Michigan's Crisis

In the early hours on October 1, the Michigan Legislature wrapped a bow on the state's fiscal 2008 budget, which included $1.48 billion in new taxes. Technically, state government had shut down at midnight because the new fiscal year had begun without a budget.

In the months leading to the shortlived shutdown, the atmosphere in the state Capitol turned theatrical. Legislators, party leaders, and the governor tried to out-politic each other, partly in response to a new anti-tax group known as the Michigan Taxpayer Alliance. The MTA mascot, a 10-foot fiberglass pig named Mr. Perks, frequently stood on the capitol grounds, lording over budget negotiations and mortifying legislators. The backdrop for this circus-like environment was the Michigan economy, wallowing in an effective one-state recession.

For nearly a year it has been obvious that Governor Granholm was pursuing a broad-based net tax hike to address a yawning gap between expected state revenues and desired spending levels. Her administration was forced to abandon several new spending proposals as revenue projections fell short. Yet serious spending reductions continued to receive short shrift.

Budget negotiations dragged throughout the year, in part due to the actions of the omnipresent MTA.

The taxpayer group was the brainchild of a former state legislator, Leon Drolet, a savvy politician who understands the value of political self-interest. Mr. Drolet made it clear to Republican and Democrat officeholders alike that his group would make it costly for politicians who voted to raise taxes.

The MTA adopted a four-pronged strategy. For starters, volunteers pulled Mr. Perks on a trailer through the districts of vulnerable politicians, often going door-to-door to raise awareness about their representative's willingness to support tax hikes. Second, he employed "robo calls," automated telephone messages delivered directly to constituents. With the push of a button, recipients of these calls could be forwarded directly to their legislator's office and give him an earful.

Third, Mr. Drolet promised to organize recall elections for politicians willing to vote for higher taxes and bigger government. He distributed buttons

that read "Recall 1983?" — a not-so-subtle reminder to politicians that another tax increase led to the successful recall of key tax-hike supporters.

Last, the MTA planned a "RINO hunt" targeted at politicians deemed "Republicans in Name Only." The group would recruit primary challengers for Republicans who paid lip service to limited-government ideals while supporting tax increases.

The MTA rattled the establishment and voters may do the same. A survey released by the Mackinac Center for Public Policy at the end of September showed that 71% of likely voters in Michigan wanted a budget solution that involved more spending cuts than tax hikes. A budget agreement that did the opposite may hurt politicians as well as the economy.

According to the Tax Foundation, Michigan was ranked 14 in state and local tax burden. The new tax hike could raise Michigan to the 11th highest burden in the nation. This is a dubious position for any state, but for the Great Lakes State the consequences are even greater. Michigan is the only state in the union to experience negative economic growth in 2006. How do policymakers think the state will fair after another $1.48 billion is taken from residents and job providers?

Other data illustrates the depths of Michigan's problems.

• Michigan's per capita personal income growth between 2005 and 2006 was more than 6.7% below the national average, a statistic the state has not seen since the Great Depression;

• Michigan has the highest unemployment rate in the nation at 7.4 %, but it should be much higher. The state is exporting its unemployed to states with more opportunities. In a national recession they would have nowhere else to go;

• Household mover United Van Lines reported that 66% of their Michigan business was moving out of the state in 2006, tying North Dakota for number one.

The drama in Lansing is not over. While the Legislature ties up loose strings on this budget, it may return to the revenue well again early next year. Revenue estimators have been far off the mark in the past. Another miss could trigger renewed discussions of "new revenues." That would mean the state economy, and perhaps Mr. Perks, will continue to stalk Michigan's political landscape throughout 2008.

Mr. LaFaive is director of the Morey Fiscal Policy Center at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.