Groundhog Day: D.C. relives Granholm’s budget shutdown ( The Michigan View 07.28.11)

Posted by hpayne on July 28, 2011

It’s Groundhog Day. Again.

We in Michigan are doomed to relive the Granholm era via her political twin, Barack Obama. Gov. Granholm — the charismatic, silver-tongued, pro-labor, Harvard-Law-School-trained, Democratic executive-with-no-executive experience (sound familiar yet?) — brought the state to the precipice with a 2007 budget shutdown.

Now we are watching Obama’s remake.

The similarities between the two crises are uncanny — but the crucial differences teach a lesson in constitutionally-mandated balanced budgets and the need for a steely Republican spine against tax increases. Michigan can only hope its Republican reps in Congress have the courage that GOPers in the state Senate lacked.

In 2007, a liberal governor’s determination to enact permanent big spending and tax hikes set Michigan on course for a budget war. Granholm’s shutdown threat came on the heels of a budget that proposed hundreds of millions of dollars in new “investments” — as she and Obama like to call spending — and a new service tax to pay for it. This, even as Michigan’s economy swirled down the drain.

A crucial difference between 2007 and déjà voodoo is that Granholm had won a landslide election the year before, with Democrats regaining the Michigan House and eroding the Republicans’ state Senate majority. But her tax and spend arrogance (didn’t I tell you she and Obama are twins?) provoked an immediate public backlash. A Tea Party-esque movement — led by a tea bag-waving, pig-hauling activist named Leon Drolet — emerged to recall legislators who supported the tax hike.

The lines were drawn. Pro-tax Democrats vs. anti-tax GOPers.

As today in DC, Michigan’s economy was struggling, with an unemployment rate hovering 50 percent above the national average. Ratings services added to the drama by downgrading Michigan’s bond rating from “AA- with a stable outlook” to “AA- with a negative outlook.”

Yet Democrats insisted on tax hikes rather than make structural reforms to state Medicaid entitlements and public employee health benefits, the twin terrors swallowing Michigan’s budget whole. Controlling only one body of the Legislature, Republicans tried to plug the $800 million deficit hole with a cuts-only approach.

Gov. Granholm reacted with a page right of Obama’s playbook. “People will die,” she said, if GOP cuts to Medicaid and other social services passed.

No leadership. No structural reforms. Just a relentless threat that she would begin “shutting down” government. Echoing Obama today, “Granholm has appeared to be disassociated from the process, except to issue occasional press releases criticizing ‘the Legislature’ or ‘Senate Republicans’ for failing to adopt her budget recommendations,” wrote the Mackinac Center.

Republican spines softened in the long, hot summer. Under pressure from the state’s constitutional balanced budget requirement — another crucial difference between Michigan then and Washington now — and after a brief government shutdown on Oct. 1, Senate Republicans agreed to hike income taxes by 12 percent and impose new service taxes on select business activities (ultimately replaced by a 22 percent Michigan Business Tax surcharge) raising $1.5 billion. In return, Republicans got fragile promises of spending reform.

“This budget agreement is the right solution for Michigan,” crowed a victorious Granholm. “We prevented massive cuts to public education, health care and public safety while also making extensive government reforms and passing new revenue. With the state back on solid financial footing, we can turn our focus to the critical task of jumpstarting our economy and creating new jobs.”

Barack Obama couldn’t have said it better. Did it solve the problem?

“Within literally hours of passing the tax hike,” recounts Mackinac Center legislative analyst Jack McHugh, “the Legislature passed bills spending the entire $1.4 billion.” By the time Granholm handed over the wheel to GOP Governor Rick Snyder three years later, the deficit had ballooned to $2 billion amidst a stalled economy.

But the tax mirage isn’t the only Lansing lesson for Washington. The other is that balanced-budget amendments can force divided governments into shutdowns, and force Republicans to accept tax increases.

While today’s Tea Party has helped stiffen Republican spines against the siren-call for tax hikes, they are ironically attracted to a flawed Balanced Budget Amendment. The amendment is — on balance — a positive for states like Michigan, but a disaster for a federal government that is drunk on entitlements and needs budget flexibility for national defense.

Michigan has seen enough of Groundhog Day. Learn the lesson of the 2007 tax showdown.

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