MASA eLeader

Pew Center study calls for structural change

The recession accelerated drops in state revenues and has left Michigan’s government trying to deal with today’s problems on a 1960s-sized budget.

So says a new report released this week by the Pew Center on the States. Authors of the report “Beyond California: States in Fiscal Peril” contend that reliance on a shrinking automotive industry, the loss of 1 million jobs, outmoded taxes and lack of government reforms will make Michigan one of the nation's 10 poorest states for the foreseeable future.

“Left with few options, Michigan is being forced to diversify its economy and confront long-neglected structural imbalances in its budget under some of the most unfavorable conditions since World War II. The beleaguered state is adjusting to a new normal,” says the report.

The Pew report takes aim at Michigan's tax exemptions for pension and other retirement income. It notes that the number of adults ages 65 and older has grown nearly 18% since 2000, which means less tax revenue.

Public pensions and Social Security income are fully exempt from Michigan's income tax. Private pensions are exempt up to $42,000 for an individual and $82,000 for a couple.

The report found that, to varying degrees, Michigan and nine other states— chief among them California and its epic problems—share shortcomings:

Reliance on one or two industries, such as the auto industry (Michigan), gambling (Nevada) or lumber and computer chips (Oregon).
Persistent gaps between state spending and tax revenues.
Limited ability to raise taxes or reduce spending, partly because of constitutional mandates on new taxes.
Inability to enact long-term fiscal reforms, which has led to short-term accounting fixes.

The Pew report says the 10 states' financial woes could result in higher taxes, layoffs, longer waits for public services, crowded classrooms, higher college tuition and less support for unemployed and poor people.

Read the full report

Source: Detroit Free Press 11.12.09