Although she almost entirely ignores the budget battles of other years, Granholm and her co-author husband, Dan Mulhern, spends an entire chapter of her recent book, "A Governor's Story: The Fight for Jobs and American's Economic Future," on the budget crisis of fiscal year 2007-08. Like in her first budget battle, Granholm writes she and the Legislature again faced a $1.7 billion budget deficit, a fact confirmed by a Senate Fiscal Agency report from the time.
At this point, Granholm looks back to the decisions that got the state to such a large deficit, expressing remorse in her budget decisions during her first term. She says both she and the Legislature had focused on cutting services, and at the same time had "tightened the handcuffs even further through repeated tax cuts on the popular theory that ‘smaller government' would stimulate economic growth" (pg. 116).
The former governor blames this theory on President Ronald Reagan. Launching into a diatribe, she calls his economic policies "a piece of implausible legerdemain" (pg. 116) and traces the public revulsion for tax increases to Reagan's rhetoric and the year of his first election, 1980. Conversely, she expresses admiration for 1984 Democratic challenger Walter Mondale's forthrightness about the need to raise taxes. Mondale got steamrolled in the general election, although as Granholm notes with some smugness, Reagan went on to raise taxes.
Granholm then moves on to discuss the recent history of taxes in Michigan. She begins with the Headlee Amendment, which limited state taxes to take in a similar amount of total state income as they did in 1979 - about 9 percent. She discusses the difficulty this created for Democratic governor Jim Blanchard when a recession set in and the deficit rose in the early 1980s, and defends his decision to raise taxes.
Granholm does not have the same sympathy for the decisions of Republican Governor John Engler. She concedes that cutting taxes "sounded reasonable at the time" (pg. 119) of the 1990s period of economic expansion. But when the recession of the 2000s hit, Granholm writes the cuts left her with a large mess to clean up.
To address this problem, Granholm claims that during her first term, she cut government more than any other governor in the state's history, and Michigan cut a larger percent of its budget than any other state (pg. 120). This is a difficult claim to assess. Following a similar claim about the extremity of Michigan's cuts on NBC's "Meet the Press" in July 2011, the St. Petersburg Times' Truth-O-Meter evaluated the statement. Using data published twice a year in the National Association of State Budget Officers' "The Fiscal Survey of States," the Truth-O-Meter found this claim is mostly true if expenditures out of the states' general funds constitutes an accurate way to measure cuts.
In an appendix, Granholm lists 99 different business tax cuts, credits and deductions and 17 cuts for individuals that she signed between the time she took office and 2007. This provides solid evidence for her willingness (or at least her cooperation with the Legislature) to cut taxes. However, a fair amount of those listed are actually tax credits, which do not have the same effect as a tax cut, essentially choosing "favorite" industries to receive preferential treatment. At the end of her cuts, she writes the state's real tax revenues were at the levels of those in the 1960s, a claim difficult to assess.
Granholm did, in fact, focus on tax cuts and credits during her first term, political analyst and editor of Inside Michigan Politics Bill Ballenger told the Detroit Free Press in 2006. However, her efforts were half-hearted, aiming for Republican ideals but falling short and proving ineffective, he said.
"She could have been bold enough to change the argument; she could have used her charisma to build support for it," Ballenger said. "Instead, she tried to be ‘Republican lite.' It made her look indecisive."
In her book, Granholm surrenders to some of the Republican Party line, agreeing that the continuous tax cuts passed by both parties did, in fact, free up capital for businesses. But she says this capital nearly always got invested in foreign countries. For a case study, she looks at Michigan's Single Business Tax, in effect from 1975 until 2007. She says the tax was "essentially a value-added payroll tax that discouraged hiring" (pg. 123). Yet, this tax stayed in Michigan even during economic booms when unemployment was low, and so Granholm reasons (somewhat simplistically) that the tax didn't hurt business investment.
Based off this conclusion, Granholm posits that Michigan's unemployment problems stemmed not from the tax structure but from globalization. In fairness, of all the discouraging events to happen in Michigan during her tenure, she probably is least to blame for skyrocketing unemployment, in part because of globalization.
She goes on to emphasize that a companies' decision about where to locate has relatively little to do with taxes and much more to do with where human capital wants to live, thus her "Cool Cities" plan. People want to go to places with a rich culture and a good place for their children to go to school, and this is why government should invest in these things, she says. From this, she concludes that the mantra that government does not create jobs is "a half-truth we've swallowed whole for much too long." Whether this is a fair conclusion seems a decision of ideology, but it certainly is open to debate.
From here, Granholm moves away from background and into the 2007 budget battle. She writes that at this point, she was determined to pursue a different strategy, one that included sensible tax increases. Before she began, Granholm sent a poll into the field, and reached several conclusions supported by general political science academic research:
-Voters don't understand budget crises;
-Voters don't like tax increases;
-Voters don't think either tax increases or cuts to programs truly are necessary;
-Voters think a vast percentage (she cites 1/3) of the state's budget is wasted;
-Very few voters think they pay too little in taxes;
-Even in the face of drastic budget cuts, voters do not support tax increases.
These are six frustrating findings similar to those faced by politicians from both parties at all levels of government during the past several decades.
Even in the face of these results, Granholm writes she and her team decided to "bite the bullet" and "do cuts, reforms, and revenues" (pg. 127). Her key co-workers in crafting a budget were Speaker of the House Andy Dillon and Senate Majority Leader Mike Bishop, who she describes in a vicious moment as "intellectually soft and ideologically hard" and as using "more product in his hair than I did" (pg. 129).
To increase state revenue, Granholm said she hoped for a 1- or 1.5-cent sales tax on services, a tax she said would raise either $700 million or $1 billion. She says Dillon initially supported her in this effort, encouraging her to seek a 2-cent tax since it likely would be negotiated down. When she went public with her budget plan, she writes Dillon "whiffed" and only promised to look at her proposals. This infuriated her.
A service tax under a somewhat different form was eventually passed as part of the budget. However, under great pressure from the citizens, it was repealed by the Legislature on the day it went into effect, something Granholm does not mention. The revenue was replaced with the 22 percent surcharge on the Michigan Business Tax, one of the chief complaints against that tax that led to its repeal in 2011.
As the budget battle dragged on, Granholm expresses her frustration with both legislative leaders: "Neither Dillon nor Bishop seemed to share my sense of urgency. ... It seemed absurdly obvious to me that both were going to have to support a compromise. Why not get the work done?" (pg. 132). At this point in the chapter, most Michigan citizens can share a sense of frustration, although whether or not they view her as part of the problem is up to interpretation.
In July, the lawmakers' disagreements came to a head. A negotiating group reached a compromise of $1.2 billion in new revenues and $500 million in cuts. Bishop rejected this option, standing firm for a cuts-only budget. He announced his proposal in September, and as Granholm gleefully notes, it was unanimously rejected in the House.
Despite her victory on this front, Granholm notes her opinion of both Dillon and Bishop "had moved from frustration to anger to disgust" (pg. 137). At the end of September, she refused to sign a continuing resolution, forcing the Legislature to reach a compromise before the deadline or send the government into shutdown.
Which is exactly what happened - for a few hours at least. Slightly after 4 a.m. on Oct. 1, 2007, the Legislature reached a compromise.
Curiously, although budget woes defined the greater portion of her two terms, Granholm only spends significant time on the 2007 battle. Overall, her account of this budget crisis of 2007 is factually sound, or at least factually nebulous, short on specific numbers and details. This seems not an oversight, but a matter of audience. She is more interested in explaining her decisions in Michigan as a lesson for the wider country than in explaining to Michiganders what exactly happened to lead to the 2007 shutdown. Without speculating on intent or motive, the tone of Granholm's story reads as bitterly partisan, spending space taking shots at her fellow politicians rather than describing the details of the budget story.
However, her story fulfills its purpose. Whether or not it is a mantra everyone can agree on, Granholm certainly manages to convey her overarching message: Taxes aren't bad, and it's often worth requiring a larger portion of citizens' money rather than cutting government services. She just could use a bit more diplomacy in getting there.