Budget negotiations for Michigan’s Fiscal Year 2020 came down to the wire, as the Legislature and administration fought over their conflicting priorities (a search for new road-funding revenue on the governor’s part, a vow not to raise taxes from the legislature). 

The Legislature sent Governor Whitmer a spending plan only days before the October 1 deadline, without input from the governor. In response to being shut out of negotiations, the Governor vetoed nearly $1 billion of spending items and transferred another $625 million within the budget in an attempt to bring legislative leaders back to the table. 

The strategy was successful, but with qualifications. The vetoes and transfers meant a number of programs started the fiscal year without a clear picture of their state funding. Two months later a supplemental budget was passed, restoring some of the vetoed items and reversing many of the transfers. 

The ordeal led to calls to modify aspects of the budget process, including a new July 1 deadline for the legislature to complete its work and send its general appropriations bills to the governor for consideration. Such a deadline, if adhered to (and that is a big “if” because there are no repercussions for failing to meet it), will provide the governor and legislature with up to three months to negotiate a final spending plan. This might smooth future negotiations between the legislative and executive branches, but what effect might it have on the budgeting process for school districts and local governments? 

A Fiscal Year Timing Problem

The start of the state’s fiscal year has not always been October 1. In 1976, amidst a major budget deficit, it was pushed into the fall  from July 1. This aligned the state with the federal government’s fiscal period, but also allowed it to draw down three additional months of federal funding towards balancing the budget. Because of this switch, Michigan is one of only four states that does not have a July 1 – June 30 fiscal year. The switch may have benefited the state budget, at least in the short term, but its effects have been felt by school districts, universities, local governments, and other public entities that begin their fiscal year on July 1 and rely to a great degree on state funding to support their operations.

All school districts and many local governments start their fiscal years on July 1. Since these entities receive large portions of their funding from the state, they have to make estimates about the funding they will receive in the coming year.  When budget negotiations extend beyond July, schools, universities, and local governments are stuck planning without a clear picture of the financial resources they will receive for the year. 

This is particularly true for school districts. The Uniform Budgeting and Accounting Act requires local school boards to approve a budget by June 30th each year. When the state budget has not been passed by that time, hiring decisions may be delayed, purchases postponed, or decisions about academic program offerings put on hold until the funding picture becomes clearer. 

This uncertainty is not always present. While divided government and difficult financial times led to long negotiations during the Granholm administration, including government shutdowns in 2007 and 2009, some years have seen a budget passed early. During the Snyder administration, the legislature and governor came to a budget deal before July 1 in all but one year. During his eight years in office, the Republican governor enjoyed same-party control of both legislative chambers. In the current environment of divided government, budget negotiations went up to (and past, in the case of supplemental items) the start of the state fiscal year. 

What’s in a Deadline?

The proposed law requires the legislature to send a budget to the governor by July 1st. In theory, this would help alleviate some of the issues in the current process. Even then, school, university, some local government, and others dependent on state funds would be going through their budget processes at the same time as the state is developing its budget. The final budget may be passed before the school districts’ deadline, but if they only know the resources they will receive a week before the deadline, it could still create a need for some last-minute fixes. 

Additionally, the proposed deadline has no enforcement mechanisms. While the legislature would be in violation of state law if it failed to submit a budget by the deadline, the proposal does not outline any sanctions or other mechanisms to expedite the process. If the governor vetoes the budget, or specific line items, passed by the legislature, the process would drag out beyond the fiscal year of schools, universities, and cities. 

So there’s no guarantee that a new law will solve the problems these entities face. But the deadline represents a step forward in solving the problems caused by  unaligned fiscal calendars.