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Original article URL: http://bridgemi.com/2013/02/snyder-tries-to-sell-long-term-investment-strategy-to-michigan/
12 February 2013
Give a man a fish, and you feed him a day; show him how to fish, and you feed him for a lifetime.
Gov. Rick Snyder unveiled his proposed state budget for the next two years last Thursday. If there is a core idea in his $50.9 billion budget message, it’s the distinction between investments (teaching people how to fish) and expenditures (giving people a fish).
It’s not for nothing that the name on the title page of the budget proposal was “Rick Snyder, CPA.” The governor is, indeed, a Certified Public Accountant, whose thinking reflects both his professional credential, as well as his background as a businessman and venture capitalist.
A core idea of capitalist economics is the difference between investing — in tangible things like new plant and equipment or in softer things like education and training. In both cases, the key idea is that over time investments bear a net positive return.
You build a new manufacturing plant or buy a new machine, you expect there will be a positive return on your investment (ROI). When you try to decide which particular investment to make, you very often pick the one with the greatest ROI. If investments are well designed, they reduce costs and increase productivity.
A careful look at Snyder’s budget shows its most creative and interesting elements are, in his words, “strategic investments to move Michigan forward.”
* What to do about our crumbling roads — the governor wants to invest $1.2 billion more in state funds per year for road and bridge repairs and construction — got the biggest media notice. This certainly will be the most difficult program to get through the Legislature, partly because $1.2 billion is a whale of a lot of money and partly because the gas tax and fee increases to pay for it will hit ordinary citizens hard in the pocketbook.
Especially with all the freezing and thawing over the past few weeks, we all know that we simply have to do something about our roads. Because the return on infrastructure investments takes a very long time to show up, it’s a hard argument to make to a political system that typically regards the long run as sometime next week.
* One aspect of the governor’s infrastructure program that deserves greater attention is the terrific opportunity to make Southeast Michigan into an international mobility and logistics center. Often given the shorthand title “aerotropolis,” the idea is to turn the underdeveloped land between Detroit Metropolitan and Willow Run Airports into an economic development zone and to link that with investments in freight handling and transit via rail, road and water.
Enthusiasts say that making Michigan the international gateway to the middle of America will pay off in tens of thousands of new jobs and hundreds of new, growing companies.
* Other elements in the governor’s budget are straightforward. He wants to boost state spending for schools, community colleges and universities by 2 percent. Coming after years of deteriorating support, investing more in the skills, talents and innovation capacity of our citizens — “human capital” — will without question yield an enormous long-term return.
Equally, covering 470,000 Michigan residents for Medicare — with the total tab picked up by the feds for a few years — makes sense because an investment now in the health of poor people will avoid increased health care costs in the future.
* Because I’ve been involved for more than a year in advocating for increased spending on early childhood education programs, this part of the governor’s proposals drew my greatest interest.
The Great Start Readiness Program (GSRP), the state’s pre-K system for 4-year-olds, has been getting a little more than $100 million a year, little more than a rounding error when compared to the $13 billion we spend on K-12 schools. Research shows poor and often minority kids who participate in GSRP are 25 percent more likely to graduate from high school than kids who don’t.
The governor wants to increase state investment on GSRP by $130 million, to about $240 million total by fiscal 2015. This will provide thousands of new slots for the 29,000 kids who qualify for the program but can’t enroll because there aren’t enough state-funded slots.
What’s the payout from this kind of investment? Big, if you look carefully at reduced grade repetition, reduced special education, less unemployment, reduced criminal behavior and other outcomes for young people who graduate from high school. Taking all these things into consideration, yields something near $350 million in long-term savings.
Snyder’s investment-oriented budget doesn’t just give our people fish; it gives us the ability to learn how to fish. It’s a far-reaching and courageous budget, and it deserves praise and support.
Editor’s note: Former newspaper publisher and University of Michigan Regent Phil Power is a longtime observer of Michigan politics and economics. He is also the founder and chairman of the Center for Michigan, a nonprofit, bipartisan centrist think–and–do tank, designed to cure Michigan’s dysfunctional political culture; the Center also publishes Bridge Magazine. The opinions expressed here are Power’s own and do not represent the official views of the Center. He welcomes your comments via email.