Michigan needs to save surplus

Good news, finally.

The State of Michigan is projected to have a budget surplus, between $971.1 million and $1.3 billion in fiscal year 2014.

Followed by this news has been an appropriate question: “What do we do with this money?”

Most of the debate has been over how to spend the money. In the state Legislature, the Republican majority wants to cut taxes, and the Democratic minority wants to restore cuts to K-12 education that were made in the past. Both proposals are irresponsible and rash.

They are imprudent, mostly because the projected surplus did not arise from fiscal discipline. It arose out of years of deep cuts that were made necessary by depressed revenues, which came into state coffers over the duration of the recession, followed by a bounce in tax collections. As John Nixon, state budget director, said in an interview with the Detroit News, a surplus is not expected in future years.

The answer to the earlier question is, to not do much with it at all.

The path to follow is that of Gov. Jerry Brown of California, a Democrat. In the past, California was in financial crisis. I won’t say the problem is completely fixed, but people like Arthur Laffer, a conservative economist, don’t compare the state to Greece anymore. And a $26 billion deficit which existed when Brown took office in 2011 has been turned into a projected $4.2 billion surplus.

California Democrats have called for a restoration of funds for K-12 education, which was cut in prior years. And Republican numbers in the California Legislature are so small that any calls for tax cuts are irrelevant. Brown has chosen the thriftier route. His proposals have included increases in expenditures for infrastructure, and most importantly the deposit of the money into a rainy day fund.

That is the route that Michigan should follow. Education is ostensibly important, and hefty cuts were made in years prior. But it does not make much sense to restore all of the cuts made to education in such uncertain times. Especially not when you consider that tax collections could fall in the next fiscal year, and the cuts would have to be made once more.

To reiterate, this surplus is not structural, it is not expected to reoccur year after year. Once a portion of the projected surplus has been stashed away in a rainy day fund, the rest should be spent on infrastructure, more specifically roads.

It is obvious, from casual observance that Michigan needs to pay more for better roadways. In the previous session, the state Legislature failed to reach an accord with Gov. Rick Snyder, a Republican, on how proposed improvements could be paid for. The projected surplus offers a more politically palatable option than an increase in the gas tax. There is also a serious case to be made that now is the time to pay for these improvements.

The American Recovery and Reinvestment Act of 2009 provided a onetime boost in expenditures from the Obama administration at the state and local level that was used mostly for infrastructure. In total, the State of Michigan and its subdivisions received $840.1 million for infrastructure from the law. The projected surplus can fulfill a similar role. It can allow for the necessary improvements to our roadways and provide the needed fiscal stimulus for an economy that is still in a rut.

Also, because the economy is depressed, so are the costs of construction materials and labor cost. As an added bonus, even in this depressed economy, laborers in construction make a decent amount compared to the kinds of food service jobs, which have mostly come out of the tepid recovery.

The main point is to save, but there is also no better time to spend this money on infrastructure, more specifically roads.
Most likely however, this windfall will be wasted away on tax cuts, and while $971.1 million to $1.3 billion can move our state forward – that money divided by millions of taxpayers isn’t much at all.

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