Debate looms over how to divide the state surplus

Contextually, the amount in question is pretty small.

January 31, 2014
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LANSING —Tax cuts or a tax rebate? Pensions or a bailout for Detroit?

While there isn’t a simple way to get lawmakers to agree about what to do with an expected $971 million surplus in state revenue, economists have a simple message:

Don’t get too excited.

“The amount involved is quite small relative to the whole budget,” said Doug Roberts, director of the Institute for Public Policy and Social Research at Michigan State University. “It won’t have a major impact either way. It’s all psychological.”

The makeup of the surplus is also important to consider. More than $600 million of the $971 million is a one-time surplus, said Roberts, who served as state treasurer for 10 years.

“When you look at it in context, this isn’t a strong sign of continuing economic recovery,” he said.

Charles Ballard, a professor of economics at Michigan State University, agreed.

“To call this a surplus after all the budget cuts over the last decade is strange,” he said. “It’s only a surplus against the background of years of very deep cuts.”

Consider the surplus in the context of other statewide economic numbers, he said.

For example, Detroit’s estimated debt is between $15 billion and $20 billion.

And the total state budget is more than $40 billion, Ballard said.

“If you look at the proposed tax cuts many have been talking about, given the average family’s income of between $40,000 and $50,000, it works out to about 34 cents a day of tax reduction,” he said. “(It’s) not enough to transform anyone’s life.”

It’s not that the surplus cannot make a difference, Ballard said. If funds were allocated in only one area, such as higher education or road improvements, results could be much more noticeable, he said.

But that’s highly unlikely, considering most in the Legislature are preparing to split the surplus.

“What you’re most likely going to see is going to be multi-tiered — some money allocated toward infrastructure, some given back to taxpayers,” said Rep. Joe Haveman, R-Holland. 

Haveman chairs the House Appropriations Committee. 

It is the best way to compromise, Haveman said.

While that may be the best political strategy, Roberts said, it’s bad economics.

“Yes, it’s the balanced approach to split it, but the money isn’t enough to divide it all up, so you have to make one decision,” he said.

Ballard said that serves as another reason to view the surplus with caution.

“From the economic peak in early 2000 to the bottom in 2010, we lost about 860,000 jobs, and we’ve only gained about 260,000 back,” he said.

“I don’t think anyone who pays much attention could think that all is well with the Michigan economy.”

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