Reflex Conditioning Drives Uncontrolled Government Spending

The brilliant, Nobel Prize winning physiologist Ivan Petrovitch Pavlov demonstrated that you could condition a dog to salivate by sounding a metronome. All he had to do was sound the metronome when putting out food for his dogs. It did not take long for his dogs to associate the sound of the metronome with food.  Then he no longer even had to put food out to get the dogs to salivate; he only had to sound the metronome.

Today, inferior rank politicians have been conditioned to salivate when a financial grant is offered by superior rank politicians. The only problem with these grants of largess is that they always come with caveats, and usually require matching funds. These restrictions are a deliberate – and successful – effort to frustrate all efforts to manage government expenditures.

MDoT just released their Estimated Distribution Schedule for Michigan Transportation Funding, the political equivalent of sounding Pavlov’s metronome. Without delivering even one cent, MDoT makes local politicians salivate. Just one piece of their extensive political campaign to support Proposal 2015-01. We have already made the case that that this thinly veiled campaigning by state politicians and bureaucrats is both unethical and illegal, but it is clear that the Michigan Campaign Finance Act is honored only in its breach.

The Michigan FY 2014 Comprehensive Annual Financial Report” [most recent available] shows that $ 17.4 billion – 38.5% – of Michigan’s revenues came from the Federal Government. Every one of those federal dollars came with strings attached. Most of these Federal grants also required the State of Michigan to spend its own revenues on the granted program; so called ‘matching funds’ grants. Medicaid was the largest component at about $ 10 billion, but another $ 7.5 billion came from other federal programs, each with their own strings attached. This resulted in about 60% of Michigan’s FY 2014 state budget being restricted, in government parlance.

Much the same situation exists at the local government level in Michigan, although it is not as easy to aggregate the statistics. A good estimate indicates that local governments in Michigan spent about $ 44 billion in FY 2014, about $ 25 billion of which went to education. We do know that in FY 2014, the the State of Michigan directly transferred $ 1.12 billion to local governments through revenue sharing, and another $ 992 million from the Michigan Transportation Fund. A total of $ 2.11 billion – 4.66% of all State expenditures. This amounts to about 11% of local government revenues, excluding education. Again, all of this State largess went to local units of government with strings attached, except for the revenue sharing. The U.S. General Accounting Office is not even able to determine the extent of Federal grants made directly to local units of government, but they are also significant. So a fair amount of Michigan local governments’ general budgets are restricted as well.

Why drag you through these mind numbing financial numbers? To demonstrate the actual level of financial restriction in Michigan government spending. This level of restriction in state and local government budgets is being cited to undermine a major point of opposition to Proposal 2015-01: that the state and local Michigan government budgets are large enough that additional road work funds could be found in existing revenues if politicians were so disposed.

The State of Michigan had over $ 17 billion in unrestricted funds in FY 2014 and its localities had something in the vicinity of $ 10 billion in unrestricted funds, assuming that half of their non education revenues were unrestricted. So if $ 1.2 billion in road work is truly needed – an amount never substantiated – it would have been only 4.5% of Michigan state and local government unrestricted funds in FY 2014. Keep in mind that roads in Michigan are a joint state and local responsibility. The feasibility of a 4.5% shift in a corporate or household budget would never be questioned, only in the never-never land of government finance is a 4.5% shift impossible.

Once the voters of Michigan mercifully dispatch Proposal 2015-01 at the polls on May 5th, Michigan’s conservatives should aggressively challenge these intergovernmental transfer fund restrictions. They create unambiguous incentives for politicians at all levels to increase government spending, rather than manage funds prudently. In the road funding debate, passenger rail cars rotting in Owosso are emblematic of the perverse spending incentive that these fund restrictions create. MDoT’s ‘Estimated Distribution Schedule for Michigan Transportation Funding’ is now sounding Pavlov’s metronome for Michigan’s local politicians. Time to silence that metronome.