow states to implement Medicaid work requirements. Michigan is currently considering a proposal to do this. We have also seen states request waivers related to drug testing Medicaid enrollees and stricter time limits.

Would you oppose proposals that limit the ability of our most vulnerable residents to receive healthcare?

20Under the Affordable Care Act, states were allowed to expand Medicaid coverage to working people with low incomes, many of whom may not previously have had healthcare coverage. Michigan chose to expand coverage in 2014, resulting in over 650,000 people gaining coverage. The Healthy Michigan Plan can be credited with drops in uncompensated care in our hospitals, the creation of jobs, additional tax revenue and saving the state money. Most importantly, it has allowed people to see a doctor and has improved their health and their ability to get and keep a job.

Will you continue to support the Healthy Michigan Plan?

Immigration

21The Children’s Health Insurance Program Reauthorization Act (CHIPRA) allows states to provide CHIP (MIChild) and Medicaid coverage to eligible lawful resident children and pregnant women (generally, green card holders who would otherwise face a five-year wait for coverage). Michigan does currently cover pregnant women for maternity and labor and delivery services regardless of status through its Maternity Outpatient Medical Services (MOMS) program, so the CHIPRA option would primarily benefit children currently excluded from Medicaid and MIChild. The state could choose to exercise this option by amendment to its state Medicaid plan.

Would you support exercising the state’s CHIPRA option to provide MIChild and Medicaid coverage to eligible lawful resident children and explore legislation to cover all children regardless of status?

22Naturalization is an important step in immigrant integration and is a process that thousands of our foreign-born neighbors take part in each year. U.S. citizenship presents an abundance of opportunities for aspiring Americans and has a positive ripple effect on our economy. As of 2015, approximately 300,000 immigrants in Michigan were potentially eligible for U.S. citizenship, yet almost half (48.9%) were not yet naturalized citizens. And despite the high volume of potentially eligible immigrants, there is a shortage of affordable citizenship preparation courses in communities across the state.

Would you support funding for community-based citizenship classes through a $5 million per year immigrant fund?

23For immigrants and refugees, English language proficiency is a key to economic mobility and access to opportunities and resources within communities. According to the latest data available, approximately 40% of immigrants 5 years of age and older residing in Michigan speak English “less than ‘very well’” compared to just 3.3% of the native-born population. Community-based English as a Second Language (ESL) programs are an effective strategy for addressing low levels of English language proficiency among immigrants and refugees and are a powerful tool for social and economic integration for these communities.

Would you support funding for community-based ESL programs through a $5 million per year immigrant fund?

24Current Michigan law requires all applicants for driver’s licenses and state identification to provide proof of “legal presence” that must be verified by the Department of State. Lack of access to driver’s licenses means that many immigrants and citizens who cannot prove citizenship cannot obtain insurance or properly register their vehicles. Many immigrants who are long-term residents and heads of household are deported when they are stopped while driving to work, school or the grocery store and are arrested for driving without a license. U.S. Immigration and Customs Enforcement then places a “hold” on these residents and detains them. Access to driver’s licenses would have a major positive impact on the social and economic life of immigrant communities and other Michigan residents who are currently excluded from legal driving.

Would you support state IDs and driver’s licenses for all, regardless of immigration status?

Criminal justice reform

25Michigan is one of five states that automatically charges 17-year-olds as adults in the criminal justice system. In nearly every other aspect of the law, including voting, buying a lottery ticket or signing a contract, 18 years of age is the legal requirement, yet 17-year-old youth must be prosecuted, convicted and sentenced as adults in criminal courts in Michigan. Research on development shows that 17-year-olds are not adults and are better served in juvenile justice systems.

Would you support raising the age of juvenile jurisdiction to age 18?

26People of color are arrested, detained and incarcerated at higher rates in Michigan, as well as around the country, though national statistics demonstrate that higher crime rates do not account for this disparity. While only comprising 14% of Michigan’s population, African Americans comprise over half, or 53%, of the state’s prison population, and they are detained at a rate more than six times higher than white people.

Do you support training for police, judges and others in the criminal justice system, along with the use of a race equity policy tool, to expand understanding of the disparate impact of the system and its policies on communities of color?

27An estimated 20-25% of prisoners have been diagnosed with severe mental illness and many more with mental health problems. Nine of every 10 prisoners with severe mental illness also suffer from substance use disorders, and upwards of 65% of those with mental health symptoms do not receive treatment. Michigan has recognized the need for alternatives to incarceration for those suffering from behavioral health issues by implementing mental health courts and substance abuse programs for those serving time and on probation and parole.

Do you support diversion programs and improved mental health and substance abuse treatment programs within prison facilities to expand access for incarcerated people?

 

Looming tax triggers spell trouble for Michigan

pdficonMay 2018
Vikki Crouse, State Policy Fellow

Personal Income Tax (PIT) triggers are a bad choice for Michigan. Here’s why:

  1. Policymakers do not have enough information to know if they are affordable.
  2. They can trigger during economic downturns or other times when revenues are badly needed.
  3. They primarily benefit the top one percent of taxpayers.
  4. They enable policymakers to claim credit for cutting taxes while avoiding accountability for the consequences.

Looming tax triggers spell trouble for MI_jpg 635x575

Michigan Legislature will soon make final decisions on 2019 state budget

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The Michigan Senate and House have both passed their versions of the 2019 state budget and joint House/Senate conference committees will now meet to iron out differences between the budgets. Contact your legislators and let them know what matters to you, your children, your neighbors and your community. The League is advocating for the state’s children and families, and has summarized the differences between the House and State budgets. Here are some highlights.

human services HUMAN SERVICES

  • No increases for children living in deep poverty: The governor increased income assistance grants for children by only $2 per person per month—after decades of flat funding—but the Senate and House rejected even that small increase.
  • Continuation of the “heat and eat” policy: Both the House and Senate budgets continued the “heat and eat” policy that provides needed nutrition to families with low incomes, seniors and the disabled.
 health HEALTH

  • Limits on healthcare coverage for persons with low incomes: The Senate included a 48-month limit on Healthy Michigan Plan coverage, removed $60 million intended for premium assistance payments, and included penalties if the state doesn’t adopt Medicaid work requirements.
  • Disagreed on new funding for local public health initiatives: The Senate rejected expanded funding to local public health departments to address emerging public health threats.
 education EDUCATION

  • Significant increase in funding for child care: Recognizing $65 million in new federal funding coming to Michigan, the Senate increased eligibility for child care subsidies, changed the way providers are paid, and increased rates for some child care providers.
  • State funding for early intervention: Both the House and Senate budgets included state funding for Early On, the state’s early intervention program. If passed, this would be the first time the state has dedicated funds to the program.
  • More funding for adult education: The Senate increased statewide adult education by $1 million.
 higher education  HIGHER EDUCATION

  • Continued shifting of dollars intended for K-12 education to universities and colleges: The League supports generous funding for postsecondary education, but not at the expense of K-12 education. The shifting of funds started in very tight budget years, but is continued in both the House and Senate budgets.
  • Underfunding of student financial aid programs: Both the House and Senate included small increases in funding for the Tuition Incentive Program, but there is still no funding for grants for older students.
 corrections  CORRECTIONS

  • The prison population is dropping, but more needs to be done to help people make the transition back to the community: Mass incarceration in Michigan has disproportionately affected families of color and is often based in systemic discrimination that has limited economic opportunity. The House and Senate included only minor increases in incarceration alternatives and education and job training for prisoners.

New Federal Tax Plan amplifies inequalities

pdficon                   May 2018
Spike Dearing, Intern
New Fed Tax Plan_Spike chart 1
New Fed Tax Plan_Spike chart 2

The looming danger of tax cut triggers in Michigan

pdficon May 2018
 Vikki Crouse, State Policy Fellow

INTRODUCTION

2015 Income Tax Trigger chart 1Three years ago, policymakers in Lansing passed a package of bills that promised to address Michigan’s crumbling roads. One of the most significant yet largely overlooked changes included in the package was a personal income tax cut set to trigger almost a decade later in 2023. Under the law, if General Fund revenues grow by more than the rate of inflation in a given year, the rate of the income tax will be reduced. The tax rate cut will also be eligible to trigger every year thereafter until the personal income tax rate is reduced to zero.1 A 0.1% rate cut eliminates roughly $250 million in tax revenue on a full year basis. As Michigan’s economy enters its tenth year of recovery from the Great Recession, one thing is clear: our economy is not prepared to weather another round of tax cuts. Incremental cuts to the state income tax would eventually eliminate a funding stream worth about $10 billion and put a significant strain on the state’s ability to fund schools, roads, safety net programs and public safety.2 It is not too late for policymakers to reverse their decision; it is the morally and fiscally responsible thing to do.

This brief explains why income tax cut triggers are the wrong choice for Michigan for four primary reasons:3

  • Policymakers do not have enough information to know if they are affordable.
  • They can trigger during economic downturns or other times when revenues are badly needed.
  • They primarily benefit the top 1% of taxpayers.
  • They enable policymakers to claim credit for cutting taxes while avoiding accountability for the consequences.

BACKGROUND

Put simply, income tax revenue is a vital lifeline for the state’s General Fund. It is estimated to contribute 69.1% of the total revenue for General Fund/General Purpose funding in FY 2017-18, and 22% of the total revenue for the School Aid Fund in the same period.4 Making up the majority of General Fund/General Purpose funding, income tax revenue helps pay for important services like healthcare, higher education, public safety, preschool and other vital human services. Despite its important role, General Fund growth rates have not kept up with the rate of inflation. Between budget year 2000 and anticipated budget year 2019, inflation increased by 73% while General Fund revenues are actually down about 1%.5 By 2020, the General Fund will be below 1968 levels when adjusted for inflation; 1968 was the year the income tax was enacted.6 During this time, the cost of services will continue to grow due to growth in the overall population and in groups, such as students and the elderly, who tend to use more state services.

A consistently flat state budget has been partially a result of tax cuts and earmarked tax revenues that state legislators have made in recent years. Among these are the Personal Property Tax reform passed in 2014 and the road funding package passed in 2015, both of which will squeeze hundreds of millions in funding from the General Fund. Overall, the state has spent more in state and local tax credits, deductions and exemptions than it has in total budget spending from state and general restricted funds over the past several years. These commitments cost state and local governments approximately $39.87 billion in FY 2018, and they will further constrain General Fund revenue growth in the years to come.7 The consequence of these tax cuts is that the State has less money to expend on important state services that Michiganders depend on.

Despite the strains that our state budget is enduring, there are legislators who continue to champion new tax cuts as an economic development strategy that will transform our economy. But the evidence of tax cuts in Michigan tell a different story. Business tax cuts passed in 2011, for example, did not serve as a catalyst for job creation. In fact, job growth actually slowed in the years immediately following the tax cuts.8 Meanwhile, legislators tried to make up for lost revenue from the tax cuts by cutting K-12 per-pupil funding and funding to higher education institutions, among other services.9

Michigan has also grown more reliant on federal funds to support services like early childhood education, health care and safety net programs like the Supplemental Nutrition Assistance Program (SNAP) over the past several years. Over the past decade, our total budget grew by 29.8%, federal funds appropriated in our state budget grew by 57.8% during the same period, while state spending from state resources only grew by 13.3%.10 Today, federal revenues contribute about $23 billion, or over 40%, of our state budget.11 The Trump administration’s determination to cut funding for important public programs, is a warning to state legislators who hope to erode tax revenue through income tax cuts. Michigan would lose millions in federal funding if President Trump makes good on his promises, and without additional state revenue, this would likely lead to devastating cuts to important programs.

A DECADE AFTER THE GREAT RECESSION, MICHIGAN’S ECONOMY IS STILL RECOVERING

Looming income tax cuts also come at a time when Michigan is in its tenth year of recovery from the Great Recession. While the state has made great strides, Michigan’s GDP is growing at a slower rate than it did in previous recoveries (inflation-adjusted GDP is growing at a 2.2%, whereas historically the economy has grown at a 4.4% rate).12 Furthermore, while in previous recoveries government spending increased to meet needs, spending has declined in the current economic recovery.13 This hasn’t been good for important services like K-12 schools, safety net programs and higher education institutions, which experienced significant funding cuts in the years after the recession. In the workforce, though Michigan’s unemployment rate has declined since its peak during the recession, part of the decline has been due to the number of workers leaving the labor force.14

In fact, labor force participation tells the long-term story of Michigan’s economy. For a number of years, labor force participation rates have stagnated, meaning that a smaller number of Michiganders are working or looking for work.15 Overall, Michigan has lost 326,000 workers since 2000, which still exceeds the number of currently unemployed individuals who are looking for work (227,000).16 When it comes to wages, low- and middle-income workers have seen declining real hourly wages since 1979.17 Inflation-adjusted hourly earnings increased a mere 1.2% in 2016, down from a 2.1% increase in 2015.18 Stagnating wages for workers mean that more families have a harder time meeting basic needs as the costs of goods and services continue to rise, and can more easily slip into poverty, hurting our economy overall. It’s clear that though our state has made strides since the recession, the economy is still recovering and legislators will do more harm than good if they allow income tax cuts to trigger in the coming years.

2015 Income Tax Trigger chart 2

INCOME TAX TRIGGERS ARE THE WRONG CHOICE FOR MICHIGAN

We don’t know if the tax rate reductions are affordable. When tax cuts are enacted several years before they take place, it is virtually impossible to determine whether the state can afford to make such cuts. We do not know if we will be facing another economic recession in the next couple of years, or if a crisis will arise in the state that will require significant investments from the government. Even though the trigger requires that revenues rise above inflation before the cuts are considered affordable for the state, this mechanism does not take into account the additional revenue needed to maintain current level funding for services. Absent multi-year projected revenues, legislators simply do not have enough information to responsibly implement the tax cut.

Triggered Income Tax cuts are not good for Michigan’s economy. Some individuals argue that triggered tax cuts serve as an economic development strategy because they give businesses and individuals time to make investment decisions based on tax cuts set to take place in the near future. Evidence, however, shows that taxes do not actually play a significant role in driving decisions by households about where to settle down. Individuals are more likely to make living decisions based on factors like family, job opportunities, cost of housing and weather.20 Furthermore, only a small fraction of the general population are actual business owners who would be the ones making significant capital investment decisions based on state taxes.

Triggered tax cuts are simply not an economic development strategy, and in fact, have shown to be quite the opposite because they can trigger during times of economic downturns when revenues are needed the most. This is what happened in Oklahoma, where legislators stubbornly held onto triggered tax cuts even after the first rate cut was suspended due to low levels of revenue in 2010. The tax cut eventually took place in 2012, even though state revenues had not yet recovered from the recession. In 2016, another triggered tax cut went into effect (this time lowering the top tax rate) amid an economic downturn caused by falling oil prices. The result? State legislators were left with a budget hole of nearly $900 billion.21 Since then, state legislators have been trying to repeal the tax cuts. Oklahoma should serve a cautionary tale for Michigan legislators who continue to believe that this flawed approach will spur economic development.

The tax cuts are not equitable. In addition to being a fiscally dangerous move for our state, triggered tax rate cuts will not be felt equally among all of Michigan’s residents. The tax cuts are set to primarily benefit the top 1% of taxpayers. Meanwhile, Michigan’s middle- and lower-income families will be left to deal with worsening roads, underfunded schools and fewer services. New analysis by the Institute on Taxation and Economic Policy (ITEP) uses current year and two-year forecasts to calculate the impact that a 0.1 or 0.25 rate reduction in the Personal Income Tax (PIT) could have on taxpayers and state revenue. The data shows that any reduction in the PIT actually shifts the tax load further to low-income Michiganders. Under a 0.1 rate reduction in the PIT, 99% of the top 1% of taxpayers would receive a tax cut while only 58% of those in the lowest 20% of taxpayers would see their tax contributions reduced. Additionally, Michigan’s taxpayers would receive only a small annual benefit, which for many would be barely noticeable as it is spread over paychecks.

2015 Income Tax Trigger chart 3

 

Triggered tax cuts enable policymakers to claim credit for cutting taxes while avoiding accountability for consequences. There are no practical benefits for scheduling income tax cuts so far in advance. There were also no logistical issues that would have prevented legislators from implementing the tax cut right away. So why did legislators choose to wait? The reality is, legislators who championed triggered tax cuts several years ago when the law was passed did so because they knew they were unaffordable at the time. Implementing then in 2015 would have likely forced cuts to state services in order to balance the budget—a politically unpopular move. Legislators chose this route because they knew they wouldn’t have to deal with the consequences when cuts did take effect. By 2023, when the first income tax rate cut will be eligible to trigger, many of the legislators who passed the legislation will be long gone. This should set off alarm bells for Michigan taxpayers who will be left to deal with the aftermath.

POLICY RECOMMENDATIONS

  • Repeal triggered tax cuts. Legislators must now do the fiscally responsible thing and repeal the triggered income tax cuts that were passed into law in 2015. If triggered in 2023, these tax cuts will only hold Michigan’s economy and its residents back. If left in place, the cuts will significantly erode revenue available to fund important programs and services. Moreover, state revenues will never be able to return to previous levels because any minimal rise in revenue will only trigger another rate cut. Essentially, we will be digging ourselves into a deeper and deeper fiscal hole.
  • Adopt a fair income tax structure. If our legislators truly want to help all Michiganders thrive, one of the things they can do is implement a graduated income tax structure that would ensure that low- and middle-income taxpayers don’t pay a greater share of their incomes in taxes than the wealthiest taxpayers. Currently, Michigan is only one of eight states in the country that still relies on a flat income tax structure. A graduated tax structure would also help generate additional revenue needed for investing in our schools, our communities and our roads.
  • Restore tax credits that support low- and middle-income Michiganders, and help our economy grow. In 2011, legislators reduced the Michigan Earned Income Tax Credit (EITC) by 70%. In doing so, they virtually eliminated one of the most effective strategies for supporting working families struggling to make ends meet. Research shows that cutting low-income tax credits is not good for our economy because it makes it more difficult to develop a highly skilled workforce. Unlike an inequitable tax cut that delivers only a token benefit to low- and middle-income taxpayers, a fully restored EITC would deliver real and significant benefits to help Michiganders thrive.

The Looming Danger-Tax Cut Triggers Notes

 

 

League advocates for prioritization of programs that protect Michiganders’ health

pdficon             Budget Brief JPG USE THIS ONE                   May 2018
Emily Schwarzkopf, Policy Analyst

BB-League advocates for Prioritization_2019 hlth bdgt chart 1While legislators have been focused on the debate surrounding Medicaid work requirements, they have also been busy debating the state’s budget. The Michigan Department of Health and Human Services (MDHHS) is one of the largest state departments and is responsible for the health and safety of Michigan residents—in particular the state’s mental health system, public health, and Medicaid. Moving through the budget process, we at the League hope that the legislature will prioritize programs that improve the health of Michigan residents—instead of pursuing political policies that may end up harming people, especially those currently enrolled in the Healthy Michigan Program.

HEALTHY MICHIGAN

  • Governor: In his budget proposal, the governor continued financial support for the Healthy Michigan program. Implemented in 2014, Healthy Michigan (Michigan’s Medicaid expansion program) extended healthcare to over 670,000 Michiganders with low incomes. The Healthy Michigan Plan has been positive for our state economy, hospitals, and most importantly those enrolled in the program. Currently, the federal government pays 93% of the costs of the Healthy Michigan Plan. For the 2019 budget year, the governor provided the state General Fund dollars needed to fully fund the program.
  • Senate: While the Senate continued to support the program in concept, it removed $60 million intended to be used for premium assistance payments. Beginning April 1, 2018 enrollees above 100% of the federal poverty line who do not comply with healthy behavior requirements (outlined in PA 107 of 2013) must enroll in Medicaid coverage through the federal exchange, with the state Medicaid financing requirements still applying. Corresponding budget language would require the Department of Health and Human Services to submit a waiver to the federal government prohibiting Healthy Michigan funding from being used to support Medicaid coverage or premium assistance on the federal health care exchange. Essentially, this language would cap the amount of time an individual could be insured through Healthy Michigan to 48 months, and states that completion of a healthy behavior requirement does not qualify an enrollee for continued enrollment. There is some question whether this language is legal.
  • House: The House continued support for the Healthy Michigan Plan, but does remove $1.7 million to discontinue gift cards given to Healthy Michigan enrollees above 100% of the federal poverty level for completing a health risk assessment.

PUBLIC HEALTH INVESTMENTS

  • Governor: With the ongoing Flint water crisis, a hepatitis A outbreak, and polyfluoroalkyl substances (PFAS) water contamination, the governor recommended full-year funding for PFAS cleanup and additional funding to local public health departments to help address emergency health threats including vapor intrusion, drinking water contamination and hepatitis C.
  • Senate: The Senate agreed with the governor on PFAS needs including laboratory capacity, environmental health toxicology and response. The Senate does not include funding for local health department response grants intended to expand local public health support for other emerging public health threats.
  • House: The House agreed with the governor.

WAGE INCREASES AT STATE PSYCHIATRIC HOSPITALS

  • Governor: Psychiatrists at our state psychiatric hospitals are paid significantly less than our Great Lakes neighbors, and the MDHHS—with the approval of the Civil Service Commission—has proposed an increase in wages. The investment, which is included in the governor’s 2019 budget, is expected to cost the state $1.4 million. This wage increase will allow the state to attract and retain high-quality psychiatrists and reduce waiting lists at the hospitals.
  • Senate: The Senate concurred with the governor on salary increases.
  • House: The House concurred with the governor.

FLINT WATER CRISIS FUNDING CONTINUES

  • Governor: As Flint continues to deal with the effects of the ongoing water crisis, the governor reduced MDHHS assistance by $16.9 million but provided one-time funding for food and nutrition services, health services at child and adolescent health centers and schools, lead poisoning prevention and lead abatement.
  • Senate: The Senate agreed with the governor.
  • House: The House concurred with the Executive, but uses prior year funding to support the one-time $2.9 million General Fund increase.

BEHAVIORAL HEALTH INTEGRATION

  • Governor: A hot topic during the past few budget cycles was the integration of behavioral health and physical health proposed by the governor through budget boilerplate language. The 2019 budget encourages the department to continue pursuing the pilot projects it was directed to take on this year. The MDHHS identified the pilot sites in March: Muskegon County Community Mental Health and West Michigan Community Mental Health, Genesee Health System, and Saginaw County Community Mental Health Authority. The Department continues to work on implementation of these pilot projects.
  • Senate: The Senate concurred with the governor but changed pilot design from two to three years and created new language that allows health plans to contract directly with service providers in the pilot project areas.
  • House: The House concurred with the governor and retained language regarding legislative intent and sharing of performance metrics.

LEAD PREVENTION BOARD

  • Governor: In 2016, the governor created the Child Lead Poisoning Elimination Board, which was charged with designing a long-term strategy to eliminate child lead poisoning. For 2019, the governor includes $1.25 million to carry out the recommendations of the board, including expanded home testing, a statewide database and a requirement to test all children for lead exposure.
  • Senate: Senate concurred with the governor.
  • House: The House reduced funding by half to $625,000.

MEDICAID WORK REQUIREMENTS

  • Governor: The governor did not include budget language regarding Medicaid work requirements.
  • Senate: The Senate included punitive language that would withhold salaries for certain department staff—25% until the waiver proposed in SB 897 is submitted, and another 25% until the waiver is approved by the federal government.
  • House: The House agreed with the governor.

 

U.S. House Farm Bill goes in the wrong direction with SNAP work requirements

pdficon                   May 2018
Peter Ruark, Senior Policy Analyst

What are the proposed work requirements? The chair’s plan would require all SNAP (Supplemental Nutrition Assistance Program) participants age 18-59 who are not disabled or raising a child under 6 to prove every month that they are working and/or participating in a work program at least 20 hours per week. Those who cannot comply would face harsh sanctions:

  • US Farm Bill goes in wrong direction with SNAP work requirements chart 1The first failure would result in a loss of benefits for 12 months.
  • Each subsequent failure would lock individuals out of SNAP for 36 months.
  • Individuals could only regain eligibility by working at least 20 hours per week for a month, or requalify through an exemption such as disability.

US Farm Bill goes in wrong direction with SNAP work requirements chart 2 rev

US Farm Bill goes in wrong direction with SNAP work requirements chart 3

US Farm Bill goes in wrong direction with SNAP work requirements chart 4

 

 

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