Lansing Update — Budget Threatened by Revenue Shortage
The Executive Budget presented by Governor Jennifer Granholm just last month may already be in trouble, but the problem at this point is not a repeat of last year’s budget impasse between the Executive Office and the Legislature. This time, as it was going into last year’s budget debacle, the issue is again money—or, more specifically, the lack thereof.
This week, the members of the Senate Appropriations Committee were given a presentation by Senate Fiscal Agency (SFA) Director Gary Olson in which he said the proposed Executive Budget couldn’t be enacted without additional revenues.
The proposal, which Ms. Granholm labeled her “best ever,” called for funding increases for higher education and community colleges along with an increase in the basic grant awarded to welfare recipients. According to Mr. Olson, the proposed budget’s total spending may have to be adjusted downward by nearly $250 million due, in part, to lower projections for property tax revenues and the ongoing tobacco settlement payments dispute. Mr. Olson also said the Senate Fiscal Agency now predicts revenues for the current fiscal year will come in some $134 million below current expectations but that shortage should not necessarily result in Executive Order reductions or the proration of school aid payments.
Ironically, Mr. Olson noted the anticipated stimulus program approved by the federal government would prove to be a mixed blessing to Michigan. Mr. Olson argued the program will reduce General Fund revenues due to accelerated business depreciation allowances, a stimulus feature that will reduce state tax revenues by more than $22 million in the current fiscal year and by nearly $115 million in the 2008-09 Fiscal Year. Conversely, Mr. Olson said projections anticipate stronger consumer spending when the stimulus checks arrive which would boost Sales Tax totals and add an estimated $54 million to the School Aid Fund this fiscal year and some $19 million in the coming year. Mr. Olson also noted that there is not unanimity for this assessment among the state’s top financial officials with the Treasury Department in disagreement over the predictions.
Responding to Mr. Olson’s presentation, officials with the State Budget Office agreed the state’s revenue stream deserved careful and constant monitoring. However, they also noted the May Revenue Estimating Conference—which historically sets the final income and spending numbers for the budget process—is still more than two months off. That exercise, they said, would determine “where we stand.”
Budget Office officials also argued the items included in the Governor’s “very modest supplemental” spending request were “necessary and affordable,” needed to be done before the end of the fiscal year and should not be subject to any limitations. Conversely, on a more ominous note, House Fiscal Agency Director Mitch Bean said his agency’s revenue estimates were “in the same ballpark” as those cited by Mr. Olson.
As for legislative members, Senate Appropriations Committee Chair Ron Jelinek (R-Three Oaks) advised subcommittee members to be cautious as they develop their suggested spending plans. That sentiment was echoed by Senator Michael Switalski (D-Roseville), the Committee’s Democratic Vice-Chair, who said the admonishment to exercise caution in developing the individual budgets was good advice to heed.
Based on the budget schedule released by the two Appropriations Committee chairs, subcommittees are set to start reporting their proposals to the full committee next week.
