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State’s
Budget Woes — $500 Million And Growing
MIRS, October 6, 2003
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Gov. Jennifer GRANHOLM along with the state’s lawmakers will
likely have more than a $500 million revenue problem this year
and as high as a $1 billion problem next year, according to
economic experts.
“The state’s trying to do more in the way of operating programs
and paying for programs than its revenue will permit on a
year-to-year basis and the obvious ones are Medicaid and
corrections,” said Tom CLAY, of the Citizens Research Council.
“They’re crowding other programs out of the budget.”
The news this week is likely to add to the bleak picture as
September revenue figures will be finalized as early as Tuesday.
“September was not a spectacular month for revenue collections
at all,” said Mitch BEAN, director of the House Fiscal Agency.
“We didn’t gain anything we lost more in September.”
Bean added that the numbers aren’t final, but early signs
suggest that September revenues were off by between 1 and 2
percent. August revenues had actually been 4.9 percent over year
ago levels. Some now suspect that temporary summer rebound was
due to “noise” in the economy.
So, just how bad is it?
“We’re going to have to reduce our estimates for ‘03 by several
hundred million dollars. We’re going to have reduce our ‘04
numbers by several hundred millions,” warned Bean.
The picture painted by the Senate Fiscal Agency (SFA) isn’t much
better. In a September memorandum to Senators, Gary OLSON,
director of the SFA warned that revenues could be off from the
May consensus revenue estimating conference by between $150
million and $225 million in general fund resources for last
fiscal year (Fiscal Year 2003). That’s on top of a projected $50
to $100 million FY 03 School Aid Fund revenue gap.
“I’ll be surprised if the problem doesn’t exceed $500 million,”
Bean warned of the growing gap.
Olson said the revenue gap is at least $400 million, “it could
be more than that.”
For the Fiscal Year that ended in September, state lawmakers had
planned on having a balance carry forward into the current
fiscal year of $360 million. Olson’s memo from Sept. 15 noted
that the carry-forward, due to weaker than expected June and
July revenues will fall short between $135 million and $210
million.
“This shortfall, coupled with an anticipated downward revision
in the FY 2004 GF/GP revenues will result in a projected FY
2003-2004 GF/GP budget deficit of between $154 million and $304
million,” wrote Olson.
Where will an additional $500 million in cuts come from? That’s
a problem lawmakers and Granholm will have to face in the coming
weeks.
While they’re looking, however, they may want to think about
future cuts.
According to Clay, the financial woes of 2004 are just the tip
of the iceberg. Clay estimates that going into Fiscal Year 2005,
the state will again be awash in over $1 billion of red ink.
The reason? The current budget, FY 04, is built with some $720
million in nonrenewable General Fund revenue sources and some
$130 million in School Aid Fund resources. Among the one time
revenue sources:
- The $360 million ’03 balance carry-forward mentioned earlier
that will probably be closer to $160 million;
- $195 million in accelerated State Education Tax revenue
payments. That revenue is derived from an accounting change the
administration of Gov. John ENGLER pushed through that deals
when homeowners pay their 6 mill state education tax levy;
- $168 million in additional federal aid in the Medicaid arena
due to a temporary increase in the federal Medicaid match.
“It’s looking like the gap in the general fund could be as much
as $1 billion for [Fiscal Year] ’05, between likely revenue and
‘04 appropriations adjusted for some known requirements,” Clay
said.
Bean along with Olson and State Treasurer Jay RISING are
scheduled to meet for a special consensus revenue estimating
conference on Oct. 14. The three will hear from economists from
the University of Michigan Research Seminar on Quantitative
Economics as well as a presentation from Timothy BARTIK from the
W.E. Upjohn Institute for Employment Research.
In September, Bartik published a paper arguing that the recent
decline in the American manufacturing industry most likely
reflects long-run problems.
ISD Probe No Witch Hunt
MIRS, October 6, 2003
The head of the Intermediate School District statewide
organization said he is not concerned that a House committee
probe into the management of ISDs will tarnish the entire
system.
In the wake of allegations of wrongdoing in the Oakland County
ISD, Rep. Ruth JOHNSON (R-Holly) is pushing legislation to
revamp the system. She staged the first hearing in Ottawa County
last week and Dr. Mike FLANNIGAN attended.
Asked if other groups could be dragged down in the probe,
Flannigan said, "I don't have that fear. I think the committee
is balanced and they realize that overall, ISD's serve a
purpose, but we've got to clean up our act."
Flannigan, who served as Gov. Jennifer GRANHOLM’s education
advisor during the early months of this year, favors changes
that include the right to recall ISD board members and a ban on
international travel, but he would oppose any ban on interstate
travel for board members.
The veteran educator said those national conferences are
worthwhile. "They happen to be in places that look sexy, but
that's where the convention facilities are to accommodate 20,000
school board members."
The Detroit Free Press did a series of articles on the problems
in Oakland County and Flannigan said the reports that focused on
the travel issue distorted the issue by blowing it out of
proportion.
"The coverage went a little bit sensational at one point," he
observed.
Johnson told MIRS that she has received reports of other alleged
irregularities in other ISDs. Flannigan said he's heard that
other districts may be under the microscope but he said if the
review focuses on making the system better "that's all fair
game. If it's trying to see that someone goes to New Orleans or
a school board conference once a year, if that local county felt
that was appropriate, I think that's O.K. All professions do
that."
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