Stabilized State Budget and Rainy Day Fund Deposits Improve State’s Cash Position
State Budget Note 2012-01
State policymakers recently made strides to improve the state’s cash position and cash flow, including reductions to state spending and deposits to the state’s rainy day fund. Actions taken to address the long-standing structural budget deficit have resulted in a marked improvement in the state’s cash position compared to Fiscal Year 2007 (FY2007), when the State of Michigan had to restructure its monthly payments to local school districts to avoid running out of money.
While the state has improved its year-end cash condition relative to five years ago, it still has a long way to go before the cash situation looks like it did at the end of FY2000, when state coffers were sitting on $4.8 billion in reserves. Early indicators suggest that the state has erased the accumulated year-end cash deficit in its major funds – the first time since FY2002. With the key ingredients of a structurally-balanced budget and an improving economy in place, state policymakers should maintain their focus on the underlying cash position and avoid unnecessary actions that will have negative effects on cash. The upcoming FY2013 budget represents the next opportunity to build upon the improving cash position and prepare the state budget for future economic disruptions.