Reconcilable Differences

Reconcilable Differences Towards Completion of the FY2013 State Budget
May 2012
State Budget Note 2012-02

As the single-party controlled Michigan Legislature marches toward wrapping up its work on the Fiscal Year 2013 (FY2013) state budget in advance of its self-imposed June 1 deadline and the traditional summer recess, notable differences exist between the spending plans proffered by the two legislative chambers. In some cases, appropriation decisions made by either the Senate or the House of Representatives deviate from the recommendations included in Governor Snyder’s Executive Budget. To escape the prospect of gubernatorial vetoes of the final legislative product, state budget decisions will likely involve negotiations among all three principal players based upon their respective plans. Additionally, these negotiations will have to take into account the official revised state revenue picture agreed to at the May 16 revenue conference.

The Governor’s Plan

Unlike his first Executive Budget (FY2012), Governor Snyder proposes few, if any, fundamental changes to the state’s fiscal landscape in his latest iteration. Looking at last year, the FY2012 Executive Budget was predicated on the fact that the General Fund budget faced a $1.5 billion shortfall that had to be addressed. Such a bleak prospect did not confront the Governor for FY2013 as an improving economy and actions taken to address the FY2012 deficit meant that the state did not face a projected shortfall for FY2013. In addition to the FY2012 budget shortfall, the Governor’s budget last year had to address the fiscal effects of his proposed tax restructuring. The Governor’s newest proposal does not include the significant appropriation reductions, sweeping business and individual income tax changes, or shifts in budget policy that characterized his first budget recommendation. Instead, the FY2013 Executive Budget is largely a continuation of the fiscal policies and practices enacted as part of the FY2012 budget.
In the wake of some fairly sizeable and wide-reaching appropriation reductions enacted for FY2012 and buoyed by a steadily recovering state economy (and stabilized tax revenue), the FY2013 Executive Budget includes year-over-year increases, albeit small ones, in total outlays (1.4 percent) and General Fund appropriations (2.9 percent). The Governor’s total School Aid Fund spending recommendation (used to finance K-12 education and partially fund higher education appropriations) is held basically flat compared to the FY2012 amount. However, these minor changes in year-over-year aggregate spending levels mask important appropriation recommendations within specific programs that merit further exploration, especially in light of the legislative response to specific areas of the Governor’s FY2013 Executive Budget.

Bottom Line: Legislative Proposals Make Cuts to Governor’s Budget

The Governor’s Executive Budget recommends total FY2013 General Fund spending of $9.0 billion, or about 19 percent of the total $48.1 billion Executive Budget, while federally financed appropriations (e.g., Medicaid, transportation programs (highway and transit), public assistance programs) account for 42 percent and state restricted appropriations (including School Aid Fund) account for 39 percent. (Despite its relatively small share of the total, the General Fund budget perennially garners the most attention because of its discretionary nature and the host of varied interests competing for its limited resources.) Both legislative proposals make overall reductions to the Governor’s General Fund budget; the Senate’s plan comes in $232 million below and the House of Representative’s comes in $120 million below the amount contained in the Executive Budget. Where these cuts appear in the budget and how they compare to the Governor’s recommendations varies across the two proposals (See Chart 1). In terms of total School Aid Fund appropriations, the proposals are much closer to the Governor’s recommendation for all education budgets ($11.2 billion); the Senate plan spends $26 million more and the House plan spends $3 million less.
These aggregate reductions to the Executive Budget were premised on two reasons; legislative priorities that differ from those of the Governor and concern about revenue projections. Addressing the policy and budgetary differences and arriving at consensus will occur during the final budget negotiations between the legislative chambers and the executive branch. Budget differences arising from concerns about state revenue collections will be resolved following the May 16th revenue estimating conference, when updated economic and revenue forecasts for FY2012, FY2013, and FY2014 are produced. Current-year state revenue collections through March are exceeding expectations established in the official biannual forecasts, albeit by a fairly slim margin for both the General Fund and the School Aid Fund, according to both legislative fiscal agencies.
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