Michigan budget expert: Slash public employee compensation, tax breaks in 2011
One of Michigan’s top state budget experts said today he expects that the next governor and Legislature will succeed in enacting structural reforms to contract state bureaucracy.
Senate Fiscal Agency director Gary Olson, who is retiring after three decades of service, told economists at a University of Michigan conference this morning that public employee compensation has expanded disproportionately with the state’s revenue.
Olson also said that the amount of tax breaks, credits and deductions the state distributes to individuals and businesses is now 7.5 percent higher than the total tax revenue the state collects.
With federal stimulus money gone - the state used $4.7 billion of temporary federal money to help plug deficits over the last three years - tough decisions are looming.
“In my opinion, 2011 is likely to be the year during which the scope and purpose of state government are adjusted to more reflect the economic realities of the state,” Olson said.
His comments come a day after Gov.-elect Rick Snyder told Republican governors in San Diego on Thursday that public employee compensation cuts are necessary to help balance a budget deficit Olson projects as $1.7 billion for 2011-12.
The average total cost of a state employee, a figure that includes benefits, rose 58.2 percent from $54,412 to $86,100 from 1999-2000 to 2009-10, Olson said.
Over the same period, the average personal income for individual Michigan residents grew 24.1 percent, the lowest of the 50 states, Olson said.
“I think this is an issue that will probably be addressed and needs to be addressed in the future,” Olson said.
But Olson also laid out a litany of other structural problems with the state budget, including the way the state collects taxes, the amount it spends on corrections and impact of the poor economy on revenue.
Fueling the state’s chronic deficits is a massive increase in the number of people qualifying for Medicaid, he said. That figure has increased from 1 million in 1999-2000 to 1.8 million a decade later.
Olson said Michigan needs to expand its sales tax to cover services, a politically controversial proposal that the legislature briefly enacted and then repealed in 2007.
He also suggested that corrections spending is too high. That figure rose 31 percent over the last 10 years from $1.51 billion to $1.99 billion.
Snyder has proposed a $1.5 billion tax cut for Michigan businesses by replacing the Michigan Business Tax with a 6 percent corporate income tax.
Olson said Snyder's proposal would require additional major budget cuts.
Michigan’s “economic collapse” and tax breaks have undercut the state budget, Olson said.
Michigan’s total tax revenue equaled 9.55 percent of residents’ personal income in 1999-2000. That led to a small tax refund at the time because the state constitution dictates that tax revenue cannot exceed 9.49 percent of personal income.
By 2009-10, total state tax revenue was down to 6.96 percent of residents’ personal income.
During that same 10-year stretch, the amount of tax expenditures the state distributed to businesses and individuals -- which includes tax breaks, credits and deductions -- rose from $14.1 billion to $26.2 billion.
Business tax expenditures rose 39.7 percent to $1.92 billion, individual income tax expenditures rose 88.8 percent to $4.78 billion, and consumption tax expenditures rose 93 percent to $6.77 billion.
“We’re basically providing more tax expenditures than we are collecting in revenue, and it’s a serious issue that needs to be faced by the state,” Olson said.
Compounding the problem, Olson said, is a lack of knowledge about the state’s budget problems.
“I’m absolutely convinced that the general public and the policy makers in Lansing, including the 38 senators that I work for, the 110 members of the state House and certainly the general public do not have a general understanding of what’s happened in the state,” he said.
But he offered a sliver of optimism, too, with a new governor and a new legislature taking office.
“You have an opportunity to fundamentally restructure this state for the future and you have to look at it, I think, in that sense,” he said. “It’s going to be painful, but it could be a great accomplishment, and I would urge the members of the next legislature and the governor to look at the situation that way. I think there will be some political carnage along the way, but it’s an opportunity.”
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
KJMClark
Sun, Nov 21, 2010 : 5:43 p.m.
http://www.berkeley.edu/news/media/releases/2010/10/18_stateworkers.shtml It picked up the close paren as part of the link.
AlphaAlpha
Sun, Nov 21, 2010 : 11:39 a.m.
KJMClark - Your link goes to a blank 'page not found' on the Berkley site. Many here have expressed hope that the current issues surrounding the posting of hyperlinks will be improved.
AlphaAlpha
Sun, Nov 21, 2010 : 11:33 a.m.
Well Mick, once again, we seem to agree on nearly all points; it's a puzzle as to what any disagreement might be. Regardless, your valuable observations are as usual spot on. Did you see Hamtramck is about to go BK? An interesting development... and thus far the state gov is acting to prevent them from filing; political showdown looming...will they file before the new administration, to make a point, or not. Time will tell. They are the first; many will follow.
KJMClark
Sun, Nov 21, 2010 : 8:53 a.m.
AlphaAlpha - I think you missed the part: "But I'll cite the studies I'm talking about if you'll cite a study that agrees that "Task for task, State workers earn dramatically more than private workers." So the ball's in your court to cite a study that says that or shut up. Here's one talking about California public employees: "The Truth about Public Employees in California: They Are Neither Overpaid Nor Overcompensated" (UC Berkeley News - http://www.berkeley.edu/news/media/releases/2010/10/18_stateworkers.shtml) "Wages earned by California's public employees are about 7 percent lower, on average, than those received by comparable private sector workers, according to the report. However, the researchers concluded that when taking into account the more generous benefits of government employees, there is no significant difference in the level of total compensation between the two sectors." BTW, I first submitted this comment last night, and it mysteriously never appeared in the comments.
Mick52
Sat, Nov 20, 2010 : 10:01 p.m.
AlphaAlpha Nope. I disagree. I am sorry I do not have sources available, but I did take a Masters level course in compensation and we did study that. The private sector has acted to limit total compensation due to the fiscal problems. A lot of the reductions are in changing defined benefit retirement plans to defined contribution plans. Also in the private sector the employer/employee split on benefit costs like health care are more spread like 70% - 30% rather than 80/20 or the employer paying everything, common in public employment. And the pension plans that let employees roll up their pension by working tons of OT, vacation and sick time to roll it into their pension is limited in the private sectors but not in the public areas. The private sector moved on it because otherwise they go bankrupt, which many cities are facing.
AlphaAlpha
Sat, Nov 20, 2010 : 9:54 p.m.
"Fight to raise the private sector wage to achieve par with the public sector." So, just what do you suggest, specifically?
Mick52
Sat, Nov 20, 2010 : 9:52 p.m.
Tim, the statistic you are referring to is from the 2000 WHO rankings where they put the US at no 37. I am surprised you used it because everyone knows the WHO rankings are heavily weighted by a lot of factors that have nothing to do actual quality of health care. For example, the WHO applies a low grade to the US simply because the US does not have universal health care. Nothing to do with quality of care. However if you look at where the WHO did look at quality, the US is ranked high, number one in cancer treatment. Also, the WHO ranking factors included mortality rates and the US ranked low in that. However mortality rates in the US are high not for poor health care, but for violent deaths, accidental deaths by young people. And if you look at mortality rates state by state, you will see big differences. I think Utah, for example has a high mortality rate, much higher than Nevada next door. So to use the WHO rankings is inaccurate in describing the quality of US HC. The spending is due to the high quality and the number of hospitals and staffing. US Drs make much more than Drs in other countries ditto nurses, techs, PAs, etc. If you think you can get HC costs down, good luck talking all those people into taking big pay cuts.
ed
Sat, Nov 20, 2010 : 7:24 p.m.
Nephilim is right on all counts. Cut the fat at the top. Also no need to drop public sector wages 34% to achieve par with the private sector. Fight to raise the private sector wage to achieve par with the public sector. Our country and state didn't have all of these financial crises until we started nibbling away at the middle class. All that has been accomplished is a lower standard of living. Promises of low paying jobs aren't the answer. Put people to work earning good wages and benefits and the budget problems will go away. That always worked in the past until Wall St. got greedy.
Nephilim
Sat, Nov 20, 2010 : 6:55 p.m.
I can't believe you all would rather argue about the low level state employees vs private sector employees and it doesn't even raise a stir that the we are only one of 11 states that have a full time legislative body which is NOT needed and WE pay them 90 thousand a year plus 90% of their health insurance........!!!!!!! COME ON PEOPLE WAKE UP!!!!!!! You got to change from the top first!
AlphaAlpha
Sat, Nov 20, 2010 : 6:42 p.m.
While, clearly, there are a few government tasks which have no direct private sector equivalent, nearly all do, even your 'auto workers'. (There are very few tank operators even in public sector.) Also, most studies ignore all federal wages, which are even higher than state & local government wages; this poorly understood fact will, in time, become better known, and more discussed. For now we discuss non-federal compensation. Please understand this key fact: Teachers, clerks, dispatchers, administrators, garbage collectors, tree trimmers, payroll, database administrators, building maintenance, grounds keeping, automobile and truck mechanics (close to the auto assemblers you referenced), purchasing agents, even police and fire protection...and many more occupations...all these positions exist both in the public and private sectors. Thus, your implied assertion that public versus private jobs are not generally comparable lacks accuracy. They are generally quite comparable. The range and mix of occupations, as well as the range and mix of individuals enjoying those occupations, public and private, is also more similar than than different. Therefore, use of averages, such as total compensation, are valid metrics. It is no surprise that you found a (likely purchased) study which counters BLS data. This is part of trying to shape public opinion. Buy a study, then make sure it gets adequate media exposure. Most readers don't question the veracity of the study, nor whether those funding the study have a particular agenda, which they often do. That is why it's best to use only BLS data. Thus far, BLS has remained relatively free of political influence. Let us hope that remains the case. So, as requested, please do cite your sources. Most curious. Thanks.
AlphaAlpha
Sat, Nov 20, 2010 : 6:22 p.m.
KJMClark - Please cite your sources.
KJMClark
Sat, Nov 20, 2010 : 5:57 p.m.
AlphaAlpha - you keep changing your story. You used to say that government employees are paid more that private sector employees. I looked that up at the BLS and found you were right, but those were averages, not based on the actual types of work, education levels, or experience of the workers. I've seen three studies in the past 6 months about this. The first said what you said before. The other two looked at the pay in detail and found that public employees are paid *less* than private employees for equivalent work, taking into account education level and experience. However, one of those studies also found that lower-skilled public employees tend to be paid more than private sector equivalents, but higher-skilled public employees are paid less than equivalent private sector workers, so that on average, the public sector employees are paid slightly less. This is confused some by the types of work. There aren't many public sector auto workers, and there aren't many private sector tank operators. But I'll cite the studies I'm talking about if you'll cite a study that agrees that "Task for task, State workers earn dramatically more than private workers." I think you may be overstating the study you're thinking of. I'd like to see that study.
AlphaAlpha
Sat, Nov 20, 2010 : 12:20 p.m.
Mr. Bomey and all - The key metric is total compensation. Total compensation is just that: salary, benefits, etc. Task for task, State workers earn dramatically more than private workers. It is odd that while the BLS number for average state worker pay was mentioned above, the average for private workers was not; currently that value is ~$57,000 per year total compensation, per BLS. That means, task for task, public workers on average earn 151% of the pay private workers earn. This needs to change to a value close to 100%, i.e., public sector pay must become competitive with private sector pay. Reducing average state pay ~34% would get our public servants competitive.
tim
Sat, Nov 20, 2010 : 9:02 a.m.
Yes-- I would go out of the country to get health care if I were one of the 59 million people who went without insurance last year. Like I said around Ann Arbor there's great care but that's not true for much of the country. The bottom line is that health care is cheaper everywhere else and that people live longer lives in countrys with universal care.
Do not taunt Happy Fun Ball
Sat, Nov 20, 2010 : 7:47 a.m.
Cut spending 5% across the board for all state budgets, except police/security. Everyone else in that State has done that and more.. btw, The WHO rankings regarding healthcare are rather suspicious. The Economist mentions that the data comparisons are 50% simply made up. Some say it is done just to make the US look bad. If you had a brain tumor, do you really want to go to Canada for service, Brazil? perhaps Greece? You want to be right here in America. Nobody leaves America for health care unless it is truly a one off rarity/last chance.
tim
Fri, Nov 19, 2010 : 11:12 p.m.
mick 52 We do pay a much higher % of our GDP on health care than the rest of the world-- as a whole our health care system is ranked poorly by the W-H-O ( I think around 32nd in the world)but if you live around a2 and have a good insurance policy you can't beat the care.
stunhsif
Fri, Nov 19, 2010 : 7:56 p.m.
"With poll: Michigan budget expert: Slash public employee compensation." To this I say, YEY YEY YEY!!!! And we don't need to slash their salaries, we simply need public employees rolled over to 401k's like the private sector has done. No more cradle to grave benefits for public workers and their spouses after they retire. Let's roll Rickster!
Mick52
Fri, Nov 19, 2010 : 6:44 p.m.
Anyone else find it of interest that the guy proclaiming this drastic rise in expenses is the person who was at the helm? @tim, a single payer system does not lower the cost of health care, it raises it across the board. Countries that have it are looking to insurance companies like we have here to take some of the burden. Also they are notorious in re to poor quality of care. The expense of health care is particularly burdensome if the employer is paying all of the premiums, as some public employers do. If employee wages are high, they should be paying more of a % of HC premiums.
Hillbillydeluxe
Fri, Nov 19, 2010 : 6 p.m.
you get what you pay for as far as services are concerned
kathryn
Fri, Nov 19, 2010 : 5:43 p.m.
I think townie has it right... ""The average total cost of a state employee, a figure that includes benefits, rose 58.2 percent... Over the same period, the average personal income for individual Michigan residents grew 24.1 percent..." While this guy may have a point to make, the above comparison doesn't make it for him--it is apples and oranges. You can't compare the COST of an employee, a figure that includes salary and benefits to personal income, which only includes take-home pay." The cost of benefits (retirement and health care) have been skyrocketing. I would be interested in knowing how much the take-home pay of the average state worker has increased during that same period.
tim
Fri, Nov 19, 2010 : 3:17 p.m.
Good point townie -- The sad thing is we could have lowered the cost of health care insurance if we would have passed universal health care. I use to vote Republican because I wanted the government to lower the cost of living for the average family,however they increase costs by keeping in an old systems that don't work
Nathan Bomey
Fri, Nov 19, 2010 : 3:08 p.m.
The figures I just cited, however, are reflective of total costs the state pays for employees -- not average cost per employee. The cost per state employee has risen 58.2 percent over the last 10 years, but the total amount the state spends on employee compensation has risen only 37.7 percent -- a discrepancy attributable to a lower number of total employees.
Nathan Bomey
Fri, Nov 19, 2010 : 3:04 p.m.
A deeper dive into the statistics, for what it's worth: --Employee salaries have risen 21.3 percent over the last 10 years. --State employee retirement contributions are up 134.9 percent. --Insurance costs are up 65.3 percent.
townie
Fri, Nov 19, 2010 : 3 p.m.
"The average total cost of a state employee, a figure that includes benefits, rose 58.2 percent... Over the same period, the average personal income for individual Michigan residents grew 24.1 percent..." While this guy may have a point to make, the above comparison doesn't make it for him--it is apples and oranges. You can't compare the COST of an employee, a figure that includes salary and benefits to personal income, which only includes take-home pay. Everyone knows that the real increase in employee costs has been on the benefit side of things--primarily health insurance.
tim
Fri, Nov 19, 2010 : 2:43 p.m.
I'd like to see the real stats on rising incomes for the past ten years---- I bet most of that was on the upper end of the income bracket.
Tree Logger
Fri, Nov 19, 2010 : 2:28 p.m.
I am thankful that the communist Ann Arbor News has only provided options that dump the weight of austerity on the working class. It would be a travesty to consider independently taxing the paltry wealth of the rich.
John Q
Fri, Nov 19, 2010 : 2:19 p.m.
"The average total cost of a state employee, a figure that includes benefits, rose 58.2 percent from $54,412 to $86,100 from 1999-2000 to 2009-10, Olson said. Over the same period, the average personal income for individual Michigan residents grew 24.1 percent, the lowest of the 50 states, Olson said." We can see that Olson is a master at misinformation. Comparing the income of state employees to all state residents isn't comparing two like groups of people. State employees, on average, have more education and experience than state residents as a whole. Of course they're going to be paid more just as people with similar education and experience in the private sector make more than the average of all Michigan residents. Olson knows better.
Awakened
Fri, Nov 19, 2010 : 2:09 p.m.
Kudo's to Governor Granholm and her promise that we will all be blown away in four years. At LAST a politician that keeps her promises!
Speechless
Fri, Nov 19, 2010 : 2 p.m.
"... Olson also laid out a litany of other structural problems with the state budget, including the way the state collects taxes, the amount it spends on corrections and impact of the poor economy on revenue. Fueling the states chronic deficits is a massive increase in the number of people qualifying for Medicaid.... Olson said Michigan needs to expand its sales tax to cover services.... also suggested that corrections spending is too high...." While the general focus here is to demonize state employees in a seemingly "rational" and disinterested-sounding fashion, some of the real sources for the state's major budget difficulties do gain a passing acknowledgment. Rather than singling out public employees as scapegoats, current or future representatives such as Alma Wheeler Smith and Jeff Irwin have for some time been calling for a progressive overhaul of Michigan's taxation system. Even in a bad economy, that can be enough to end the state budget crisis. Of course, this has not been seriously contemplated by the full legislature. That is because it would require the state's wealthy to give up some public subsidies which benefit them and also require a limited increase in their annual state income tax (while those on lower incomes pay a little less). The rich, of course, are supposed to get whatever they want at the expense of others.
Nephilim
Fri, Nov 19, 2010 : 1:46 p.m.
Plain, lets not stop there then..why enforce anything really? If you think the war on drugs is failing, wait until the war is brought to your doorstep in, im sure, modern American suburbia or unrealistic Ann Arbor, (where everybody is good and we live in a fairy tale world and all 114,000 people love each other) lets be real......how about our epic failing welfare system? We shut down the war on drugs the we definitely shut down this gross expenditure to welfare. Affordable and government housing lets tank that to......realistically none of these aforementioned programs do anything for your average employed citizen. No need for OSHA, DEQ, EPA, USDA, TSA and any other bothersome and costly acronym that I can't think of right off hand. LETS GET RID OF IT ALL!!!!
jon67
Fri, Nov 19, 2010 : 1:35 p.m.
The state needs to STOP giving aid to the likes of MSU. All that place has ever been good for is cows and basketball. What a travesty!
Nephilim
Fri, Nov 19, 2010 : 1:33 p.m.
How about the 38 senators and the 110 representatives take a substantial pay cut from their 90 thousand a year salary plus their 90% health insurance compensation that they feel they deserve so much!!!!!!! Why do we have a full time house and senate anyway? Most other states do not. It cracks me up that when the slashing starts it's always the people at the bottom of the pay scale and the ones actually doing the work. Then the majority of you people get on here and scream that all the cops and mdot workers etc etc all have too big of benefit packages and make them pay!!!!! Yet no one asks, why do we have a full time legsilature? If they are supposed to be the "average" persons spokesperson, then why are they making wayyyyyy more than the average worker? Just their ridiculous wage alone is over 13 million.
Top Cat
Fri, Nov 19, 2010 : 1:31 p.m.
"tax expenditures"...now there is an expression I love. Although these credits and deductions need careful scrutiny, and the fewer the better, the bottom line is they allow individuals and businesses to keep more of their own money. Is allowing two parents a personal exemption for their child a "tax expenditure"?
say it plain
Fri, Nov 19, 2010 : 1:29 p.m.
How 'bout let's stop the forces in both the GOP and the Democratic party from thwarting *real* healthcare reform--most of that increase in costs of the average public employee is the rising cost of 'care' our medical-industrial complex provides lol--and let's end the failed 'wars', on drugs for one, in afghanistan for another (the drug war accounts for a good chunk of the prison costs, right; the endless 'war on terror' costs us vast mounds of federal money which in turn of course takes away our abilities to pay for any.thing.else. )?! That would be nice.
Mikey2u
Fri, Nov 19, 2010 : 1:08 p.m.
Gov-elect Snyder has promised to create thousands of new jobs in Michigan. All of those new workers will be paying millions in taxes. Problem solved. Right?
scooter dog
Fri, Nov 19, 2010 : 12:37 p.m.
The state needs to STOP giving aid to the likes of the U of M. Why in gods name are they getting aid when they have 10 billion to use as they choose and there leader makes what she makes. A real frigging joke.