1. Michigan Association of Counties Traverse City, September 19 th, 2011

2. February 2011 2

3. September 2011 3 Real and Nominal State GDP Billions

4. Job Change in Michigan Source: U.S. Bureau of Labor Statistics and May 2011 Consensus Estimates June 2011 4 2011 - 2013 are May 2011 Consensus Estimates

5. FY 2011-12 Budget Adjusted Gross Funding Sources Adjusted Gross = $46,717,653,400 56.2% of State Sources funding is paid to local governments June 2011 5

6. FY 2011-12 GF/GP 4.5% $382 million Debt Service and SBA Rent FY 2011-12 Total = $8,450,982,800* June 2011 6 * = Includes one-time boilerplate appropriation

7. School Aid Major Spending Categories Foundation allowances (used for school operations) absorb over $2 out of every $3 spent FY 2011-12 Total = $12,659,072,900 Note: Does not include local revenue. June 2011 7

8. State Tax and Fee Revenue FY 2011-12 FY 2011-12 Total = $26,921,160,300 June 2011 8

9. June 2011 9 Total Base Cuts $1,583.4 Million Corrections ($110.8 million) Community Health ($219.9 million) Human Services ($149.8 million) Higher Education ($222.4 million) Community Colleges ($12.0 million) Statutory Revenue Sharing ($143.9 million) State employee concessions ($145.0 million) Other ($50.6 million) School Aid reductions ($529.0 million)

10. School Aid Cuts June 2011 10 Reduces Foundation Allowances by $470 Per Pupil Makes the FY 2011 $170 per pupil reductions permanent by rolling the cut into the foundation allowance Reduce all foundations by $300 per pupil, for a total foundation allowance reduction of $470 per pupil Additional $300 per pupil cut equals a savings of $452.5 million Certain Categorical Funding programs eliminated – totaling $76.5 million

11. School Aid Cuts June 2011 11 Intermediate School District (ISD) General Operations Reduces payments by 5% or $3.3 million School Aid Fund (SAF) Revenue Shifts Totaling $1.0 Billion Tax proposal reduces SAF revenue ($689.9) million Budget proposal increases GF/GP transfer to SAF ($100.0) million SAF revenue shifted into Community College budget ($195.9) million and Higher Education budget ($200.0) million

12. Higher Education June 2011 12 Each university’s appropriation is reduced by 15% ($222.4 million GF/GP) Tuition restraint incentive funding ($83 million) Funds would be paid only if a university held its FY 2011- 12 resident undergraduate tuition/fee increases below the prior-five-year state average Individual incentive amounts (based on average annual tuition/fee rate increase over the last five years) ranging from 5.1% to 9.8% of proposed FY 2012 appropriation amounts

13. Total Appropriations for State University Operations Note: Appropriations include delayed payments in FY in which funds were originally appropriated June 2011 13

14. Tax Plan as Enacted June 2011 14 Net Revenue Reductions Reduce total revenue $535.2 million in FY 2011-12 [GF/GP up $154.7 million, SAF down $689.9 million] Reduce total revenue $224.0 million in FY 2012-13 [GF/GP up $438.0 million, SAF down $662.1 million] Cut business taxes $1.64 billion (FY 2012-13) Increase personal income tax $1.42 billion (FY 2012-13)

15. Summary June 2011 15 Cut services $1.6 billion to address the budget shortfall Provide a $1.6 billion [83%] net tax cut for business Replace business tax revenue with $1.4 billion [23%] increased income tax revenue by freezing income tax rate and modifying the pension exemption

16. June 2011 16 Sales/Use Tax Share Declining Taxable Sales as a Percent of Personal Income

17. Michigan Gasoline Tax Revenue Source: Michigan Department of Treasury, February 2011 February 2011 17 *FY 11 Amount is an Estimate

18. June 2011 18 Impact of Tax Exemptions/Credits/Deductions Billions Revenue $6.8 Billion HIGHER Revenue $10.6 Billion LOWER FY 2011 (000) Consumption $14,275,574 Individual Income8,645,147 Property 8,035,690 Business Privilege 2,639,180 Other 215,826

19. June 2011 19 Tax expenditures are an alternative to direct spending. They can be used to effectively continue to spend tax dollars on policy initiatives while the budget is being reduced. They're "off-budget" for all practical purposes. Transparency and government accountability demand they be reported and evaluated. Why Consider Tax Expenditures?

20. June 2011 20 Fewer People Pay Income Tax Tax Liability < $019.5%29.3% Tax Liability = $08.0%8.5% Tax Liability Between $0 and $1006.1%4.7% Tax Liability < $10033.6%42.5% 2000 All Filers 2009

21. June 2011 21 Property Value Growth Slowing Yearly Change Inflation Rate Multiplier for Property Total SEV Growth Total Taxable Value Growth 19972.8 %8.2 %5.7 % 19982.7 %9.5 %6.1 % 19991.6 %9.9 %6.0 % 20001.9 %9.0 %5.5 % 20013.2 %10.0 %7.1 % 20023.2 %9.8 %6.7 % 20031.5 %7.5 %4.8 % 20042.3 %6.3 %5.7 % 20052.3 %5.9 %5.6 % 20063.3 %5.0 %5.8 % 20073.7 %3.8 %5.2 % 20082.3 %−1.1 %1.4 % 20094.4 %−5.4 %−0.8 % 2010−0.3 %−9.2 %−6.6 % 20112.5 %N/A−4.3 %

22. June 2011 22 Constitutional Revenue Limit Billions of Dollars FYs 10 - 13 are May 2011 Consensus Estimates Average increase of Michigan revenue = 0.4% per year from 2000 through 2012 Average growth of Michigan personal income = 2.0% per year from 2000 through 2012

23. Mitch Bean: Great Lakes Economics Consulting Greatlakeseconomics.com beanmitch@gmail.com