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Conference Pegs 2004 Deficit at $1.6 Billion
Granholm to Issue Executive Order Cuts for $277 Million 2003
Shortfall
both articles from
Gongwer News Service, January 14, 2003
For more articles visit
www.bridges4kids.org.
Conference Pegs '04 Deficit at $1.6 B.
Gongwer News Service, 1-14-03
State services are facing major cuts with Tuesday's forecast
by economists that the state will be $1.62 billion short in
revenues to maintain existing programming for the 2003-04
fiscal year.
Roughly three-quarters of the shortfall ($1.25 billion) occurs
in the general fund,
which pays for Medicaid, prisons, universities, welfare and
aid to local governments. The remainder ($365 million) is in
the school aid fund, which pays for K-12 education.
The revenue estimating conference of state fiscal experts also
revealed that Governor Jennifer Granholm and lawmakers must
first address an unexpected $277 million deficit in the
current 2002-03 fiscal year. Ms. Granholm convened an
"emergency" meeting with legislative leaders Tuesday afternoon
to discuss executive order cuts she said she would issue
within a week to correct the shortfall (see separate story).
Ms. Granholm took the unusual step of personally attending the
conference, believed to be the first time a governor was
present for the meeting. The conference drew an overflow crowd
to the House Appropriations Committee room.
"We knew we were going to have to do an amputation for next
year. We just realized, I suppose, that the patient has to get
on the table a little earlier," she said after leaving the
meeting.
The revenue estimates are based on economists' forecasts of an
anemic recovery from the 2001 recession-one similar in
weakness to the recovery that followed the 1990-91 recession.
They expect unemployment to peak this spring and then fall
through 2004. GDP is expected to grow by 3-4 percent in 2003
and 2004. Forecasters expect the recovery to begin in earnest
in the fall of this year.
But hovering over the meeting and its projections: a raft of
economic uncertainties and inaccurate revenue forecasts from
the last two years that overestimated revenues. The fiscal
agencies and Department of Treasury acknowledge they
overestimated the 2001-02 fiscal year that concluded in
September five times over a 17-month period. General fund
revenues were $1.47 billion less than expected, a 15 percent
error.
"This is a humbling experience for us revenue estimators,"
said Mark Haas of the Department of Treasury.
Forecasters said there are several factors that would cause
revenues to fall beneath Tuesday's projections: a later and
slower economic recovery (as has been the case so far), a war
with Iraq causing an increase in oil prices, continued
moribund business investment, a lackluster stock market and
regional housing price bubbles bursting.
Rep. John Pappageorge (R-Troy) voiced pessimism at the
forecast, calling it a "surprise-free scenario." He urged the
conference to give lawmakers other sets of revenue estimates
based on bleaker economic scenarios.
"Our process, in my opinion, does not do a very good job of
taking care of the downside risk," he said.
Estimators projected the current 2002-03 fiscal year would
bring in $8.08 billion for the general fund-a 4.05 percent
decline from the 2001-02 fiscal year. They projected that the
2003-04 fiscal year that begins in October would finally break
a three-year streak of lower revenues for the general fund
with growth of 1.33 percent to $8.19 billion.
Forecasters said the school aid fund would grow by 7.14
percent to $10.858 billion in 2002-03-a robust increase
brought about by a one-time acceleration in collection of the
state education property tax. With the loss of that one-time
increase, 2003-04 school aid fund revenues are projected to
decline slightly by 0.03 percent to $10.855 billion.
Ms. Granholm and legislative budget leaders declined to talk
about specific cuts that would be necessary to rectify the
budget, but it appears Democrat Granholm and the Republicans
who control the Legislature are unlikely to propose blocking
the 0.1 percent cut in the income tax scheduled for 2004. That
move would save $120 million in 2003-04 and $186 million in
2004-05.
Economists from the University of Michigan submitted figures
indicating the economic impact of blocking the tax cut would
be mild. It would cause personal income adjusted for inflation
to decline by 0.01 percent or 1 cent on every $100.
Unemployment would be 0.01 percent higher without the tax cut.
Said Ms. Granholm of blocking the tax cut: "It's not going to
be something I put on the table."
And Rep. Marc Shulman (R-West Bloomfield), the House
Appropriations Committee chair, said he doubts Republicans
will go the route of stalling the tax cut.
"I don't think, at this point, any Republican leader is
willing to consider putting that on the table because I think,
if we go ahead and do the job that we can do and make the
cuts, I think we can avoid having to do anything with regards
to the tax," he said.
Mr. Shulman indicated the cuts would be widespread and
strongly hinted that aid to local governments via revenue
sharing would be targeted.
"I think everything's going to be on the table to be cut," he
said. "I think if we're going to have to start looking at
cutting potentially some of the programs for vulnerable
people, then when it comes to revenue sharing and
what-have-you, they're also going to have to be on the table
to be looked at as well."
Sen. Shirley Johnson (R-Royal Oak), the Senate Appropriations
chair, said the state is in store for "a lot of cuts." Ms.
Granholm sat between Ms. Johnson and Mr. Shulman during the
meeting.
"We had a little chat up there today and both agreed we have
to make some serious structural changes, and we'll move
forward," Ms. Johnson said.
Rep. Gretchen Whitmer (D-East Lansing) said options in
addition to spending cuts-like blocking the income tax
cut-should be considered. Purely cutting spending would be
painful for many in the state, she said.
"I think (Ms. Granholm) has inherited such a massive
deficit-we all have-that we have to put every solution on the
table," she said.
Cutting funding to K-12 schools will pose a particularly
difficult task for Ms. Granholm and the Legislature. Cutting
the minimum $6,700 per pupil grant to school districts that
funds basic operations would be extremely difficult
politically so they may turn again to the so-called
"categorical" programs that the state funds outside of basic
operations-items like additional funding for at-risk districts
and adult education.
"She doesn't want to have to cut the foundation grant," said
Granholm spokesperson Mary Dettloff. "She's made that promise
for months now, but we will need to do something."
Granholm to Issue E.O. Cuts for $277 M.'03
Shortfall
Gongwer News Service, 1-14-03
Before state officials and legislators can turn their
attention to the $1.62 billion deficit in the 2003-04 budget,
they first have to cut the 2002-03 budget-again.
Tuesday's revenue estimating conference unveiled a surprise
with the news that revenues are insufficient to support the
current year 2003 budget. The general fund, which primarily
funds Medicaid, prisons, universities and welfare, is facing a
$142.6 million deficit. The school aid fund, which funds K-12
education, will be $134 million in deficit.
Governor Jennifer Granholm announced she would issue an
executive order to cut spending from both funds and convened
an "emergency" meeting of legislative leaders from both
parties later in the afternoon to discuss what it would
entail. The current year shortfall is a bitter pill for
lawmakers who already slashed the 2002-03 budget twice, most
recently in the executive order plan issued by former Governor
John Engler in December to correct a $460 million deficit.
The meeting, which began about 4:30 p.m., included legislative
budget leaders, but not Senate Majority Leader Ken Sikkema
(R-Wyoming) nor House Speaker Rick Johnson (R-LeRoy) because
of previous commitments. Ms. Granholm indicated her executive
order would be issued within a week.
"I'll be talking with the legislators who are heads of the
Appropriations committees on both sides as well as the
quadrant this afternoon to try to get some quick action," she
said. "It's got to be very quick."
The longer the state waits to address the current year
shortfall, the less available revenue there is to cut as it
will continue distribution according to the existing 2002-03
budget plan.
Republican budget leaders prior to that meeting declined to
suggest places to cut, saying that was Ms. Granholm's
prerogative.
"I'm not the governor," said Sen. Shirley Johnson (R-Royal
Oak), the Senate Appropriations Committee chair. "That's not
the decision I have to make. We'll wait and see what she
proposes."
Rep. Marc Shulman (R-West Bloomfield), the House
Appropriations Committee chair, said, "As far as her executive
order, (we'll) wait and see what she has in mind."
Bill Nowling, Mr. Sikkema's spokesperson, said the budget
situation is "really no emergency" because it was clear sales
in December were lower than anticipated. "We knew we were a
little short," he said, "We're just waiting to see the
executive order."
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