Michigan economists see no deficit for current budget year, but big drop in FY2011

MI economists: No deficit in ‘10, big drop in ‘11

LANSING, Mich. — Michigan economists said Monday that the state budget is in good shape for the current year, but they foresee big deficits in the 2011 budget as revenues keep dropping.

School districts won’t see additional cuts beyond the $165-per-student cuts they’re already absorbing, Gov. Jennifer Granholm said.

But Senate Fiscal Agency director Gary Olson warned at the conclusion of the revenue estimating conference that the state faces a deficit of more than $1.6 billion in the budget that starts Oct. 1, because the state is less likely to get federal recovery money and the state’s poor economy is holding down tax revenue.

He expects the general fund next year to be about $1.2 billion short and the school aid fund to be about $423 million short, the equivalent of $268 per student. His forecast is more pessimistic than those of the House Fiscal Agency and the state Department of Treasury.

But no one thinks Michigan is going to be out of the woods anytime soon.

“There’s nothing to feel good about except the decline isn’t so large,” HFA director Mitch Bean said. “That’s going to lead us to very difficult decisions for lawmakers to make.”

Olson noted Michigan no longer is a wealthy state, having fallen to 37th in per-capita income in 2008 and likely falling to 40th now.

On the flip side, he notes state government is taking a smaller percentage of residents’ income in taxes than in the past, to under 7 percent compared to around 9 percent.

“The tax burden has declined dramatically,” Olson said. “Income has declined, but revenues have fallen more dramatically.”

Money for the general fund dropped by 21 percent between 2008 and 2009, leaving the state $2 billion less to spend, while school aid revenue dropped 5 percent, or nearly $600 million. That left the state with the same amount in its main checking account, the general fund, as it last had in 1964 when adjusted for inflation, Bean said.

State economists expect revenue for the general fund and the school aid fund to drop by about $500 million each this budget year, for a total of $1 billion, and to show little increase in fiscal 2011.

Some of that loss could be alleviated if the federal government steps in again with financial help for the states, something both Bean and Olson expect to happen. But they said state officials shouldn’t see that possible gift as a reason to avoid making tough decisions this year.

“If we don’t fix this, all we’re doing is pushing the problem forward,” Bean said.