Michigan public schools expected to escape cuts in 2010-11 as tax revenue increases

Mich. schools not expected to see cuts in 2010-11

LANSING, Mich. — Michigan school districts are safe from further cuts this school year and likely will escape budget cuts next year as well, state economists said Friday.

The directors of the House and Senate fiscal agencies and state Treasurer Robert Kleine agreed Friday after a revenue estimating conference that school aid revenue is up $292 million above January estimates. General fund revenue, however, is down nearly $244 million below estimates because businesses have received more in refunds this year after overpaying their taxes last year.

Senate Fiscal Agency director Gary Olson estimates the lost revenue will leave a shortfall of about $219 million in the general fund budget for the current fiscal year, which ends Sept. 30. Some of that could be made up if lawmakers agree to shift surplus money from the school aid fund to community colleges, or to find more ways to tap federal dollars.

Olson said cutting the budget this late in the budget year would be “very difficult.”

Budget director Bob Emerson said after the meeting he expects some general fund cuts will be necessary this year. He’s just grateful that revenues finally will begin rising again soon.

“The good news is that revenues for 2011, even in the general fund, are up,” he said.

The national recession drastically worsened Michigan’s economy last year as the state lost 285,600 jobs, pushing its unemployment rate up near 15 percent. Unemployment currently is 14 percent, and University of Michigan economist George Fulton said the state likely will lose around 40,000 jobs this year.

He expects Michigan will begin to add jobs in 2011, boosting state revenues and giving the state a gradually brighter outlook. But the annual unemployment rate likely will remain over 13 percent for 2011, he said.

“This is an uptick. This is not roaring out” of the downturn Michigan has suffered for the past decade, Fulton said.

Because of the recession and additional tax breaks passed by the Legislature, Michigan has seen its general fund revenue drop from $9.4 billion in fiscal 2008 to $7.4 billion in fiscal 2009 to $6.6 billion now, a drop of 29 percent. That has meant far less money for universities, local governments, foster care and prisons.

The school aid fund also has seen a drop, going from $11.5 billion in fiscal 2008 to $10.7 million this year and forcing schools to deal with cuts in per-pupil grants from the state that have added up to hundreds of millions of dollars. An increase in sales tax revenue, however, is rebuilding the school aid fund and could leave it with a nearly $400 million surplus this year, Olson said.

There’s cautious optimism at the Capitol that the economy finally is turning around, helping the state’s budget situation. Fulton predicts general fund revenue growing by 6.5 percent in the budget year that starts Oct. 1, while school aid revenue will go up half a percent.

That should help lawmakers as they try to wrap up work on next year’s budget by July 1.

The more immediate problem is how to deal with the gap in this year’s general fund budget. Granholm spokeswoman Liz Boyd said meetings are set for Monday with lawmakers to discuss options, and Emerson said he thinks the Democratic-led House, Republican-led Senate and Democratic governor can find common ground.

He said the same is true for resolving the differences in spending bills for next year’s budget passed by the House and Senate. Senate Republicans erased a $1.3 billion deficit entirely with cuts, but House Democrats have taken a different approach on some appropriations.

“There are problems with things the Senate passed, and there are problems with things the House passed. And I think there are potentially solutions that neither one of them have looked at yet,” Emerson said. “The decisions will be tough. But if people come to the table without their feet stuck in cement, I think there are reasonable ways of resolving this before July 1.”