After more than a dozen years of a down economy, the state of Michigan is starting to see an economic rebound. The unemployment rate is still higher than the national average, personal income growth still lags most other states, and housing prices in much of the state are still stagnant. But one bright spot is that the state is facing almost a $1 billion surplus through fiscal year 2015. This raises the important question, what should the state do with the money?
Not surprisingly, the two political parties have different answers to this question. Republicans, who hold majorities in both the House and Senate as well as holding the governorship, are emphasizing tax cuts, with a focus on reducing the individual income tax rate from 4.25 percent to 3.9 percent. Democrats in the Legislature have argued for plowing some of the surplus back into increased state aid to local school districts, along with a more targeted tax cut by increasing the state’s Earned Income Tax Credit (the Detroit News summarized the perspectives of the two parties).
Governor Snyder had an opportunity in his State of the State speech to weigh in on how the surplus should be spent, but he mostly punted. He acknowledged the surplus to great applause from the audience, and he listed a number of areas for potential investments, including early childhood education, increasing the state’s rainy day fund, addressing pension liabilities, and tax cuts. But he held back on providing any specifics on what he would push for with the Legislature. Instead, he left the audience with the laundry list of potential ideas but provided no sense of his own priorities.
I believe the governor, and the leadership of the Legislature, are missing out on an opportunity to reverse the decade-long erosion in funding for both K-12 and higher education in the state. As this chart shows, state funding for both has fallen precipitously over the last decade.
State support of K-12 education fell 19 percent in real dollars between 2002 and 2012, while funding for higher education on a per-student basis fell by more than half during this period. The budget surplus represents an opportunity for the Legislature and governor to demonstrate their commitment to education and their recognition of the role it plays in helping grow the state’s economy.
Increasing funding to school districts in the state would help them restore positions that have been cut over the last decade (school district general fund revenues from local property taxes were just about the same in 2012 as they were in 2002 on an inflation-adjusted basis). More money for higher education would allow the state’s public universities to moderate their tuition increases, and pump more funds into need-based grants, to ensure a college education is affordable for students from low- and moderate-income families.
Some may look at the surplus and say that it makes little sense to invest one-time monies into either higher education or K-12 spending; future budget years may not allow the continuance of this higher level of funding. But reversing the decade-long erosion in state support for education at all levels should be a priority for both political parties, and investing some of the current budget surplus accordingly would be an important first step.