Michigan's rate of return on tax dollars makes it a ... 'DONOR STATE' - For every $1 sent to Washington, $0.88 comes back

8:03 AM, Dec 17, 2006   |    comments
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For every tax dollar Michigan residents send to Washington, they get back a maximum 88 cents in federal spending on programs ranging from Medi-caid to highway construction, researchers say. The state's "donor" status is evident in the poor condition of many Michigan roads and in the lower reimbursement rates Medicaid pays to doctors in the state. And Michigan's members of Congress can't do much about it. Being a donor irks Nathan Rowen, who oversees the Lansing School District's 74 school buses. Potholes and other weather-related road damage wear out the buses' suspension parts and tires, requiring the district to pay for repairs to the buses more often than if the roads were in good shape. "There are some good bouncy roads around here," said Rowen, who has driven school buses throughout Michigan for the last 24 years. "If we're putting into the system, why aren't we getting back what we're putting in? Whose roads are we fixing?" Federal spending flows to states with large numbers of senior citizens, children and poor people, as well as to states that house major military bases, regional offices of federal agencies, high concentrations of defense contractors and farms. Federal dollars also go to states that are devastated by disasters, such as last year's Hurricane Katrina. "Some of the factors that drive federal spending are not real positives for the states," said Matt Kane, senior policy analyst with the Northeast-Midwest Institute, a Washington research group. In contrast, Michigan salaries are above the national average. Its companies make automobiles, not aircraft carriers or fighter planes. The Pentagon shuttered two of the states' military bases, Wurtsmith in Oscoda and K.I. Sawyer in the Upper Peninsula, in the 1990s. Chicago - not Detroit - houses the regional offices of most federal agencies. As a result, Michigan ranks 38th among states in rate of return on federal tax dollars, according to the Northeast-Midwest Institute and another Washington research group, The Tax Foundation. The Northeast-Midwest Institute estimates that Michigan gets back 88 cents for every dollar, and The Tax Foundation, using a slightly different methodology, estimates 85 cents. Billions at stake A lot of money is at stake. If the state had gotten back even 90 cents of each tax dollar in 2004, it would have received an additional $7 billion, according to the office of Gov. Jennifer Granholm. The largest amounts of federal dollars that go to states are from the entitlement programs Social Security, Medicare and Medicaid. While Michigan's members of Congress could push to rewrite the formulas used to distribute those benefits, they would need cooperation from members representing states that now benefit from the formulas, and that isn't likely. Michigan's relatively high per-capita income means lower-than-average federal support for Medi-caid, the federal-state health program for the aged, blind, disabled and low-income families with children. The amount of federal Medi-caid dollars for Michigan in 2004 was 84 percent of the national average, according to the Northeast-Midwest Institute. For every dollar spent on Medicaid in Michigan, the state pays 44 cents and the federal government contributes 56 cents. Getting paid less Michigan doctors get paid less for treating Medicaid patients than they do for treating patients covered by private insurance and by Medicare, the federal health program for seniors, said Dan Hogan, chief financial officer of Mercy Hospital Grayling and Mercy Hospital Cadillac in northern Michigan. "It's very frustrating to the physicians," Hogan said. The result: Some Michigan doctors limit the number of Medicaid patients they treat, and Medicaid patients have fewer doctors from which to choose. Hogan said his hospitals' doctors make sure Medicaid patients account for no more than 7 percent of their clients and they refer other Medicaid patients to rural health clinics, whose doctors are better paid by Medicaid. Rural health doctors near Grayling and Cadillac accept enough Medicaid patients to make up as much as 25 percent of their practice, Hogan said. Influencing the flow Members of Congress - even powerful ones - can't do much in the short term to influence the flow of federal dollars to their states. Even when they bring home millions of dollars for local projects such as road improvements and education programs, that isn't enough to change the big picture of federal spending. "The numbers are based on factors such as demographics, industrial base and location of federal facilities," Kane said. "Those aren't the kinds of things you can march into Congress and alter, particularly in the short term." Michigan's congressional delegation, however, was able to slightly improve the state's rate of return on federal gas tax money in a five-year transportation spending bill approved last year. The bill will gradually boost Michigan's share from the current 90.5 cents to a high of 92 cents starting in 2008. Road, transit projects That change will mean the state will get, on average, an extra $276 million a year in federal dollars for road and transit projects, according to Granholm's office. Michigan road builders hope the delegation can boost the state's share further, to 95 cents, after the transportation bill expires in 2009, said Mike Nystrom, spokesman for the Michigan Infrastructure and Transportation Association. "But it's hard to break Washington of that habitual distribution of money," Nystrom added. Contact Katherine Hutt Scott at khscott@gns.gannett.com.

By Katherine Hutt Scott - State Journal correspondent

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