MSAE Conference February 13, 2018

1. MSAE ConferenceFebruary 13, 2018 Robert Kleine Mitch Bean

2. Overview • The right to criticize government is also an obligation to know what you are talking about (CRC) • Michigan state and local taxes are relatively low and business taxes are among the lowest in the nation • State taxes have declined sharply as a % of personal income since 2000. • Michigan taxes and spending patterns are most similar to southern states • Few, if any, states has experienced more budget austerity in last 15 years than Michigan • Michigan has fewer state and local employees per capita than any other state • Michigan spending is falling short of needs in several areas but most significantly on highways and support to local governments

3. State Own Source Revenue as % of Personal Income

4. State-Local Taxes as % of Personal Income, 2015 Great Lakes Economic Consulting

5. Michigan Business Taxes Among Lowest In Nation

6. Michigan Wage and Salary Employment as % of U.S., 1990-2017

7. Michigan State Govt. Employment

8. State-Local Employment (Non-Education) per 10,000 Population, by State, 2014

9. State-Local Education Employment, 2014

10. General Fund Expenditures, Selected Year (millions)

11. Michigan Budget, % Change (inflation adjusted) in Selected Programs (in millions)

12. State Highway Expenditures Per Capita, 2015

13. State Spending Compared with Need, FY 2012 (Urban Institute Study)

14. Growth Slowing in Every Sector

15. Michigan and U.S Unemployment Rate (Rate would be 8.0% if Michigan labor force increased as fast as U.S labor force) 14.9% June 09 Michigan 10.0% Oct 09 4.7% Dec. 2017 U.S. Source: MI Bureau of Labor Market Information and U.S. Bureau of Labor Statistics.)

16. Michigan Per Capita Personal Income Remains Below U.S. Michigan Per Capita Income as a Percent of U.S. Per Capita Income 2016 2000 2009 1980 1933* 1945* 1970 32 16 40 Michigan’s Rank 19 12 15 12 122% 93% 89.5% Source: Department of Treasury calculations from U.S. Bureau of Economic Analysis data. *Alaska & Hawaii data not available. Updated 9/28/2016.

17. FY 2019-20 Executive Budget Recommendation: February 7, 2018 • “The Governor Proposes and the Legislature Disposes” Former Senate Appropriations Chair, Harry Gast, (and many other’s) on numerous occasions. • “An advanced Capitalist economy needs infrastructure, an educated workforce, public safety, courts, regulations, and a social safety net to operate efficiently. Government either provides these things directly or contracts with the private sector to provide them. In either case – taxes pay for them.” Mitch Bean

18. Consensus Revenue Estimates: January 11, 2018

19. Slow Growth: A Preview of Coming Attractions

20. How do you fund new initiatives with so little GF/GP revenue growth? Increase fees by $79 million Reduce GF/GP going to K-12 by $170 million Use one-time $191.7 million from beginning balance Use $320 million SAF to supplant GF/GP in HE, CC, K-12 Reduce existing GF/GP line-items by $129.4 million

21. Almost no GF/GP growth because it’s already been spent on tax cuts

22. Ongoing Budgetary Pressures • In coming years, state government will face numerous budgetary issues including funding local governments, transportation funding, and the impact of federal changes to the ACA and how that affects health care in Michigan.

23. Cuts to Local Revenue Sharing Have Financed Tax Cuts. FY 19 Exec Rec Includes $466.2 Million Reduction From Full Funding

24. MI Reduced Municipal Funding More Than Any Other State

25. Magnitude Of MI Infrastructure Investment Shortfall • ASCE 2017 Report Card: • 11.1% of Bridges in Michigan structurally deficient. • $13.8 billion worth of investment needs for drinking water infrastructure over the next 20 years. • $300 million of unmet investment needs for state parks. • $1.3 billion estimated investment need in school infrastructure. • 21% of public roads are in poor condition. • $2.07 billion investment needed for wastewater infrastructure over the next 20 years. • MDOT: Percent of Highways in good condition will decline from 67% in 2018 to 46% in 2025. • Other recent studies: Gov. Rick Snyder’s 21st Century Infrastructure Commission and January 2017 by Business Leaders for Michigan, Michigan must invest $4 billion more a year for many years  to come to fix the state’s aging and failing infrastructure systems.

26. Highlights of the Exec Recommendation • - An extra $175 million on top of the already required $150 million in General Fund money for road improvements • - $112 million GF/GP FY 17 budget lapse for up-front payments on some capital outlay projects, including $70 million toward the ongoing Capitol infrastructure upgrades and $42 million toward new veterans homes in Grand Rapids and Detroit. The $112 million used from the $280 million that lapsed from Fiscal Year (FY) 2017 would help save $48 million in interest costs through making Snyder's proposed "pre-payment." - Per pupil funding increases of $120 to $240 per pupil for a total increase of $312 million for a minimum funding of $8,734 per student. • - Replace additional120.0 million GF/GP with SAF

27. Highlights of the Exec Recommendation (Continued) • - Funding cyber schools at 75 percent of the per pupil foundation allowance given to traditional brick-and-mortar schools - Up to a $50 investment per high school student enrolled in a career and technical training program - $46 million more for the indigent defense commission - $25.9 million ($18 million General Fund) for service line replacement in Flint; $4.6 million for lead investigations, lead abatement and health care programs for Flint children. - $20 million toward statewide broadband access

28. Highlights of the Exec Recommendation (Continued) • - $8 million PFAS containment response - $7.5 million for rural hospital payments - 2 percent increase for university funding as long as tuition increases are kept at twice the rate of inflation, which is currently 1.9 percent. - A combined $1.26 million for Michigan State University AgBioResearch and MSU Extension operations - A combined $6.8 million to hire 50 new Michigan State Police troopers and 80 troopers to replace those lost through attrition. • - Increase DEQ tipping fees from $0.38 per ton to $4.75 per ton – yield $79.0 million

29. Highlights of the Exec Recommendation (Continued) • - $600,000 for the Sexual Assault Prevention and Education Initiative - $2.5 million for a Michigan Israel Business Accelerator to further spur investment between the two nations - $2 million for the "Rising Tide program" that helps smaller rural communities with talent development and economic development. - The Governor said he'd like to raise $79 million in increased landfill dumping fees to clean up contaminated sites, as well as a $5-per-customer water bill fee worth a combined $110 million to put toward water infrastructure improvement projects. - use 25 percent of the lapsed funds from Fiscal Year (FY) 2018 to go to the Rainy Day Fund, which is projected to put the $889 million fund at $922, close to $1 billion number.