Michigan’s Budget Crisis
Reconcilable Differences – Towards Completion of the FY2013 State Budget
State Budget Note ( May 2012 ) 7 pages
Recently, the framework for next year’s state budget (fiscal year 2013) began to take shape when both legislative chambers passed their respective spending plans. Eyeing a June 1 deadline, both chambers have offered their responses to Governor Snyder’s Executive Budget issued in February. Both legislative proposals reduce the General Fund appropriation recommendation included in the Executive Budget. Although the proposals share some key similarities, there are key differences in a number of areas, including funding for K-12 education.
The paper looks at the main components of each legislative proposal and examines how they differ and what issues will need to be resolved through negotiation. Final budget development will also have to consider the Governor’s recommendations. Although total budgeted amounts in some areas are similar across all three iterations, beneath these totals lie notable differences in the details – how dollars are allocated across programs, services, and sub-state entities.
Stabilized State Budget and Rainy Day Fund Deposits Improve State’s Cash Position
State Budget Note 2012-01 ( February 2012 ) 5 pages
While the State of Michigan’s final audited figures for Fiscal Year 2011 are not complete, recent evidence suggests that state policymakers have reversed course over the past five years and have taken steps to address the state’s once very weak cash position. The report documents the recent improvements in the state’s cash position, and urges lawmakers to continue to maintain a focus on this important indicator of the state’s overall financial health.
In the spring of 2007 it was feared that the state, grappling with an ongoing structural budget deficit and worsening revenue estimates, was in danger of running out of cash and unable to pay its bills. To address the immediate cash shortfall, the state changed the date of its monthly school aid payments. The cash shortfall was the result of the extraordinary steps taken to maintain short-term state budget balance, but which ultimately proved detrimental to the state’s underlying cash position and cash flow. Eventually, state taxes were raised in the fall of 2007 and over the next few years, state spending was brought into alignment with the amount of ongoing revenues.
As a result of recent policy choices, the state’s year-end cash position has shown consistent improvement. However, at the end of Fiscal Year 2011, the state’s cash reserves are nowhere close to where they were at the beginning of Fiscal Year 2000 and prior to the decade-long single-state recession when the state was sitting on $4.9 billion in reserves. At the end of Fiscal Year 2010 (most recent data), manageable common cash reserves stood at $1.4 billion.
The General, School Aid, and Budget Stabilization Funds represent the state’s major funds and are intended to support state government programs and services, in addition to payments to local governments of all types. Throughout the early- to mid-2000s, the failure to address the state’s structural budget deficit weakened the cash position of the major funds. While the major funds cash deficit still existed at the end of FY2010 ($374 million), it was well below the peak of $1.3 billion at the end of FY2006. Early indications suggest that the picture further improved at the end of FY2011 and the major funds deficit has been eliminated; the first time since FY2002.
State policymakers are in the midst of crafting a spending plan for FY2013. An improving national and state economy, along with sizeable estimated surpluses in the major funds going into FY2013, will create pressure to increase spending in some areas of the budget that have experienced reductions.
The State of Michigan’s New Fiscal Plan
State Budget Note 2011-02 ( July 2011 ) 13 pages
With Governor Snyder’s signing of the FY2012 state budget on June 21, the final piece of the state’s new fiscal plan is now officially in place. The plan was crafted against a backdrop of an improving state economy and growing state revenues, in part making it easier to complete in a timely fashion. It consists of: 1) a revamped state tax structure, 2) a spending plan that balances ongoing spending and resources mainly through significant appropriation reductions; 3) a down payment on future long-term obligations; and 4) a deposit in the state’s rainy day fund. Major pieces of the plan will come on-line in the fall, including the budget on October 1, while many of the tax changes take effect on January 1, 2012.
CRC’s new state budget note The State of Michigan’s New Fiscal Plan examines the major components of the state’s financial plan for the coming fiscal year, including changes in state tax law and spending policy. The report suggests that major progress has been made towards addressing the state’s chronic structural deficits affecting the General and School Aid Fund budgets. At the same time, it takes steps to improve the underlying condition of state finances, both in the near- and long-term.
Now the Real Work Can Start on the FY2012 State Budget
State Budget Note 2011-01 ( May 2011 ) 6 pages
Recently, the framework for the upcoming state budget began to take shape when both chambers of the Michigan legislature passed their respective spending plans. Eyeing a May 31 deadline set by Governor Snyder, both chambers have offered their responses to the Executive Budget issued in February. The Senate was the first chamber to complete its work on the Fiscal Year 2012 (FY2012) state budget when, in late April, it approved all operating appropriation bills financed by the General and School Aid Funds. This action was closely followed by the House of Representative’s approval of all appropriations bills in early May. The two plans for the General Fund share some key similarities; however, the Senate’s plan spends $179 million, or 2 percent, more than the House’s budget and the two recommendations differ in other substantial and material ways.
CRC’s State Budget Note Now the Real Work Can Start on the FY2012 State Budget looks at the two legislative proposals and examines the key differences on both sides of the budget ledger that will have to be reconciled before final budget action can occur.
“While a major milestone in the budget process has been achieved, much work remains before the final FY2012 state budget can be enacted,” said Craig Thiel. “Perhaps the most notable difference between this budget and prior years is the precedent-setting plan to use the School Aid Fund to finance post-secondary education appropriations.”
Equally important, and a key component of the revenue assumptions for the budget, is the tax restructuring plan proposed by Governor Snyder and the legislature’s response to the suggested changes in business and individual income taxation. Finally, it is expected that the May 16 revenue estimating conference will revise upward, perhaps substantially, the General and School Aid Fund revenue estimates for both the current year and FY2012. These revisions will likely play a role in the final appropriation decisions made by the legislature, perhaps by lessening the extent of the cuts included in the budgets.
Nonrecurring Resources and the FY2011 General Fund Budget
State Budget Note 2010-03 ( October 2010 ) 12 pages
The Michigan legislature completed its work on the FY2011 General Fund budget before October 1 and the governor signed all but one of the appropriations bills (higher education) before the start of the new fiscal year, thus avoiding another temporary government shutdown. The FY2011 state School Aid Fund budget, which provides operating funding for Michigan’s local and intermediate school districts, was completed in July, when local schools start their new fiscal year. Both “early” adoption of the SAF budget along with the avoidance of another government shutdown mark some progress in the budget development process compared to the experience in recent years; however, while the FY2011 budget did contain some cuts, it still relies heavily on nonrecurring resources.
The Citizens Research Council of Michigan’s new report, Nonrecurring Resources and the FY2011 General Fund Budget, looks at the major solutions to achieve budget balance for FY2010 and FY2011 and provides some indication of the FY2012 fiscal problems that will face the new governor and the new legislature that will be seated in January 2011.
The FY2011 budget, while technically “balanced” in the short term, will contribute to fiscal imbalance in FY2012. The budget is premised on nearly $1 billion in one-time resources, which will not be available in the coming fiscal year. These resources included the exhaustion of federal stimulus funding, state debt refinancing, and accelerating the collection of unclaimed property. Furthermore, the new budget does not address the structural budget challenges that have faced the state for years.
The FY2012 budget will take effect on October 1, 2011. The first step in the process takes place when the new governor presents his FY2012 executive budget proposal to the legislature within 60 days (early March) of the 96th Legislature convening in early January. At this time, it is estimated that the new cohort of policymakers will have to address a General Fund shortfall of at least $1 billion, due in large measure to the solutions employed to achieve budget balance in FY2011.
“The FY2011 budget presented yet another opportunity for Michigan to address the near decade-long structural deficit.” said Craig Thiel, CRC’s Director of State Affairs. “However, the final budget passed by the legislature and signed by the governor failed to make major inroads toward solving the state’s chronic budgetary problems.”
The FY2011 School Aid Fund Budget: A Day Late and A Few Hundred Million Dollars Short
State Budget Note 2010-02 ( July 2010 )
Before embarking on its traditional 4th of July two-week recess, the Michigan Legislature passed the Fiscal Year 2011 (FY2011) budget for the School Aid Fund (SAF), which provides operating funding for Michigan’s local and intermediate school districts. July action on the SAF budget this year breaks with recent history, during which the state budget (SAF and General Fund) has not been enacted until late September or even after October 1, the start of the new state fiscal year. The legislature’s “early” adoption of the budget provides schools with a greater degree of certainty as they begin their fiscal years on July 1. Observers should be cautious about placing too much importance on the recent legislative action, however, as a number of major budgetary issues, both for this year and next, remain to be resolved.
The Citizens Research Council of Michigan’s recent report, The Fiscal Year 2011 School Aid Fund Budget: A Day Late and a Few Million Dollars Short, looks at the impetus, issues, and implications surrounding the adoption of the new state school-aid spending plan.
“Given the fiscal struggles of FY2009 and FY2010, coupled with the loss of $1.3 billion in temporary federal stimulus funding from the budget, crafting a balanced budget that did not further reduce per-pupil spending is a significant accomplishment.” said Craig Thiel, CRC’s Director of State Affairs. “However, the adoption of this “early” budget was aided greatly by the significant positive change in the official SAF revenue estimates and the fact that major General Fund budget shortfalls were not addressed at the same time.”
With the passage of the FY2011 SAF budget now complete, the legislature will turn its attention to the General Fund budget, which is in much worse shape. Current projections indicate that the General Fund faces a shortfall of at least $220 million in FY2010, with only three months in the fiscal period remaining. For the upcoming FY2011, the state budget is in deficit by $500 million. Legislative deliberations on the General Fund were stalled during the development of the SAF budget and will resume sometime in late July or early August, following the July 4th recess.
The FY2011 Executive Budget: “Déjà Vu All Over Again”
State Budget Note 2010-01 ( February 2010 ) 7 pages
The FY2011 Executive Budget: “Déjà Vu All Over Again”, examines the Governor’s FY2011 executive budget, with special attention to those aspects intended to address the long-term structural imbalance plaguing the General and School Aid Fund budgets.
The exhaustion of the temporary federal recovery funds used to support state spending in FY2009 and FY2010 and the revelation of the resultant “revenue cliff” in FY2011 will bring the state’s structural deficit problems into clearer focus. Absent any further extraordinary sources of fiscal relief, the Michigan legislature is now tasked with passing appropriations bills and associated legislation that reduce spending and/or raise taxes to achieve balance in the coming fiscal year.
Dual Deficits and Federal Recovery Assistance: Prospects for State Budget Balance
State Budget Note 2009-02 ( April 2009 ) 8 pages
Although federal stimulus funds can help balance the Michigan budget in Fiscal Years 2009 and 2010, they also create a real possibility of aggravating the ongoing structural deficit by permitting policy makers to postpone actions to bring long-term revenues and expenditures into balance. This is one of the findings of a new State Budget Note released by the Citizens Research Council of Michigan.
The State has been operating with a structural deficit, a deficit that will not be eliminated by a more buoyant economy, during the past decade. It has met the constitutional balanced budget requirement principally by using nonrecurring sources of income totalling over $8 billion over that period and has not solved the basic structural problem. Federal stimulus dollars, available from the American Recovery and Reinvestment Act (ARRA) will provide the State with $7 billion, which will help in the short run, but which may make more difficult the resolution of the structural deficit.
ARRA, which is aimed at the cyclical downturn, will provide significant new funding, but:
- Will not be sufficient to prevent spending cuts
- Will mask the size of the cuts necessary to deal with the structural deficit
- Will not be available long enough see the state through the entire period of reduced revenues caused by the recession
- Will cause a revenue “cliff” when the additional federal funding expires
“Policy makers must take steps to assure that the FY2011 budget is not more difficult than it has to be,” said CRC Director of State Affairs, Craig Thiel. “While we won’t be turning down the federal stimulus funding, we can’t relax our efforts to eliminate the ongoing deficit.”
Michigan’s Weakened Financial Position and The Problem of Dual Deficits
State Budget Note 2009-01 ( January 2009 ) 8 pages
The much-anticipated Consensus Revenue Estimating Conference forecast to be released on Friday will shed light on the Fiscal Year 2009 and 2010 budget outlooks for the State of Michigan, but the basic financial condition of the State is known and shows a weakened cash position in the face of Michigan’s ongoing structural deficit. This is the principal conclusion of a new analysis of the State budget by the Citizens Research Council of Michigan.
The report, Michigan’s Weakened Financial Position and the Problem of Dual Deficits, notes that Michigan is ill-prepared to deal with the current cyclical problems associated with the national economic recession because it has failed to deal with the underlying structural deficits that have existed since FY2000. At the end of FY2000 the State had amassed over $3.9 billion in major fund cash reserves to deal with the 2001 recession. Today it faces a cash deficit of approximately $400 million that it must finance by means of both internal and external borrowing.
Michigan’s Fiscal Future
Report 349 ( May 2008 ) 152 pages
The Citizens Research Council of Michigan projects that Michigan’s budget challenge will continue to grow through Fiscal Year 2017 (FY17) because virtually every area of the State budget faces spending pressure increases that outpace projected revenue growth. This “structural deficit” will persist even as the economy improves.
Provisions in the Michigan Constitution require the Governor and Legislature to take annual actions to keep current spending in line with current revenues. The CRC projections in Michigan’s Fiscal Future quantify that absent those requirements and without substantial policy changes, structural deficits in Michigan’s General Fund, K-12 education finances, and highway finances — by FY17 – would grow to:
- $6.0 billion in the state General Fund
- $3.6 billion in K-12 education finances
- $417 million in the state highway program
Using a well-established regional economic forecasting model, CRC and the W.E. Upjohn Institute collaborated on an analysis of Michigan’s future state budget challenges from FY09 through FY17. The analysis is based on a series of assumptions about the performance of Michigan’s economy between 2007 and 2017. This new analysis covers budgets supported by three major state funds: General Fund (GF), School Aid Fund (SAF), and the Michigan Transportation Fund. Major changes in the State’s tax structure made in 2007 that will affect future State revenues have been factored into this analysis as have two series of tax cuts required by state law for FY09 and beyond.
Michigan’s Fiscal Future
Memorandum 1086 ( May 2008 ) 8 pages
Summarizes Report 349
State Budget “Balance” for FY2007 Achieved with $1 Billion in Additional Non-Recurring Resources
State Budget Note 2007-01 ( June 2007 ) 2 pages
Going into Fiscal Year 2007 the State of Michigan had used $6.8 billion in non-recurring resources to meet the constitutional balanced budget requirement. The recent agreement on the FY2007 budget has increased that total by $1.015 billion adding new challenges to achieving a structurally balanced budget.
Michigan’s Deteriorating Cash Position
Note 2007-02 ( May 2007 ) 8 pages
Actions to maintain balance in the State general and school aid funds since Fiscal Year 2001 have relied heavily on the depletion of reserves and the use of one-time accounting maneuvers, which have served to erode the State cash position, by $4.2 billion. Actions to balance the FY07 and FY08 budgets will be subject to the realities of cash constraints brought about by failure to resolve the underlying structural deficit.
Michigan’s Budget Crisis and the Prospects for the Future
State Budget Note ( March 2006 ) 11 pages
On March 14, CRC Director of State Affairs Tom Clay presented an analysis of the state budget problem to the conference “Where Do We Go From Here?” sponsored by the Center for Michigan, the Ford School of Public Policy at the University of Michigan, and the Center for Local, State and Urban Policy within the Ford School of Public Policy.
The paper concluded that the general fund structural deficit is not going away and that eroding revenues and growing Medicaid and corrections spending are making it increasingly difficult to balance the budget.
A Recap of the FY04 Budget and Look Ahead to FY05 and Beyond
State Budget Note 03-10 ( October 2003 ) 10 pages
The forecast of lower-than-anticipated General Fund and School Aid fund revenues for the State of Michigan fiscal year that began on October 1 portends increased fiscal pressure on the budget for fiscal year 2004-05, which will be submitted by the Governor in February. The report points to growth in Medicaid and corrections as the basic problems in the General Fund. Growth in these programs has begun to crowd out other state programs, such as higher education and revenue sharing. School aid, which has been protected to a higher degree than other programs, will be under great pressure in FY05, largely because school districts will be faced with an increase of at least 10 percent in their contributions to the Public School Employees Retirement System and increased health care insurance costs.
PDF File The Problematic Fiscal Year 2003-04 State Budget
Memo 1073 ( April 2003 ) 10 pages
Debate on the FY2004 State Budget is beginning to heat up and it is clear that agreement will not come easily. CRC has just released its first analysis of the FY2004 budget.
Prospects for School Aid in the Economic Recovery
State Budget Notes 2002-03 ( March 2002 ) 4 pages
Discusses the prospects for state school aid, the largest category in the state budget, for the next 5 years and presents a scenario to finish the process of managing through the current budget problem.
The FY2003 Executive Budget: Short-Term Balance, Long-Term Gaps
State Budget Notes 2002-02 ( February 2002 ) 2 pages
Analyses how the Governor’s proposed FY2003 Executive Budget addresses the imbalance between spending and revenues.
The Problem Facing the New Budget
State Budget Notes 2002-01 ( January 2002 ) 3 pages
CRC continues to track the deteriorating budget condition and offer analysis.
Michigan’s Budget Problems — Time for Permanent Solutions?
State Budget Notes 2001-01 (December 2001 ) 3 pages
CRC continues to track the deteriorating budget condition and offer analysis.
PDF File Michigan’s Budget Situation – A Long-Term Problem
Note 2001-05 ( September 2001 ) 4 pages
In June, Note 2001-02 outlined the difficulties confronting the State in dealing with the budget. Since that time, actions were taken by the Governor and State Legislature to close the budget gaps for fiscal years 2000-01 and 2001-02. This Note summarizes the Fiscal Year 2000-01 and 2001-02 actions and provides some finding relative to the fiscal year 2002-03 budget outlook.
PDF File Michigan’s Precarious Budget Situation
Note 2001-02 ( June 2001 ) 2 pages
Even with economic recovery, the State will face problems as far out as FY2003.
1990-91 State General Fund-General Purpose Budget
Misc., ( February 91 ) 4 pages
Michigan’s Financial Improvement Strategy
CC 945, ( November 83 ) 4 pages
(eliminating cash deficit)
The State Fiscal Plan
CC 941, ( June 83 ) 7 pages
1. Tax Increases establish financial base; 2. Increases in key fund spending — See also Misc. Report —
The State Fiscal Plan
CC 941, ( June 83 ) 7 pages
To some extent, the fiscal 1984 Executive Budget can be viewed as a watershed in recent state financial history. It is widely believed that Michigan is at last emerging from the prolonged recession that has precipitated a seemingly endless series of budgetary adjustments and fiscal crises. The financial position of the state, although still deep in deficit, is improving and should be positive by the end of fiscal 1985. The March tax increase expanded the available revenues of the state so that, with some prudence, state officials should find ample resources in fiscal 1984 to support state programs. And, although welfare caseloads are projected to continue their rise into 1984, the outlook is for stabilization and perhaps an opportunity for state policymakers to order spending priorities in accordance with long-term goals for economic development. In short, the stage is set for a fresh start.
Resolving Michigan’s Past, Present, and Future Fiscal Problems: The 1983 Debate
CC 939, ( March 83 ) 2 pages
Estimates size of the 1983 structural deficit and discusses the use of spending cuts or income tax rate increases to solve the problem. Summarizes findings of 12-page “white paper”.
Resolving Michigan’s Past, Present, and Future Fiscal Problems — The 1983 Debate
Misc., ( March 83 ) 12 pages
Michigan’s Key Fund Fiscal Problem
CC 933, ( September 82 ) 8 pages
Effects on Michigan of the 1981 Economic Tax Recovery Act
CC 930, ( July 82 ) 6 pages
The State Revenue and Spending Limits
Memo, ( October 81 ) 18 pages
Michigan’s Growing Cash Deficit
CC 924, ( July 81 ) 6 pages
State Finances in Distress: Michigan–Fiscal Years 1980 and 1981
CC 921, ( November 80 ) 2 pages
Fiscal Management in an Age of Limits: Balancing the State Budget
CC 914, ( July 80 ) 4 pages
The State’s Fiscal Crisis
CC 677 ( April 57 ) 4 pages
The governor’s 1957-58 budget proposes appropriations from the general fund of $411 million, an increase of 24 per cent over this year’s (1956-57) appropriations. To finance this amount, revenues for next year are estimated at only $336 million. This leaves a revenue gap of $75 million. Available surplus will probably reduce this to about $71 million in new revenue needs.