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CRC Column

The right to criticize government is also an obligation to know what you are talking about. 
-Lent Upson, 1st Executive Director of CRC  

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Late Budgets in Michigan: Causes, Effects, and Implications
August 2009
Memorandum 1092

In Brief

The State of Michigan’s next fiscal year begins in a matter of weeks, on October 1, 2009, and a final budget is not in place. The State’s two major funds, General Fund and School Aid Fund, face a combined estimated deficit totaling $2.7 billion before the application of the one-time federal recovery funding designed to help with balancing the budget. Factoring in the use of these non-recurring resources, both the General and School Aid Fund budgets are estimated to be in deficit, requiring reductions in planned spending or increases in revenues.

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Historically, Michigan budget writers completed their work sometime in July, a full two months before the start of the next fiscal year. For three of the last five years, however, adoption of the State’s final spending plan has not occurred until late September, just days before the beginning of the fiscal year. There is very little question that the fiscal challenges facing Michigan budget writers over the past several years are chiefly to blame for the tardiness in adopting final budget agreements in these years. Although policymakers have established a September 1 deadline for passage of the final fiscal year 2010 budget, any holdup in the final negotiations will push budget adoption to late September again this year.

Michigan’s rigid constitutional balanced budget requirements and its constitutional prohibition against State spending without an appropriation will require a government shutdown in the absence of final budget agreement by October 1, 2009. Michigan experienced such a scenario in 2007, when a stalemate over the Fiscal Year (FY) 2008 budget pushed negotiations into the early hours of new fiscal year before a spending plan was passed, directly causing disruption to State government services and programs.

In addition, a great number of organizations outside of State government, including local governments, school districts, and hospitals were impacted by the lateness of State budget finality in 2007. The abandonment of the traditional July deadline for budget completion causes these organizations, many of which have a July – June fiscal year, to postpone critical financial decisions until they are more certain of the upcoming support they can expect from the State of Michigan.

Some observers of the Fiscal Year 2008 budget suggest that a new “deadline” is needed to ensure timely budget passage, a date sometime before the end of the current fiscal year. Experiences from other states with similar deadlines, however, suggest that the ultimate deadline will always remain the start of the next fiscal year. This would be the case if Michigan adopted such a deadline because of the State’s constitutional prohibition regarding any State spending in the absence of an appropriation. Michigan’s struggles with adopting a timely budget are more the result of the political realities in which the budget process operates, rather than the process itself.

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