A new report from the Citizens Research Council of Michigan asks if some state spending is being protected at the expense of being able to set budget priorities.
CRC Senior Research Associate Craig Thiel says “earmarking” tax revenue is not necessarily a bad idea. He says for instance it can ensure that people using a government service are the ones to pay for it. Examples include gas taxes and vehicle registration fees being used to pay for road improvements. Thiel says earmarking can also guarantee a minimum level of funding for a major priority in the budget. He says dedicating tax revenue for a certain purpose can also have political purposes.
Michigan’s current Constitution was approved in 1963. Thiel says one of the reasons for re-writing the state Constitution was that 65% of state funding was earmarked for a specific purpose. He says that it was felt that lawmakers did not have enough discretion in spending state resources. But Thiel says that a number of changes, including the Proposal A property tax reform of 1994, have brought the percentage of earmarked state revenue close to the percentage of the mid-1960’s.
The debate over road funding is an example of the reasons for earmarking, but also the problems with the practice. Gasoline and vehicle registration fees are used for roads. Proposal One in May would have sent all sales taxes from gasoline to roads. Thiel says even though the proposal was overwhelmingly rejected by voters, dedicating a tax increase for a specific purpose makes political sense. But Thiel says the earmarking throughout the state budget makes financing more complicated. One of the reasons stated for Proposal One’s defeat that it was too confusing.
Thiel says the biggest problem with earmarking is that it limits lawmakers’ ability to set priorities in the state budget. He says when money is dedicated for a certain purpose, it can make sense right then to guarantee that funding. But he says it can “tie the hands” of future lawmakers who face new challenges.