LANSING – Good news and very bad news comes from the Senate Fiscal Agency’s budget forecast: January should not require the state to enact mid-year budget cuts to schools and state services, but a $1.84 billion gap exists between available revenues for the 2010-11 fiscal year and existing spending levels.
The forecast, released Tuesday, is extremely bleak for programs that rely on the state’s general fund. Of the $1.84 billion gap, $1.5 billion is in the general fund compared to $339 million in the School Aid Fund.
It’s no surprise that the state is facing a huge budget shortfall for the 2010-11 fiscal year that begins October 1 because it heavily relied on one-time federal stimulus funding to prop up the 2009-10 fiscal year. In the current year, there’s $1.1 billion of federal stimulus money in the general fund and $450 million in the School Aid Fund. There’s about $210 million in stimulus funding left for the general fund in 2010-11 and $184 million for the School Aid Fund that year.
Still, the recent announcements of more auto cuts as well as the forecast from the University of Michigan’s Research Seminar in Quantitative Economics prompted the agency to take a more pessimistic view, said Gary Olson, Senate Fiscal Agency director.
“I went into that conference thinking that things were about to turn around and left with a different opinion,” Olson said of the U-M seminar. The shortfall is “a little more than we were expecting.”
General fund and School Aid Fund revenue is expected to total $17.18 billion in 2010-11, down 0.6 percent from the revised estimate for 2009-10. The outlook represents the numbers the SFA will present at the January Revenue Estimating Conference.
But at least Gov. Jennifer Granholm and legislators should be able to dodge the now painful January rite of an executive order budget cut and pro-ration reduction in school aid for the current year. Although revenues to the general fund and School Aid Fund are down for 2009-10 by $144 million and $92 million, respectively, enough of a surplus was built into both budgets that they remain in the black.
The situation with the School Aid Fund for 2010-11 is a little better than expected although still not good. A $339 million gap equates to a cut of about $215 per pupil. But revenue growth in the School Aid Fund, as well as lapses, has lessened the shortfall, Olson said.
“It’s not insignificant, but the school aid problem is much more manageable than the general fund problem,” he said.
The fiscal agency’s estimate shows $6.6 billion available in the general fund from ongoing revenue sources, an amount that rises to $7.7 billion when assuming no increase in revenue sharing payments to local governments and the continued transfer of $140 million from the Merit Award Trust Fund to the general fund, among other items.
New costs for 2010-11, like a scheduled 3 percent pay raise for state employees and an expected increase in Medicaid caseloads, are part of the $1.5 billion shortfall.
Olson said trying to close this gap would be extremely difficult, pointing to the elimination of the popular Michigan Promise Scholarship as part of balancing the 2009-10 budget.
“You can’t cut the Promise Grant more than once,” he said. “It’s gone. That’s the issue.”
On another item, the forecast said Michigan tax credits for the film industry will cost much less than expected in 2008-09, $45 million compared the $107.5 million forecast although the SFA attributed the gap more to the timing of when the credits are claimed. It projected the net loss of revenue would rise to $96 million for the 2009-10 fiscal year.
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