LANSING – Slammed by a now-global economic downturn coming on top of the state’s ongoing economic woes, Michigan revenues will be lower than initially forecast for 2008-09 fiscal year and lower still for 2009-10 with general fund revenues for that year coming in under $8 billion, the members of the Revenue Estimating Conference said Friday. Immediately a Senate Fiscal Agency memo was issued that said that estimate could mean a general fund deficit of $157 million for the current year and nearly $1.4 billion in 2009-10.

The 2009-10 estimate of a shortfall of about $1.4 billion assumes that state general fund spending would be as much as $138 million more than the current $9.5 billion. And the estimate does not include any funding from the expected federal stimulus, which the memo says could eliminate or reduce the potential deficit.

The estimate reached Friday will be used by the administration of Governor Jennifer Granholm to help keep the current fiscal year’s budget balanced and to set the executive budget for 2009-10. Granholm has said, though, she hopes Congress and incoming President Barack Obama can reach agreement quickly on a fiscal stimulus package so she could include its provisions in the budget proposal.

Estimates from the National Conference of State Legislatures and other national groups have suggested that if the federal fiscal stimulus does total some $700 billion (which would include individual tax cuts and infrastructure spending as well as direct aid to the states) then Michigan’s total for the budget could approach some $1.6 billion.

But the amount and effect of a federal stimulus is still unknown. And the SFA memo on the estimate added another layer of gloom to the already glum economic and revenue forecast painted for Treasurer Robert Kleine, House Fiscal Agency Executive Director Mitch Bean and Senate Fiscal Agency Executive Director Gary Olson who reached the estimate decision. Despite the depressing outlook, both Kleine and Olson said the state should not lose heart and that it will survive the current mess.

But the toll the economic situation – described repeatedly as the worst since World War II – would have on state revenues could not be disguised.

In reaching their consensus, the three men said Michigan’s unemployment rate, which they expect to average 8.4 percent in 2008, would hit 10.9 percent in 2009 and 11.2 percent in 2010. They also anticipated the state would lose 193,000 jobs in 2009, with total employment falling to fewer than 4 million people and then falling another 80,000 jobs in 2010. And they anticipated the state’s total personal income to fall by 1.3 percent in 2009 to $349.6 billion, before growing an anemic .8 percent in 2010 to $352.4 billion (which would still be $1.7 billion less than the total in 2008).

For the remainder of 2008-09, the consensus estimates total general fund revenues of $8.306 billion, down $578.5 million from the level agreed to at the May Revenue Estimating Conference. School Aid Fund revenues for the current year are now expected at $11.368 billion, $338.7 million less than what was estimated in May.

The total for 2008-09 is then $917.2 million less than the May estimate.

The SFA memo from Olson forecasts a much smaller general fund deficit of $157.7 million because of the $457.9 million carryforward from the 2007-08 fiscal year (See Gongwer Michigan Report, January 8, 2009) along with a $537.2 million revenue sharing freeze and $45 million in a shift of short-term borrowing costs to the School Aid Fund.

The lower SAF estimate for the current year could mean a deficit in that fund of some $38.3 million, the memo said. A number of factors, including a decline of an estimated 5,769 students from the state’s pupil count, could force a $122 million lapse in appropriations leaving the SAF short $38.3 million to cover current expenditures.

For 2009-10, the trio estimated total general fund revenues of $7.9 billion, a drop of $371.6 million from 2008-09. That would be the lowest total in general fund revenues since the 2002-03 fiscal year, and that total includes an income tax increase the state adopted in 2007.

SAF revenues for 2009-10 could total $11.29 billion, a drop of $72.9 million from the current year.

Olson’s memo said if a revenue sharing freeze is continued along with the shift of short-term borrowing costs to the SAF, total general fund revenues for next year would come in at $8.3 billion.

But that creates the potential for a nearly $1.4 billion shortfall if no spending cuts are enacted or there is not substantial assistance from a federal stimulus package.

State Republican Party Chair Saul Anuzis issued a statement saying that such a potential deficit means lawmakers would start pressuring to increase taxes.

“When Democrats are in power, your taxes will go up and Democrats are still in power. It should come to no surprise to anyone when the Granholm/Cherry administration claims the only way out of this mess is yet another massive tax increase on Michigan families and businesses that can least afford it. Michigan Republicans have fought avidly against this scheme before, and will not hesitate to do so again,” Mr. Anuzis said in a press release.

House Minority Leader Kevin Elsenheimer (R-Bellaire) said the state needed to make massive changes to its budget to eliminate the ongoing structural deficit and create a healthy budget circumstance for the next several decades.

And Attorney General Mike Cox issued a press release saying that in the current economic conditions the state should adopt a provision that requires a web-based system to show the public exactly where all expenditures are made.

Budget Director Bob Emerson said in a press release that despite ongoing economic troubles the state still had to provide critical services in health care, jobs and education. But he said that could only be accomplished if the state continues to “cut, reform and downsize wherever possible.”

Granholm made no statement about the estimate, but she has said several times that after the battles of 2007 she would not seek another tax increase.

And in her weekly radio address, Granholm repeated that her budget would emphasize cuts, downsizing and streamlining.

She also took an optimistic tone, however, citing former President Franklin Roosevelt, and saying the state will survive and prosper through hard work and cooperative effort.

This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com

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