State Deficit Won’t Be As Bad As Feared (MI)
May 24, 2010
After eight straight years of revenue shortfalls, state finances may have finally turned a corner: A predicted $400-million shortfall for Michigan public schools next year could be wiped out, state economists said Friday.
Optimism for next year’s school revenue is based in part on better-than-expected sales tax revenues — a major source of school funding. Based on more aggressive consumer spending, economists revised the sales tax revenue for this year upward by $292 million.
But Senate Majority Leader Mike Bishop, R-Rochester, said the state needs to avoid "a mad dash to spend" for schools and instead shift the money to offset cuts to revenue sharing to local communities.
Though the state general fund, which pays for most state spending other than schools, has a deficit this fiscal year, the impact of that could be minimal.
In fact, a combined $1.5-billion state defici t projected in February for 2010-11 could be less than $300 million, said Gary Olson, director of the Senate Fiscal Agency.
Michigan’s economy has bottomed, said University of Michigan economists who help the state project revenues. They also predict unemployment won’t drop lower than 13% in 2011. Michigan’s 14% rate leads the nation.
"It looks like the recovery is off to a solid if not spectacular start," said Joan Crary of U-M’s Research Seminar in Quantitative Economics.
Sales tax revenues boost predictions
In February, Gov. Jennifer Granholm’s proposed budget for 2010-11 assumed a looming $1.5-billion deficit.
On Friday, that deficit took a beating.
It turns out sales tax revenues are expected to generate $292 million more for public schools than was predicted four months ago. Next year, taxes are to pump $352 million more than expected into schools.
Although the Michigan Business Tax is producing less than expected, a $244-million shortfall in this year’s general fund — the state’s main checkbook for daily operations — could be whittled down to a minimum.
"I think there’ll be some cuts," said state budget director Bob Emerson, after economists from the administration, House and Senate met to adjust revenue predictions.
Emerson added, "The good news is the school aid budget is up, revenues are up, and I think we’re going to be avoiding cuts to schools."
The additional money could negate a $225-per-pupil cut schools were facing, although that might have been accomplished with a teacher retirem ent incentive plan that is to save schools money next year.
The expected surplus is "incredibly huge," said Rep. Terry Brown, D-Pigeon, chairman of the House subcommittee on school funding. He said he’s concerned that some may want to move the school fund surplus to the general fund.
Brown said if the economy has turned around, it will help boost education, which many see as the state’s ticket to go from a manufacturing- to knowledge-based economy.
But Senate Majority Leader Mike Bishop, R-Rochester, said a deficit for school aid next year was addressed by the teacher retirement incentive the Legislature and Granholm enacted recently. He said any new surplus should be used to avoid cuts to revenue sharing, which helps cities pay for such basic services as police and fire protection.
"Fortunes can change overnight," Bishop warned.
Gary Olson, director of the Senate Fiscal Agency, said the school aid surplus could reach nearly $400 million this year. But he warned against a spending spree because $850 million in federal money that will help balance the budget — about 12% of the general fund — won’t be available until 2011.
Michigan isn’t suddenly awash in money, but it has probably hit bottom in the worst economy since the Great Depression of the 1930s, economists said Friday.
For the first time since 1995, the U.S. auto industry’s share of the market in 2010 will have climbed slightly, from 43.3% to 43.8%, said George Fulton, director of the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan.
He said the national economy, and the auto industry, will play ma jor roles in Michigan’s economy, which is projected to endure an unemployment rate of 13.3% into 2011. Fulton noted that in 2009, Michigan lost 286,000 jobs, the most since the 1930s. But the RSQE predicts modest growth next year.