My name is Barry rave. I'm a professor here at the Ford school and director of close-up the Center for local state and urban policy We're very pleased to be partnering today with the Ford school to offer this policy talk on the issue of Michigan fiscal policy Looking back and also looking to the future. I'd also like to thank our co-sponsors for Sharing in today's event helping us promote the center on finance law and policy the office of tax policy research We will be taking questions from the audience at the conclusion of the talk Beginning around 435 or 440. We will begin questioning as we often do here Question cards, so you have cards in front of you give some thought to those and we will be collecting them My colleagues Stephanie leiser and some of her students from her graduate course in public budgeting I will be reviewing these and Managing the Q&A process and for those of you who are joining us online watching online today You're invited to post your questions via Twitter using the hashtag policy talks It is always an interesting time in the state to think about the fiscal condition This is a state that has known good times and bad times over the last half century and beyond and What an interesting decade we have been through What an interesting period of time the Snyder years have been in the fiscal condition in the state of Michigan And with that we begin to think about inevitable transition with elections to come this November Changes in leadership and all the rest And so we are especially delighted today to welcome actually to welcome back Nick Curry to the University of Michigan campus Mr. Curry was appointed by Governor Snyder in April of 2015 as The 45th of the 46th State Treasurer by Governor Snyder with responsibilities in the Treasury office that really span a wide set of responsibilities linked to the collection the dispersal the investment of all state monies putting him in really a unique position To think about these past years in the fiscal life of this state and the years and issues and experiences going forward Prior to his current service. Mr. Curry served elsewhere in government and also in the private sector Held a number of posts at DTE energy in Detroit Including senior vice president for corporate affairs Prior to that he worked in the public sector previously serving as chief deputy state treasurer Chief economist with the Senate Fiscal Agency at the federal level at the congressional budget office He holds a graduate degree in economics from Michigan State University But we're particularly delighted to welcome him back as an alum mindful of his bachelor's degree in economics from U of M It is my great pleasure to introduce the 46th treasurer of the state of Michigan Nick Curry welcome Thank you very much Thank you. Good afternoon everyone It is a pleasure to be here Thank you for the invitation. I do try and do this as often as I can just because I enjoy it so much But what I enjoy most about it is hearing what you have to say Both your questions and your comments and your criticisms and your compliments too. I know it's more interesting for you You get I get fewer fewer the latter But I know it's more interesting for you, but it's definitely more interesting for me So I'm gonna talk a little bit at you. I thought this is a college class I'd put together slides which I usually don't do And I'm gonna go through a few slides, but you know as you're thinking I want to spend more and more time talking about What's on your mind, and I'll tell you what's on mine? I Guess just a little bit about me. I have Done state and local policy for a long time I also spent half my career in the private sector too, but I do have the honor of working in Treasury at Michigan and working for the legislature in Michigan 20 years ago Stepped outside of Lansing and then came back 20 years ago It came back just a few years ago to finish my career So I do have a perspective on how things have changed and Lansing be happy to talk about that You know, I think the shorthanded answer. Oh, by the way, I do digress sometimes So if I'm digressing like this, just give me one of these But you know some things have really changed in the last 20 years and some things haven't changed in the dynamics of Lansing and Fiscal policy, you know, so the thing that hasn't changed is the fundamental questions we ask all the time every day What's the appropriate size of government? What's the appropriate allocation of resources? You know government is defined as so many things in our life as unlimited desires unlimited needs and limited resources So this endless debate we have about what's the best? What's the appropriate size of government? Where should we be spending our money and just you know where I spend a lot of My time is what's the best way to raise that money? What's the appropriate tax structure? And so those issues Continue to debate just like I stepped in a time machine and went back 20 years ago. There are other issues that They are the same, but they're different terminology I'm talking a little bit about you know, one of the responsibilities of an appropriate tax system is evolve with this Changing economy those debates are still happening, you know Well 20 years ago is what do we do about lawyers and doctors these days? It's what do we do about the virtual economy and how do we continue to evolve once we define what it is? And then there's a whole I wasn't going to go this long on this issue But and then there's this whole issue of things that the dynamics have changed part of it It's term limits in Michigan that wasn't here then it is now and it has changed the dynamics of the discussions, but But that isn't what I'm here to talk about today. What I'm going to talk about today. I decided it is Not die very deeply into anything, but I'll be happy to talk about Something in more depth. I decided to spend a few minutes just given a broad overview of where the state economy is right now And then put it in some perspective What's that mean for the state budget? Both on the expenditure revenue side talk a little bit about local governments because I've been spending a lot of time in local Governments in Michigan and their fiscal health and then end with some of the things everybody's talking about in Lansing You know, I do feel a little inhibited because there's a lot of people in this audience Like my friends economists from RSQE that know a lot about these topics more than I do But then I fund their budget so you know at the end of the day, I think they're gonna agree with most of what I say I'm just kidding But there are many people in this room that know about some of these specific topics much more than I do And I hope during the question-and-answer period or the complaint period we get into some of the details So that's what I'm gonna talk about. Is that okay? That okay, okay, okay, you know, and I did say you know, I do this maybe once a semester to and my internal ratio is in The ratio of people who fall as students who fall asleep versus stay awake. And so my target is 80% So if I can hit 80% today, I'm doing well Let me go through some of the slides just to just to kind of make it interesting the first one is just Talk about Treasury and the only reason I bring this up is because I'm willing to talk about anything You talk about this is all the stuff Treasury does we advise the governor in the legislature when they listen the legislature on state and local Tax policy broadly. We're responsible for providing the administration's forecast of the budget We're responsible for collection administration of all state taxes about 24 billion. You can measure it different ways, but I'm gonna talk a little bit about but we collect a lot of taxes and that's a big part of the job We are big Along with all the other stuff for a big production shop, you know We do 5 million individual income tax returns a year. We do 350,000 business taxes every quarter So a lot of my time is talking about operational issues not policy issues I'm the sole fiduciary for a 70 billion dollar pension plan, which is scary We we are responsible for the monitoring the assistance the intervening with local government in schools financially, you know, I don't talk about economic or Educational performance, but we're responsible for the fiscal health at the end of the day We help students if you get a Metter MSPP we do that the overall relationship with Wall Street issuing debt, you know, we don't issue equity obviously we're a government but Managing the day-to-day cash flow Managing long-term borrowing for the state Again, the only reason I mentioned that is during the question-and-answer period when I run out of things to say We can talk about any one of those areas that just doesn't have to be state and local tax policy But let me let me just talk a little bit about the estate economy really quickly. These are as you know The best of all-day worlds almost nine years out of the recession trough the state's Labor force is improved dramatically both absolute and relative terms you see during the bad days I'm going to get to the half empty. This is the half full You know clearly the state's labor market has improved both absolutely and relative to the rest of the nation You can see the US at the bottom, but you know, we tapped out at almost 15% during the recession We're down to four and a half percent now more or less and so not only in absolute terms, but in relative terms We've had a tremendous improvement in our labor market In this follows I'm gonna talk a little bit about it this follows the lost decade that everybody talks about that in Michigan I'm sorry if this is a Michigan specific Discussion, but that's what I do for a living if you're interested in other states We can talk about that because many of these themes are common throughout the industrial Midwest at least But this we'll get into other things, but In Michigan we had a reduction employment almost every year for ten years I think you guys can tell me but I think that's unprecedented. It is for Michigan I assume for any other state we've had sharper recessions But there's long drawn-out restructuring of losing employment every year for a decade is I think unprecedented It's certainly felt unprecedented. So we've come out of the trough Doing gang go gang busters certainly And so we're actually at the point now where the debate is is very little about About labor demand, you know, people are where are the jobs and it's now about more labor supply It's more about training and talent. I'm gonna talk about that at the end It's a real focus now everybody. So these jobs are available now, at least during this part of the cycle How do we get the employees trained and ready to take the jobs that are available right now? And so that in itself is an indication of where we are at the cycle and hopefully How we've improved since the last decade that people are talking about filling the jobs that are available Not there aren't any jobs available This is personal and we don't need to get into this just this measure of the wealth of at least One measure per capita personal income wealth of the state We've had a dramatic run compared to the rest of the nation of stronger run from the recession bottom 2017 depending on the time period we were at number one one quarter number ten So we've had a great run since the recessions bottom either in the labor force or an income we've also Had this diversity people talked about years for years about diversification or employment base this chart I love it's you know, it's just a summary, but we've had this shift away from manufacturing Or the last 10 or 15 years it wasn't so much voluntary It was a restructuring of the auto industry, but certainly you see the fall-off and employment in manufacturing You see it's 18.9 percent 14.1 Manufacturing was the number one sector in Michigan forever. It's now number five Manufacturing is the number five employment sector in Michigan And so it's it's rotated out and it's rotated out to these other sectors It's not just retail. It's professional business services health care services. They're paid relatively high You can see you know average wage. I think this is 15. No, it's the average wage is 17 You can see we're rotating to the sectors that are relatively high wage So hopefully it's going to do two things one increase continue to increase the standard of living overall But hopefully give us some protection during the next recession. We'll talk about that Now some of this is from productivity within the manufacturing sector in the US, but also in the state of Michigan Couple of tidbits I always love since the recession bottom Tell me if I'm wrong since the recession bottom production in the auto industry in Michigan's up. It's still up a hundred percent Employment's up 20 percent So you can see the productivity improvements within manufacturing another tidbit I always love and I'm going to read it to you. So this is from a Kenzie. So who knows if it's right, but in 1990 In 1990 the big three 250 of revenues 250 billion of revenues 36 billion market cap 1.2 million employees the the big three in 1990 fast forward in 2014 it's a little old but 2014 the big three the silicon companies the big three high-tech companies in 2014 they had 247 billion a market cap I'm sorry 247 billion of revenues about the 250 of autos they had a trillion dollars market cap They had 137,000 employees About the same revenues about the same importance if you look at the down now, you know, it's dominated by the high-tech 1.2 million Employees back in 1990 and now it's 137,000 employees in high-tech. So it's part of this Productivity or restructuring that we've seen in Michigan over the last few years So that's the good news we've had a great run from the recession bottom If you take a broader view including this lost decade we are a smaller state Here you just see the change in employment lost about 200 800,000 jobs in the recession. We've gained about 500,000 Jobs back so we've gained about 60% and also the change in labor force during the recession During the lost decade not the recession. We lost 300,000 jobs. We've gained only 84,000 jobs left So we've had a great cyclical run. We've were we're not back to where we were prior to the lost decade in that The labor force of course we talk all about demographics to scourge workers But but the point I want to make is that we've had this Nothing new we've had this relative shift downward shift in the Michigan economy It's nothing new, you know, look back the 40s and 50s who were 10% above the national average here per capita Kind of took a shift down during the 70s You know you don't remember but I do during the 70s and the Japanese invasion and we took another shift down in the 80-2000 when we had a severe recession in the early 80s and now again We've just taken another shift down an hour 10% below the nation. So although we've had a great cyclical bounce We've had this deterioration relative to the rest of the nation and the size and wealth relative wealth of our state and The reason that's important because now we're done with economics How was that was that okay that This is this shows one measure of state government 36 32 billion dollars. There's you know, we spend about 56 billion dollars in Lansing each year About 20 billion is federal dollars that flow through transportation Medicaid. We raise about 32 billion And you can see here by this measure. It's essentially been flat since 2000 in nominal terms real terms Obviously, it's gone down. You know the oak cliche is true You don't get the government you deserve you get the government you can afford and so we've had to painfully slowly adjust Our budget and our fiscal policy towards is changing relative deterioration in the economy so a Big part of that, you know part of it is policy induced people are deciding what's the appropriate size of government But also part of that flat line on the top is just a response to the the change in economy over the last 10 to 20 years Another way to measure it. So this is you know another way to measure it is our general fund Which has we have the most discretion over, you know, this includes all dedicated revenues not federal revenues But dedicated revenues the general fund has been ten billion dollars since 2000. So in nominal terms, it's been flat so Let's talk a little bit about revenues again. I want to get to question and answer period Let's just give you a snapshot that you know of the 36 here we can measure 38 again. We included some miscellaneous 38 billion We really at the state are dependent on three taxes. They represent 85 percent of our taxes, you know, our income tax raises about nine Eight nine point eight billion dollars our sales and use tax raises over almost ten billion dollars and then the property tax raises about 14 billion Transportation you know transportation we raise some dollars that's That's mostly federal match But we raised two and a half billion dollars locally in transportation and then we match it with federal dollars to Leverage that and then everything else is all other Within that all other is corporate income taxes too and So corporate income taxes we have a corporate income tax now raises about a billion dollars a year We also, you know Non-c corporations pass through corporations, you know with the LLCs all those they probably pay another couple billion dollars a year That shows up in the personal income tax Offsetting that we give about 700 million in credits this year For things we think are good, you know, you create jobs and you get a credit Batteries were my favorite film was probably my favorite. We always have this debate about what was the dumbest credit we've ever done It's always a competition between batteries in In the film credit, but anyway that number was a billion dollars a couple years ago So it's gone down. So within that all other is about 700 million dollars of tax credits now we got to be a little careful of that because You know one of the rules One of the etiquettes of policymaking that people don't always honor is you got to be careful Judging what policymakers did when you weren't there because a lot of these things were done in the in the pressure of a recession in the Lost decade so people were making decisions that you look back and say well that was dumb But you don't know the pressures they were under then but certainly some of the credits that were given away We're still haunted by we're gonna we're gonna be haunted by from a fiscal perspective for a decade Now now part of this This just shows that our relative tax burden is decline measured here in the last since 2010 but there has been a decline in our relative tax burden now here this becomes part of Policy decisions of people were made on the appropriate size of government. That's and that's what happened That's what's happened here. We've gone from 18th highest 30th highest now except except for the property tax We're out of the top 20 in most in most of our major taxes Oh So let me just talk about not so much a rainy day fun I'm gonna talk a little bit about it now because Part of what we're focusing on now is avoiding what we call what I call the yo-yo effect of fiscal policy, right? Times are good. You cut taxes the increased spending times are bad You respond by increasing taxes and cutting spending what we're trying to do is think more over a longer time period Which is how do you sell fiscal policy both spending and tax policy with a thought to the next five years? At least at least not the next 12 months. And so we are talking about well, what have at least You know not elected people so much, but policymakers are talking about how do we get prepared for the next recession? Because the next recession obviously will come who knows when it will be So we're talking a lot about you know, how do we deal with long-term liabilities? So we get a chance to Tack those now. How do we set aside? Reserves, how do we make sure the budget is fundamentally balanced now because it's easy to balance the budget on paper It's much much harder to really balance the budget. You it doesn't take long to realize how you can balance the budget on paper and fundamentally Structurally not be balanced, you know, you pull ahead revenues or you push expenditures out you tap reserves So really we need to take this opportunity now with the wind at our back To get prepared and think about what happens this during the next downturn And so again, we've attacked long-term liabilities. We put aside money into the rainy day fund We're almost a billion now won't last long, but but it's at least this gives us breathing room when the next recession hits But you know, you always got to be careful here. It's like It's like planning for the next hurricane you can do all the planning you want or it's like You know what Tyson said about boxing you do all the planning of what you want till you get punched And then you don't really know because each recession is different. I've been through We've we've been through a lot, but I've been to too many of them now. You never know when they're gonna happen Now I do feel bad our ability to forecast the macro economy is limited past a few months You never know when it's gonna happen and when it happens it hits harder than you think Revenues drop faster than you think and expenditures increase faster than you think it's just that I've been through there I've walked through a recession and governor say you got to bring revenues down by 200 million you go in the next month It's another 200 million and they go in the next month. He says when are you gonna stop? I don't want to see you anymore. So You can't absolutely plan for it and kind of insulate the the budget from the next recession But you at least need to think about it and get prepared as much as you can Okay, I'm gonna talk about local government. Are you guys okay? You guys it's okay. Do you need a break? Okay, I will talk about local government in Michigan mostly just because that's what I'm interested in And most you know, we have this disaggregated Structure in Michigan most state many states don't we have 1800 local units of government Not only townships and counties a lot of people don't have townships, but you know, we got all these special authorities got transportation districts So we have 1800 local units of government Jet in we talk about the fiscal health of local governments The answer is it depends, you know, it really does vary by geography by size by function. It's not just urban areas some of our Fiscally the districts that are struggling the most are up in the UP. It's not a lot of people there But relative to the population there's many areas in the UP that are struggling even more than some of our urban areas So it's not an urban rule split, but but it is in pockets throughout the state Now the local governments really are dominated, you know, you know tax policy you learn and learn from Harvey Brazier Who most of you don't know but you know the usual Efficiency and in fairness and horizontal and equity and there's also simplicity, which is really important But diversity and local governments in Michigan fail the diversity test. They are heavily reliant on the property tax. They you know So this is total property tax local governments generally is about 12 billion of property tax 1.2 billion of revenue sharing which we can talk about they always complain about 500 million of a local income tax You know 20 cities that all that loving and then 500 miss of miscellaneous. So local governments are heavily dependent on a single revenue source And That revenue source has particular constraints to it constitutional statutory constraints It doesn't respond real well to the changing economy for a variety of reasons we can talk about So while governments are doing local governments generally are doing well You know, we got four and a half percent unemployment We got we're selling 17 million units. It's covering up a lot of problems You know the old Warren Buffett, you don't know who swimming naked until the tide goes out I'm very concerned when the economy slows many many problems financially at the local governments are going to surface and The worst time to try and solve a problem like this is during the crisis The oak cliche is today's problems are yesterday's solutions absolutely happens in fiscal policy Not at the federal level the state level at the local level during a crisis You make these decisions because you're in a crisis that come back to haunt you now is the time to get our arms around this I'll talk about what this I don't have a solution, but I'll talk about the framework of the solution in a minute This is revenue sharing I just put this in because they always complain about revenue sharing revenue sharing is taking this wild ride Or last decade from you know way high one and a half billion down to nine hundred nine hundred million really then back up So it has been whipsawed local units of government Their second leading revenue source Another issue that's really hitting some local governments not all But some is this unfunded liability on pension and health care It is at the state level. It is at many states level. I mean look at Illinois Compared to Illinois. We're doing great compared to Chicago But we've got to come to grips with this at the local level that you know, I know there's There's this question of justice and what retirees need and deserve that's not what I'm talking about Although it is what I'm talking about what I'm talking about is the unfunded liabilities continue to grow And their ability to service that is not growing at the same pace for some local units There are obligations for pensioners health care in retirees eating up 20% of their budget and growing So other areas that they should be spending money on continue to decline because it's pushed out by this rising obligation Some of it is demographics, you know, obviously the labor force is getting old some of the urban areas You know Flint for example has five retirees for a reactive worker Some of it is being driven by health care costs health care costs are going up depending on how you measure it six or seven percent Compared to a couple percent inflation Some of it is is being driven by market returns because you put a bunch of money aside and you hope the investment earnings offset inflation and The way it works is when you have a couple of bad years takes a while So part of his market returns and part of it is we just did we collectively made bad decisions We thought good times would last forever. So we gave benefits and we get 13th check is my favorite Which is you know, whenever you add access money, you gave it to people The problem with that is the way you run a pension plan is you need the good years to offset the bad years because you're gonna Have bad years if you give away the good year all the time You don't have any cushion for the bad years, but you know again, it wasn't anything Well, you know, it was mistakes made at the time because it seemed like the good days will go on forever and in fact They're not so we're talking with local units of government now, but what do we do about this? you know, we're trying to be a little agnostic as to how you do it, but There's not a lot of options here, right?  You know, there's nothing else. There's no real magic So we're being a little agnostic about what they should do. That's a local decision But clearly they got to come to grips with this They have an obligation to the people they're making promises to be able to fulfill those promises into the future While not destroying the rest of local government So I'm gonna talk about that a little bit more, but I'm running out of things to talk about So I'm gonna I'm gonna talk. I didn't know I supposed to talk to about an hour I never talked for an hour. I didn't know that till I came in So I'm stretching it out as long as I can Let me talk a little bit about Looking forward I got a couple slides first. Just talk, you know How we see the world mostly because we're stealing our SQE's view of the world But we see continued expansion over the next couple of years Which is going to be critical because most of our budget decisions now We're trying to get ready for a recession, but the base forecast has continued expansion One of the things I want to point out is that this is the general fund, you know The money we have that has most flexibilities ten billion dollars a year. It's not dedicated to anything It's not formally dedicated to anything. We expect about a three percent, you know kind of a normal Forecasters always say three percent, right? But we expect about three percent revenue growth, but it's already been called for right because we've dedicated that to her towards additional Transportation and additional tax relief on the individual side. So we're really gonna face a couple of years now It's not a surprise that was the decision Back in the day is to to dedicate for a couple of years revenue growth towards transportation And so we're gonna be facing flat Available revenues of the general fund for a couple of years school aid fund is a different pot of money and sales tax And so we're gonna have a regular regular growth in school aid fund federal tax reform The original request when when someone called said would you come and talk to us? They said would you talk about federal tax reform and I realized I didn't have a lot to say about federal tax reform So that's why I changed the topic, but you know Michigan's tax code like so many other states like almost all states are tied to the definition of federal Taxable income or just a growth income on the individual side for a variety of reasons. We're kind of tied at the hip Not always there are always areas where we say we don't want to go where the feds do But generally when they change things it automatically affects our direct revenues It affects us indirectly obviously if it has impact on corporate investment. We talked about that You can tell me where's Joe so he could tell me whether reduction massive reduction in tax rates are going to increase corporate investment So there's all these indirect impacts on the economy But I'm just talking about direct impact on our budget and it turns out is really complicated It took a team a month to go line by line by federal tax reform and then line it up with our tax reform But it turns out we're gonna get some revenue increase the real impact was They kind of eliminated I said kind of we talked about that but they kind of eliminated the personal exemption Which is a big part of Michigan's tax code So unless we had done something no one would take a personal exemption in Michigan and that would increase revenues by one and a half billion dollars No one wanted to do that because it was an unintentional impact So we had this long debate about how we offset that so we came back and you know after much debate We increased the personal exemption restored it so There are all kinds of provisions. I don't think you want to get into the details But if you're interested in the details of tax The implications I'll be happy to talk about it But you know issues of loss timing of law corporate loss recognition and Expensing of some inventories are all these things played in and we thought in addition to the personal exemption It would have raised individual income taxes by 60 million in corporate CIT corporate income tax by a hundred million If you got to pay a taxes a hundred millions a lot of money if you're part of the but generally You know we raised 38 billion dollars a year So it wasn't a big issue and we think we offset most of that through our changes in the personal exemption We can talk more broadly, you know, I can give you my opinion But it's just my opinion about federal tax reform everybody has their own opinion And I'm sure met and some people in this room have studied it deeper So we can talk about generally what we think about The economic impact of federal tax reform But I just want to touch on the direct impact to michigan So let me talk a little bit just at a high level what everybody's talking about The first is at a high level just sustaining the progress we made Over the last few years it has been hard work. We've done it with a growing economy So, you know, obviously it helps to have the wind at your back There's a lot of work that's been done And so we need to do everything I've just talked about both thinking about fiscal policy Over a longer term than the next year thinking about what happens during the next downturn And you know just I think this is part of a budgeting class You know, there's just a couple rules of thumb that I've learned that make for good state local budgets Federal it's a whole another thing But you know first is having a multi-year budget. It's absolutely critical. Absolutely critical. Absolutely critical multi-year budget force Management to to focus on the longer term than just the next year You know, some people, you know, they always say, well, who knows what's going to happen, especially the longer term Yeah, that's not the point. The point is the discussion. You know a forecast is going to be wrong But it helps you focus on the implications of your decisions today Two or three years down the road The second kind of rule of thumb now now i'm stretching out. You notice i'm stretching out the time The second rule of thumb is be very clear about one-time revenues and one-time expenditures This is the most common mistake. I've always seen in my career is that especially during economic expansion You take a pot of money That really is one time that's not going to be there and you build it into your base expenditures And so what happens you wake up in a couple of years and you found out you made commitments Uh that you can't meet so have the discipline to understand what are one-time revenues and what are ongoing revenues spend the one-time revenues on one time um on one-time spending And that will really help you manage throughout the cycle but You know a couple other things, you know, this diversity and revenue stream is really really important for governments state and local governments Uh, we're not exactly meeting it as much as I would like we talked about that at the state level We talked about that local so finding a diverse revenue source that can help manage throughout the cycle is important And then the third this constant Focus as a policy person you need to talk to the policy makers the elected officials About this concept of intergenerational equity. It's just it it is It is so easy to either You know kick the can down the road or it's so easy to make short-term decisions that have short-term benefits and long-term Uh costs and it it's a million different areas. It's pension benefits You know if I I have a problem today I give additional pension benefits instead of wage and salary increases in a in a local labor agreement And then 10 years later you find out you're underfunded Uh, it's issuing debt, you know issuing debt appropriately for Uh for long-term assets. It's it's that meets our definition of intergenerational generational equity But issuing debt for operating expenses doesn't make any sense Sounds common sense, right? But it happens all the time. My favorite is we do these deficit elimination bonds in michigan, which is issuing debt for operating purposes that was undertaken three years ago Even worse. So, you know really focusing on as a policymaker helping elected officials understand this idea of Intergenerational equity So that's my budgeting advice Focus on the multi-year budgets because it forces it The other thing is understand capital because governments do a poor job of understanding their capital Both having maintenance versus new investments and understanding the shape of their capital. They just do a really poor job generally uh, and then One-time revenues one-time expenditures intergenerational equity That's the first bullet the second addressing long-term sending these wrong-maternum professional debt system You know, it's a really big debate. We're having now You know, I've I've often found and I've been in this area a long time This idea should be taxes higher should be taxes be lower You know, I think it's a I think it's a wrong question. I think the question is how do we How do we create a set of policies that increase the standard living for all michiganians? So it's not taxes higher or lower, but it's it's what are you getting for taxes? And so how do you mesh both the spending side and the tax side? And I think that's a much more interesting place to start In practically what it's happening now is we are having the debate about where do we want to selectively increase spending?  How education has always been a topic. How do we invest more in our educational system and get more? Outcome more equity for the dollars we spend Economic development has always been a topic. We had a big debate last year about economic development incentives That's a whole different debate So but anyway this this question now of where where do we need to spend more? And then how do we do it and maintain a competitive in Both a fair and effective but a competitive tax system. So how do we balance those two things? How do we spend more while still maintaining some of the progress we made in the tax system? That's the second law a big thing. We're talking about the third wheel. I've already talked about Uh, this is more of a tax thing, you know, how do we keep since we're so dependent on three main taxes? How do we make sure our tax continues to our tax base and our tax system continues to evolve? As the economy evolves and again, I've been struggling with this this iCloud thing for since I got back You know as as transactions move from You know, I go buy a book to uh, you know I go buy a disc that has a book to I do this thing in the cloud that I don't even know what it is You know, we can't even define it and as tax policy people the minute we set it in statute it changes And so then we missed it all so You know and as I said, it's one of our three pillars. So You know so much of my job is just pure math, right? We have a constitutional amendment It's just simple math. It's simple arithmetic We have a constitutional amendment to balance the budget if we have a deterioration of one of our taxes We either raise another tax, which is okay or we cut spending, which is okay, but we can't do anything We got to pick one of those options So as the sales tax continues to deteriorate as a state, we need to come to grips with what do we do about that Every state is dealing with that every state every time I go to a conference. That's a big topic Uh, and then local governments. I've I've kind of beat that to a pulp That's really the topics we're talking about. This is uh, kind of this Oh, wait a minute. I gotta do it. Sorry This is kind of put in, you know The way we put it together in a in a pamphlet Talent, we've talked all about that There's a big debate going on now and it's interesting to find because a few years ago The whole debate was how do we get people into higher education to get a degree because you know As you all know the economic long-term economic earnings is increasing but degree not to grow how to do it's focused It's shifted now to There's a lot of Jobs that are available that are really great middle-class jobs that that have a good career But we need to get people trained whether whatever the skill trade is. How do we get them trained? How do we get them interested and then how we do we match those with employers that need this So this whole idea of talent has become a big thing education You know education is we've talked about the forever here. Here's Here's one little tidbit. It gets back to this pension issue. So we run the investment The pensions for teachers 10 years ago. I looked it up. We were contributing 970 million dollars 2006 to teacher's pension plan This year. It's three and a half billion dollars 970 to three and a half billion dollars for a variety of reasons. I'm not saying we should stop that I'm just saying if conditions were different. That's another two billion dollars We could have put into the classroom So anyway, people are talking about education people are talking about infrastructure people talking about local government And then effective government is where I spend a big part of my time. So I You know I I'm done, right? I'm I'm fired at the end of the year by the way, which is I'm okay with that And it it's time It's time to let the next generation of policymakers handle these things and tackle these questions I'm fine with that and I think they'll do fine. I think you'll do fine. What am I talking about? You're the next generation of policymakers. I think you'll do fine I think you know just focus on the basic focus on the policy not the politics Take a longer term view of what's required And not just a short term view At least in michigan You know in other states too, but at least in michigan build on some of the successes That we've had the last few years Kind of right sizing the budget in the fiscal policy in michigan And that's where you guys can disagree with me. That's that's good But build on the successes we have but take these challenges on It's easy to punt on these challenges and take it and deal with it next year But there's two problems with that one is Is the problem always gets worse, you know, and whatever the policy problem is the longer you delay As always harder to solve the hole gets bigger the losers get more out Offset the winners so the sooner you can take these issues on the better it is easier it is to solve and Just as important as I started this talk today We're at a real upswing in the economy, right? These are the best of all times unemployment rates four percent four and a half percent We should be addressing these issues now with the wind on our back We shouldn't wait till the next crisis to try and address these issues. We need the will We need the foresight We need whatever it takes to address these issues while we still can and we have some flexibility Now that's part of our job as the technical policymakers technical policy whatever we're called To bring these issues to the attention. It's part of the actual people who vote. I don't vote no one voted for me But it's partly our responsibility to frame these questions so that it's easy for them to understand It's easy for the general public to understand And to take some of those harder decisions now because of the the greater good down the road. It's not easy But it's possible progress is made Like any large organization Especially the government's made to react slowly And that's that's most of the time is a good thing But you can make progress in this area and I I don't know what you guys are going to do for your career But I think done right Public services by far the most interesting career most meaningful career you can do. I've done both private sector is great to You know, there's this I'm digressing but there's this mischaracterization of both sides You know, everybody in government sinks private sectors. This is profit maximizing Assholes and that's not true. They are concerned about the long-term community because they know that's what impacts their bottom line But people in the private sector think people in government, you know go home at three o'clock and you know, they're they're incompetent Neither one of those characterizations are true Sometimes are true, but generally they're not true. You can make a career on both sides, but don't under Don't overlook government. I think I think you can make a big difference I'm almost done. So in what level of government, you know, I worked at cbo for a little while and it's good because you're dealing with really big stuff And you're really really small fish and a really big pond unless they want unless your first job is secretary of treasury But generally it's not going to be that way So in state government you get your arms around issues now sometimes you're dealing with issues you think Is this how i'm spending my day? But still you get more of a direct impact on policy in state government and local government is even more so You know politics becomes more personal the more local it is And sometimes the hardest jobs are the school board and the road commission Because they because there's much more ownership on the part of popular of the local constituents. So Uh, let me just end by uh I wanted a bit today. I apologize. I want to hear what you have to say. I want to hear criticisms too because you know, I Because that's what makes this thing interesting is criticisms But what I really want to leave you with is if you have a desire to work in government You should follow it. You should do it whether it's federal state or local It's not going to pay as much.  I pay less than I paid my first year MBAs at DT but But there are other there are other advantages to working in government. I hope you I hope you pursue it and if I can help Come and talk to me afterwards. So that's all I have to say. I'm sorry if I took too long or too short I was kind of making it up as I went along. So Now it's your turn Thank you So I was going to ask for A projector and you know this But Some of you know what I'm talking about Yeah, we used to you know, hand write on those slides and put it on a projector We don't do that anymore Thank you very much. Um again. Oh, thank you too twice I'm uh, I'm Stephanie leiser. I teach the course that we're Hosting on budgeting and financial planning and so now we're going to open it up for the q&a portion And we've got jason and emily going around. I know you've seen them collecting the little white card So if you have questions, you want to ask or things that come up during the q&a, please just Wave at them and they'll come get your card And um, we have steward hamlin and morgan billard two of my other students who are going to ask the question So we will turn it over to them at this point Great. Thank you. Mr. Corey.  I'm a first year Ford student Hi, I'm morgan billard. I am also a first year mpp And I'll be asking you the first question. So thanks for being here No, pleasure So the citizens research council is pushing for local government services to be regionalized at the county level With state revenue sharing going to counties for those services From a state perspective, what do you think about these proposals? Uh Couple things I was on the board for citizens research council forever. I love their motto their motto and this was like 100 years old The the right to criticize government comes with the responsibility to know what the hell it is you're talking about That's one of my favorite models So This issue of local government Three for the three years that I've been here. I've been pitching this story and I haven't really gotten much traction yet But I I do think we need to take on the fiscal structure the fiscal framework of local units of government in michigan We need to do it now in the economies and I think it's in three buckets and we ought to attack all three buckets We need I'm going to get to your I got your question here and we're going to get there in a minute. I promise We need to attack all three buckets. One is the unfunded liabilities We talked about because that continues to grow Second is the efficient provision of services We need to make sure we're doing it as and again locals always get upset. I'm not saying that hasn't been a lot of Efficiencies over the last few years because of the reduction in revenues there has been We need to find other ways to continue to provide more efficient more effective services to to our constituents I'll talk about that in a minute because that's where the crc comes in and then third We got to talk about do we have a stable revenue base? That will support local governments Not give them all the money I want but support governments over the cycle So I've been trying to talk about all three areas at once. It's hard to attack one without the other because all three are so Interactive, you know, I've had some success, but certainly not as much on all three. So CRC was talking about the middle one How do you provide effective services? We have a disaggregated system, you know, let me give you a CRC used this is one of their examples too is property taxes It's our biggest revenue source 14 billion dollars. We do it in a more disaggregated way than almost any other state We have 1800 assessing local units of government And at the same time the system has become much more complex over the last few years for a variety reasons We're phasing out something called personal property tax. We have more credits. We have proposal So there's a and at the same time all the high level assessors are all retiring We only have 145 top level assessors in the entire state For a variety of reasons. I'm trying to talk more and more about how do we do a better job of Um, I'm ministering the local property tax the easiest way and this is where the CRC came in is they said We'll just aggregate it at the county level For years people have said we don't even need townships, right? Yeah, maybe you know, I have I have been in consolidation Discussions for 30 years, you know, when I I was at a We had an educational task force for a couple of months ago There were like 30 people and all these educators and they said we got too many school districts We need to consolidate school districts. I pointed out I was in the same room with a different cast of people And the same recommendation consolidated school districts, then we had 565 now we have 563 So after 20 years, we had a consolidation So there's you can if you make a conceptual argument of we need to consolidate services at the county That's fine. But you know You you run into local control here. Michigan has a really strong especially in the rural areas local control Uh, and and rightly so so the question is In CRC kind of provided some of the services that they thought should be consolidated The question is how do you retain local control at the same time you get the economies of scale of many of the service provisions, so you know, I'm a big fan of Consolidating areas without consolidating districts. So some functions are done at the aggregated level, you know I don't think this idea of consolidation is a you know, it's not a philosophical issue Just like outsourcing versus insourcing is not a philosophical issue. It's a practical issue day by day Sometimes case by case. Sometimes it makes sense. Sometimes it doesn't So the moral of the story is we are looking for ways for locals to Jointly get together not necessarily CRC went said well the county should do all this stuff I'm just saying there it's there can be organizational Arrangements where we can get some of the economies of scale and still keep local control, you know, I'm a big fan of Uh, some people hate it and I hate it sometimes, but special assessment districts Where as long as locals, you know, the worst thing is You know, I live in Plymouth Township and Plymouth City has excess capacity and their sewer or water system And Plymouth Township goes out and builds. There's no coordinated planning You know, if we can force some kind of at least planning and then give them local taxing authority to fund that joint I'm a fan of that but you know, I haven't made any progress and my clock's almost out. So that's You guys's job So it's a long-winded way of saying some of the stuff, uh, CRC talked about Everybody's been talking about forever and it's a great good idea But I'm less interested in what makes conceptual sense and more what we can Make sense to move the ball forward. That's actually we can implement It's a long winter. All my answers won't be that long. I promise So the next question What are your thoughts on michigan's municipalities courting big businesses like amazon with huge tax break packages?  I think the appropriate tax rate is zero I think we we have taxes because we want to support services that we all decide this ideal using the tax system to You know, we're going to create a new industry. We're going to create a new business. We're going to attract somebody from here I think is uh a fool's error I think the problem is for every dollar you give away 70 cents Is for behavior that would happen anyway, and you don't know what 70 cents is You know what the 30 cents is and so that's the problem with using the tax system to do good things You know, I view the tax system as a a necessary mechanic Mechanism to raise the dollars we want because we want to fund our spending. So i'm not a real fan of Tax incentives Having said that we just passed a big package last year That you know, it became a joke. Well, the treasurer hates it, but let's pass it anyway So, you know, you don't always win and that's fine. No one voted for me No, you know, but but I just think generally these big incentive packages are losers And I know the academic literature always talks about it always comes out as they're losers but uh You know, elm elm blinder had this quote Quip from a long long time ago and I saw it was in today's Wall Street Journal again, but I love it You know, so politicians use academic research like drunks use a lamppost more for support than illumination I always like that quote and it's absolutely true. So, you know, this academic research that says you shouldn't do it You shouldn't do it. You shouldn't do it has very little impact when there is a Company on the line or a stadium on the line. That's a big thing. Who's going to lose the red wings? Uh, but I but I just think generally it's self-defeating. It's it's impossible, you know, not impossible But it's difficult to avoid. It's difficult to resist um, but you know and You know, I've seen elected officials and it follows this pattern all the time you come in and you know Broad-based low rates what you learn in public finance 101 and it's broad-based low rate and and then it gets, you know They're missing out and you know, somebody announces they're going someplace else and there always tends to be this Towards the end of a term this idea that you really can incentivize Uh behavior, I mean you can the other thing about government like everything else is that uh One of the problems with government is the the benefits are so concentrated and transparent and the costs are usually diverse Uh dispersed in not as transparent So, you know, if you're going to give a credit to somebody They really like the credit and you can really see the benefit of the credit the cost since we have a balanced budget amendment Somebody else's taxes got to go up or spending. It's got to go down. That's much harder to see And so, you know, you can cut the ribbon. That's that's pretty obvious But it's hard to really reflect the costs of the overall policy So that's why you tend to ratchet it up because the other thing is the people who get the concentrated benefit Man, they're they're going to really argue for that benefit The people who pay the costs aren't as organized because they don't know So if you're going to get a dollar credit, you're really focused on getting a dollar credit If you're going to pay a half a cent more Who do you care? So that's why you tend to ratchet up these things So that's what I think other people think different things The other way to do this job, by the way, I'm retiring at the end of the year So no one can come to you and say do what I want or you'll never work again because like so I'm done. What am I going to do? All right. Our next question comes from twitter What is the minimum amount of acceptable government or maximum amount depending on one's political proclivities? Wow. Well, first off, I don't do twitter. So I don't even know what I I don't even know who that's from So the question is what's the maximum amount of government? That you know I don't even know how to start with that because so much of it is value judgment You know, there is you learn in public finance 101 I hope is is that we can talk about efficiencies We can talk about the impact on the private economy and try and minimize the impact on the private economy because you know the assumption is efficiency and so In the private economy, so you want to minimize the distortions of the economy But that's not really the issue. The issue is always this value judgment You know, it's not so much. You know, what do we think the impact is going to be? It's really, you know, this philosophical debate about the size of government And that comes down as beauty's in the eyes of the beholder I mean, I think there there is a real risk, especially because I always hear well, let's let the experts decide this stuff You know come on if this is a value judgment about the appropriate size of government The experts have even less, you know, they can help frame the question maybe and they can talk a little bit about history But they have less standing to talk about it than anyone else in the state So I'm not answering that question. I don't know what it is. I mean, should government be bigger or smaller? I don't know you decide So there's a follow-up from the same twitter question. Oh, do I get to not answer again? Go ahead possibly What is the right level of taxation or spending? Well, as I said, oh, spending is a different thing I was just going to say taxes the right level of taxation is zero I've already said that the right tax rate is zero The question is you need to raise the revenues to spend what you want to spend What's the right spend and I can't you can't really argue I mean people have talked about it should only be a percent of the economy We have actually have a constitutional amendment that says the size of the state government can't exceed a certain percent of personal income That's really a blunt instrument. Really the question is As I tried to say it's not should taxes be higher or lower. It's do we have the right spending? Requirements and are we spending in the right areas? So it's not overall size of government I don't find that as interesting as are we spending enough on education? Are we spending it in the right way? Do we need to spend more or less that I can get my arms around are we spending the right amount on infrastructure? Have we underfunded infrastructure a lot of our infrastructure in the state of michigan was built in the 60s and 70s Very little maintenance for a variety of reasons or not enough maintenance So I'm more comfortable talking about should we spend more on infrastructure or less? Should we spend more on education or less? I don't have a lot to say about is government too big or too small other people have a Firm view about that and it tends to be it's too big. It's too small But I don't think that's really the meat of the the argument So there's a second question. I didn't answer. Is there any third question you want me to not answer? Oh, now I've now I've scared them off. They're afraid to ask because I'm going to be mean How do you ensure that the state's investment portfolio is socially responsible?  That's money is for retirees My sole responsibility. You can tell I have passion about this is risk adjustment rate return. That's it We need to do good things. We need to support blank we need to Restrict blank we have all kinds of policy forms to do that and all kinds of ways to do that We can pass laws to do that The pension plan don't believe this bullshit about we'll restrict your choices, but you can still earn returns That's a loser's game Number one because a slippery slope and the number of treasurers have got thrown in jail because of what they did other pensions Is remarkable, but more important Pensions or risk adjustment rate return.  I have a sole responsibility. That's retirees. My sole responsibility is risk adjustment rate return You can tell that's been a big debate. And by the way, our track record is not great You know, we had the studio and Pontiac something It's been 30 million with no collateral because we were going to Create a film industry. You know it bust Focus on the right things. We can do policy in many different areas, but not with our pension plan You can tell us some passion because not a lot of people agree with that. They think it's 75 billion. Boy, we can change the world So I have I've been hard on you Ask a question. I'll just agree with it Well, you mentioned earlier a bit about infrastructure. So this is kind of a follow-up on that Can you talk about how? Or if money is spent equitably for infrastructure projects in villages townships and cities across the state of michigan Probably not What I will say is that we don't really know It's amazing how little we know about the the shape of our assets right now You know, we don't do a good job of understanding maintenance from expansion of investments So we don't know how much to spend to really maintain the assets we have We don't really have a good idea of where we should make improvements to the infrastructure So I think It's hard to say whether we're spending in equity or equitable or not But certainly I think there are many cases where we've underspent in our infrastructure. Now the legislature just passed the bill That that's a good bill. It's they put it in treasury, which I don't really like but they're we're trying to get a statewide understanding of the shape of our infrastructure right now and that's broadly defined Because you know, again, it's the private sector does a little bit better and part of it is budgeting, you know the private sector. There's a Accounting difference between capital investments and current expenses And so you have this forced more or less to look at your capital budgets government. It's all mushed together And so I think we need to do a better job of understanding where we need to invest We need to invest in those right areas and then we need to find a revenue source And equity again is You know, there's this always this trade-off as I was trying to say between local control local input And some of the economies of scale are providing better So where you sit on that tends to be, you know, your position tends to be where you sit Right, if you're a local government with the local trans world transportation commission The other thing the way we distribute transportation dollars Doesn't make any sense. Everybody knows it. No one wants to attack it because there's so many winners and losers But you know, we're giving away money to road commissions. You know have five people in there So so there is a lot of areas where we need to we need to understand our infrastructure better We need to make investments in the right spot and then we need to see the right funding source So I think this debate about infrastructure is one of the one or two top topics people are talking about in lansing and across the country In washington, of course, is talking about it and they're saying, you know, god, I love you There's no money, but increase your infrastructure So that one I agreed with Thank you In your opinion, does the state's emergency manager law need any changes? And if so, what changes would you recommend specifically in the context of the flint water crisis? You know, I I don't think we're going to get to it in eight months. Um, so that's something you can deal with You know, I do think You know emergency manager worked in a lot of areas, you know, a lot of areas that came in But the problem was it reported to the treasurer and its focus was very narrow, which is how do we balance the budget? Remember it was only put in When a district there was a view that the district was about to fall off the cliff and file a bankruptcy So how do you get in there and right size the budget? But to create a sustainable community is more than just right sizing the budget And so the focus was so was too narrow. It did what it was supposed to do in most cases It balanced the budget, but did it really create a sustainable community by improving both human services and health services, but also The growing economy within a local unit. So I do think The if you're going to take this on you need to expand it to have a broader scope now, that's a lot harder I mean, it's easier to to come in and raise revenues or slash expenditures and balance the budget But you know this, you know, by the way, this balanced budget requirement is not just a technical Legal requirement. This is getting back to this intergenerational equity It is a commitment you have to make to make sure the next generation isn't paying for spending you're doing today So this balanced budget idea is an important idea and not just a legal requirement But having said that the emergency manager, you know focusing, you know, we're finance people You know reporting to the treasurer. We're going to focus on finance and I think it needs to be a broader idea. The other issue is You know, it does has all kinds of successes of balancing local budgets But it's hard to create sustainability. I was on the Highland park review committee in 1991 And you know, it was you know, the problems still are in Highland park So we balanced the budget in 1991, but we didn't solve the underlying structural problems So it keeps repeating over and over again now Some of the questions some of the solutions are very difficult and deep-seated I mean some of these legacy costs There is a small group of districts that are essentially insolvent, but no one's omitting it right now And there's a small group of districts that's economic based deteriorated so much You can't see how they can ever provide reasonable services to their constituents. So, you know broadening this to create sustainable community It's not an easy task So that's a long-winded way of saying We should all work on it as we should work on everything and their improvements that can be made Thank you What are your thoughts on a flat versus graduated state income tax? You know, this is one of these areas where they are once a year that come and say we need a progressive income tax and equity and then It's never going to happen How many constitutional amendments have I worked on? I bet five One has been successful proposal a four of them have gone down. So I don't even address the question anymore I say one we do have a progressive income tax not as progressive on rate But you know, we have deductions and exemptions with you know, 40 000 dollars of tax free and pensions now So it is somewhat progressive in the sense of we the way we set credits and deductions But no one is ever in my lifetime going to change a flat rate in michigan So we can talk about the advantages and disadvantages all we want I just don't have enough brain cells to focus on something that's never going to happen So that's my standard answer Thank you Can you describe the effect of the federal bailout of gm and chrysler? Then how important was the bailout for the state in regard to revenue and jobs? Wow, that's a big question. I mean, that's a hank paulson kind of question Well, they're you know, there are two issues They were embedded at the same time, which is the fall failing of the auto industry at the same time the financial markets were collapsing So it's hard to pull those two things apart You know, certainly you do things when you're in a financial crisis that normally you wouldn't do And this is this whole issue of you know, you got to stop the house from burning Even if you do things you wouldn't normally do or you think they're unjust But the house is burning you got to do it So it's hard to disentangle those two things And and the things they did to support the financial system you know, I I was You know, I had my own financial issues because I was responsible for the finance of dt energy, which is a fortune 300 company and I saw firsthand The way the wall street froze and the impact on the rest of the economy if it wasn't Loosened up would have been traumatic. So gm was all part of that and chrysler was all part of that So if you let's say just take a theoretical exercise if it wasn't the rest of the world going down Was that the right thing to do? I don't know certainly from a michigan perspective. We can argue about the broader policy About the role of government to bailout private corporations or for public corporations that fail And there's all kinds of debate. So I'm not going to get into that debate But for michigan clearly it was easy It was a clear win for michigan Because the implication, you know, the cost would have been borne more heavily by the state of michigan If if we didn't do anything the cost of the bailout are more borne by Citizens across the country so you can argue about moral hazard and you can argue about You know the rural capitalism and government you can argue all that stuff, but I'm going to leave that aside for michigan I'm glad they did it might not have been good policy nationally, but it certainly helped us Restructure the auto industry All right, it looks like we've got about time for two more questions They better be good ones. We're going to try here In the context of the new pension op-ed reporting laws that were passed in december. Yeah Um When you talk about working with local governments and bringing their unfunded pensions into balance What do you do if the elected officials just can't agree on how to do that? What type of enforcement authority does the treasury have?  We will And the we will part fell apart in the legislative process You know You know democracy is a messy process. I think we made progress last year at least a lot of people are talking about it now There's more reporting and transparency. So we have a consistent analysis of what the problem is And there's still local units are still required to put together a plan Um to show long-term solvency of their pension and retiree health care. So we there's progress there But at the end of the day short of a financial emergency There's not much we can do at this point, but you know, the old cliche Of something that can't go on forever won't it's true in this pension area and health care area As the obligations continue to climb Something will be done. It may be done in the next recession. It may be the wrong thing, but something will be done Just because of the necessity at some point If they if it takes 50 of expenditures just to service the retiree in health care something's going to be done So, uh, the question is what is the the teeth? you know, we have We can we have moral suasion and um You know, certainly if it turns into a financial emergency we have abilities But outside of that, you know, that's got to be taken Unit by unit contract by contract Thank you How do you view the relationship between the snider administration and the legislature? And how can you prevent the yo-yo and fiscal policy as you call it? Uh, well the relationship is is fine Uh, so how do you present the yo-yo fiscal policy? You know, again, it's it's what I tried to talk about it's really as much as Uh, providing the perspective and forcing long-term planning forcing long-term forecast Forcing multi-year budgets Forcing this debate between one-time revenues versus ongoing expenditures. So it's everything I just talked about That's really how you Yeah, you start thinking about this Uh fiscal policy over a longer term and just a recognition that the next recession will happen and everybody knows it Nobody knows when but it will happen And how are we going to prepare ourselves to deal with some of that now? You know, you saw this rainy day fund went from zero to 900 million dollars over the last few years You know, that's kind of the indication there back in 2010 2014 2010 2012 and then a little bit last year there were changes to the pension system that reduce that liability We have an outstanding unfunded liability of the teacher's pension plan of about in state employees But teachers about 50 billion But we lopped off payback probably 20 billion of that with changes. So You know, there are many areas where The fiscal house is in much better shape now both this year and going forward But as I said, there's still quite a few challenges to go All right, looks like we can squeeze in a couple more. Okay So this is kind of a fun one. Good. These have been fun What state are you least envious of? Oh, Illinois by far That's not a hard question. I mean, Illinois is a mess. That's a basket case. It is financially Whatever insolvent is better word than bankrupt because it's not so and it's politically Insolvent, I mean, Illinois by far Is a mess is the biggest mess we have Might be the eventually the first junk bond state. I think ever probably ever So Illinois is is is the one we don't want. I think Michigan is the one we want. I mean, it's our home. It's a great place So I'd say we're number one. Illinois is number 50 And then you pick the the rest in between All right, and this will be our last question you said that last time Okay, it's time we mean it All right, what do you most wish the public better understood about your domain? About my domain Just just that Like life broad public policy issues are always trade-offs They're never black and white anyone who says the answer is easy. It's x either have a has a really simple problem Or is selling you something so, you know, I think without really thinking about it Uh, I wish people understood that most of these difficult questions are Balancing acts between two goods and it's not good and bad And and and whatever you choose you have to understand the consequences But you have to pick the best path and then and and then you know a quarrel area of that is The oakley, you know, as I get older I live by cliches. That's my but the oakley shares Don't let the best be an enemy of the better. That's also a really important part of public policy You've got to make sure the ball is you're moving the ball forward But don't get so um paralyzed by You know, we there's so much more we could do to at least take the next step because Government is incremental and that's not a bad thing government changes incremental And and so both of those things that these these issues are complicated. There's no easy answer It's black and white. So when you're making a decision You need to understand and you need to be sympathetic to the people who are making the decision That they are facing trade-offs And then and then second change doesn't come all at once It's more incremental on the fiscal side. It's more incremental change, but that's okay as long as You know the tanker's moving down the Great Lakes and you can't move it all at once But you kind of nudge it each time and eventually it turns around Okay, so I know we've told you oh, that's okay We even turned it off. We are ready to be done. No, that's okay. Just screw it up Well, as everyone knows twitter always has the last word so This question comes from twitter Over the last over the past several decades the states including michigan have shed Cost on higher education to the federal government Has that been a good bet for the state of michigan on Higher ed to the federal government. Okay, they are talking about What? What federal government costs at the federal at have they been picking up? I'm unclear So have we let's just change the question because this is what everybody all the professors in the room want to know is How come we're not spending more state dollars on higher ed? That's probably what people want to know this. I don't know the federal government. They have a You know, they have research dollars But uh, traditionally in education both k-12 and higher ed You know feds are not as big of players. So Uh, should we be spending more on higher ed? Yeah Yeah, yeah, I guess it's a trade-off. Yeah, I I do think by the way, this is unsolicited This is not my area. So I'm always a little hesitant to talk about areas I don't know other than when I'm at the family dinner table But you guys got a problem because the higher education is fundamentally changing over the next 10 years And the the way we provided higher education 10 years ago is going to completely look different than the next 10 years This is virtual virtual costs. Whatever it is Higher education could be restructured and more and more people are talking about we need to provide more money But how do we provide more money? So part of you know part of that is public sector state support Part of that is universities got to come to grips with that themselves. So there's two things. There's demographics, right? We're just on the baby boom and overall demographics. You see the k-12 now. They're going down That's going to hit the universities. There is also this at least short-term backlash of maybe a University degree isn't the way to a middle class Maybe becoming a really good plumber is the way to middle class And you have this whole technology that's providing a service in a completely different way So I don't know what the answer is and I don't know You know, I don't even know how it's going to turn out But this is going to be fundamentally different in the next 10 years So should the state contribute more? Yeah. Yeah Yeah, we have a weird constitution provision in michigan that says Depending on how you interpret it. Give us some money and leave us alone. That's what our constitution says for higher ed Give us some money shut up and leave us alone And So is that how we're going to leave it on that? I don't know if that's how I wanted to leave it The news is we don't have to leave it on that because we're going to have a little reception outside here And I know that there are several questions that you guys passed up that we didn't Quite get a chance to get to but you can perhaps ask them in person I want to thank everyone again for coming and please join us right out in the great hall