Gretchen Whitmer’s plan for Michigan: $3B of promises and wishful thinking

November 6: Gretchen Whitmer projected winner in Michigan governor race

Democratic gubernatorial candidate Gretchen Whitmer has big plans for Michigan –  fix roads, improve education and repeal a “retirement” tax.

If approved, they’d help repair the state’s infrastructure while employing tens of thousands, boost student achievement and create a more educated workforce –  all of which could help the state and its economy.

The plans have a big price tag: They could increase state spending by $2.7 billion or roughly 10 percent, all while Whitmer is calling for a $300 million tax cut and a budget shift that could create $600 million to $900 million hole in higher education funding.

Whitmer’s team says she can complete her agenda that includes some tax increases and other budget adjustments. But much of her plan relies on support from the Legislature and forces beyond her control, such as a growing economy that increases tax revenues.

Here’s a look at her promises and reality.

AGENDA ITEM ONE: ROADS

A 2018 report by a commission appointed by term-limited Republican Gov. Rick Snyder says the state needs $4 billion more per year for roads, pipelines, internet and energy lines.

Whitmer has made “fix the damn roads” her campaign mantra. But the details of her plan are hazy.

WHAT HER CAMPAIGN PROMISES

Whitmer’s plan calls for $2 billion a year in new spending for infrastructure, her campaign told Bridge, and unlocking another $1 billion in annual federal funding.

According to Whitmer and campaign spokesman Zack Pohl, her plan anticipates working with the Legislature to generate “user fees” to help pay for the $2 billion.

“She is keeping all options on the table to raise the revenue we need to get the job done right. The reality is we don't know what the Legislature will look like next January, so there could be different appetites for different solutions,” Pohl wrote in an email.

REALITY CHECK

While Whitmer won’t commit to use fees or tax increases, Snyder’s infrastructure commission provided options to raise the money.

All involve more taxes or fees:

• The gas tax, which is now 26.3 cents per gallon, would have to skyrocket to 40 cents per gallon to generate $2 billion. Increasing it by 10 cents a gallon would generate $500 million.
• The 6-cent per dollar sales tax would have to increase by 1 penny to generate $1.5 billion. Any change would amend the state constitution, which voters statewide would have to approve.
• Property taxes would have to jump 6 mills to raise the full $2 billion, and also require a statewide vote. Such a change would cost owners of $200,000 homes another $600 per year in taxes.
• Aiming smaller, raising vehicle registration fees by 20 percent would generate $200 million a year. (They were raised 20 percent in 2017 as part of $1.2 billion roads package; cost varies depending on age and value of vehicle)

If Whitmer’s plan was adopted by the Legislature and voters, the state could raise $2 billion by adding a penny to the sales tax and 10 cents to the fuel tax.

The cost to families of four: About $166 per year, assuming they have incomes of $50,000 to $60,000 and two cars that get about 30 miles per gallon and travel 15,000 per year.

ANOTHER OPTION BESIDES TAXES

Whitmer’s campaign says she’d go to voters and ask them to support a bond for roads if the Legislature refused to raise fees or taxes.

Jay Rising, a state treasurer under Gov. Jennifer Granholm, helped the Whitmer campaign develop its roads plan. He said that for every $2 billion the state borrowed, it’d cost $70 million a year to pay back, for as long as 30 years.

Rising said part of that loan could be repaid with the money the state saves as tax credits  – doled out years ago to promote jobs – begin to expire.

But borrowed money always has to be paid back with state revenues, so taking out a loan would create a hole elsewhere in the state budget.

It’s true that tax credits now cost the state $500 million a year in lost taxes. But expiring credits wouldn’t save enough money to pay off a bond for several years, until at least 2026, records show.

And that assumes voters would approve a bond.

The last statewide voter initiative, 2015’s Proposal 1, was defeated in a historic landslide.

PENNIES FROM HEAVEN

A major portion of Whitmer’s roads plan is predicated on a notion that spending more would trigger another $1 billion in federal grants.

That’s a fantasy, transportation experts say.

Michigan already receives the maximum amount of federal road funding and raising more locally wouldn’t increase help from Washington D.C., said Bill Anderson, an analyst for Southeast Michigan Council of Governments, a regional planning authority for Metro Detroit communities.

A few years ago, in 2014, Michigan was on the verge of not getting all its federal aid because its road spending was too low, Anderson said.

But lawmakers tapped the state’s general fund for nearly $400 million, and since then, the state is  no longer is in jeopardy of not getting its maximum federal aid, Anderson said.

BOTTOM LINE

Whitmer’s plan would require significant buy-in from the state Legislature and voters to either raise taxes or cut into existing tax revenues. And one-third of her funding plan –  unlocking money from the federal government – is based on wishful thinking.

AGENDA ITEM TWO: UNIVERSAL PRESCHOOL

Whitmer says all 4-year-olds should be eligible for state-paid preschool.

Now, about a third –  39,000 of 117,000 4-year-olds –  get state-subsidized pre-kindergarten instruction. That’s up 62 percent from 2012, when Bridge Magazine wrote about tens of thousands of Michigan youths who qualified for the program but couldn’t get in because the state didn’t have the money.

In 2013, Snyder persuaded the Legislature to pour hundreds of millions of more dollars into the Great Start Readiness Program, boosting enrollment by over 16,000 4-year-olds annually. Families can qualify if they make less than 250 percent of the federal poverty guidelines – up to $62,750 for a family of four.

WHAT HER CAMPAIGN SAYS

Whitmer wants to spend as much as $600 million per year to expand the program without a tax increase.

Pohl said full enrollment could be phased in using up to half of anticipated increases in the state’s School Aid Fund, primarily funded by sales, income and property taxes.

Whitmer also wants to free up money by dedicating all of the $13.8 billion  School Aid Fund to K-12 education. Since 2010, some of that money has been diverted to colleges and universities, a sum tallying $600 million this year.

(Whitmer voted against the shift as a state senator.)

If that’s not enough money, Pohl pointed to anticipated tax revenues from a growing economy; as much as  $200 million a year in new tax revenues from marijuana (assuming a legalization effort passes) and cutting waste in state contracting.

The Whitmer campaign also claimed fraud and waste costs Michigan government as much as $4 billion, pointing to estimates from U.S. Rep. Darrell Issa, a California Republican.

REALITY CHECK

More money for preschool would mean less money for colleges, and Whitmer’s plan could create a hole in the budget.

As for saving billions by tackling waste, fraud and abuse?

“That’s bullshit,” said Mitch Bean, the former director of the state House Fiscal Agency that provides analysis to the state Legislature.

If there was that much fraud and abuse, every government would try to correct it and it’s a common campaign pledge by Democrats and Republicans alike and this year alone, candidates in Ohio, New York, Minnesota and Rhode Island have trotted out the potential savings from “waste, fraud and abuse.”

President Trump vowed to balance the federal budget by eliminating it. He hasn’t.

BOTTOM LINE

No doubt, Michigan likely will have more revenues in coming years, Bean said.

Besides marijuana, Michigan could get another $200 million annually in taxes now that the U.S. Supreme Court has allowed states to collect sales taxes on all online sales.

“That is a lot of money,” Bean said.

But is it enough? While Whitmer said she doesn’t need to raise taxes to cover the cost of universal preschool, an independent commission appointed by Snyder said tax increases would be necessary.

AGENDA ITEM THREE: DEBT-FREE COLLEGE

Whitmer wants all Michigan students to receive at least two years of post-secondary, debt-free education at a community college or a vocational-type school.

Whitmer would give scholarships equal to about $3,000 a year to cover the costs for high school graduates to attend in-state colleges or certificate programs.

WHAT HER CAMPAIGN SAYS

The program would cost $100 million a year, and Whitmer says funding could come from anticipated increases in state revenues, including new sales tax revenues from online sales in the wake of a recent U.S. Supreme Court decision.

“Michigan is on track to be 6.1% above last year’s revenues,” Pohl wrote in an email to Bridge.

“The original estimate was a 4% increase. This means the next governor is likely going to have an extra $500 million at the end of the year.”

REALITY CHECK

Like the other budget proposals that rely on higher-than-expected revenues, Whitmer's plan doesn't anticipate a recession. The last one was a long time ago –  2009 – and no one thinks there won’t be another.

But the Whitmer campaign believes in the rosy budget projections that it claims it will pay for the tuition program as well as a tax cut for retirees. 

BOTTOM LINE

If the scholarship program cost $100 million and it fell to taxpayers, which Whitmer says it would not, it’d be the equivalent of a 0.3 mill statewide property tax, or $30 a year more for the owner of a $200,000 house.

AGENDA ITEM FOUR: REPEAL ‘RETIREMENT TAX’

Perhaps the most controversial part of Snyder’s 2011 tax overhaul was the elimination of income tax deductions on retirement income such as pensions.

It was part of a massive shift –  cutting taxes on businesses by $1.6 billion per year and raising them on residents by $1.4 billion –  and both Whitmer and Schuette want to end what some call the “retirement tax.”

WHAT HER CAMPAIGN SAYS

Repealing the tax would deliver a $270 million hit to the state budget, according to the House Fiscal Agency’s Jim Stansell.

Whitmer, again, says rising revenues could cover the costs.

REALITY CHECK

Whitmer’s promise doesn’t account for the fact that other government costs, such as healthcare and pensions, also rise during good economies, said Bean, the former House Fiscal Agency chief.

And that, again assumes, the economy continues to ride high.

BOTTOM LINE

The state’s $10.4 billion general fund budget, adjusted for inflation, is 30 percent below its 1999-2000 level and the $13.8 billion School Aid Fund, which provides the lion share of K-12 funding, is 2 percent below 1999-2000 levels.

To cut nearly $300 million from that revenue stream would constrain it at the same time Whitmer wants to raise spending elsewhere, putting even more pressure –  and hope – on a rising economy to boost revenue levels.