LANSING (AP) – When the state’s three budget experts meet tomorrow to estimate how much tax revenue the state can expect, they won’t be giving lawmakers a blueprint for how much they can spend but rather how much they’ll have to cut.
State Treasurer Jay Rising, Senate Fiscal Agency Director Gary Olson and House Fiscal Agency Director Mitchell Bean already know tax revenues aren’t going to be enough to support the current level of state spending.
Their joint estimate tomorrow on expected state revenues will pave the way for lawmakers and Gov. Jennifer Granholm to decide just how many programs will have to be slashed in the year ahead.
The state could face a deficit as high as $2 billion in the fiscal year that starts Oct. 1, which could require cuts of more than 15 percent.
The nonpartisan Senate Fiscal Agency expects the state will have slight shortfalls even in its current $8.9 billion general fund and $12.7 billion school aid fund, despite cuts made by lawmakers last month.
“It’s likely the worst in the 25 years I’ve been here, primarily because the state has already made some pretty significant cuts in the general fund budget in the last two years,” Olson said Friday, referring to an 8.5 percent slash in spending.
“That’s why this is a different period than the early ’80s or the early ’90s.”
The state’s rainy day fund will be drained by September and there’s little left in specialized funds the state has been able to dip into in recent years. An income tax cut that took effect Jan. 1 will trim $200 million from state revenues this calendar year.
The state also is facing about $100 million less from the federal government to cover the rising cost of Medicaid, which provides health insurance for 1.2 million low-income people and takes up 25 percent of the general fund budget, Bean said.
Olson said President Bush’s tax proposals, if enacted, could cost the state up to $200 million in the coming budget year, although there may be some offsetting increases if they spur the economy.
Meanwhile, state expenses are expected to rise as state employees get a raise, state pension costs go up, $110 million more in debt service is added and prison costs increase.
A large part of the bleak revenue picture has been the state income tax, which brought in $4.8 billion in fiscal 2001 but is expected to bring in only $4 billion this current fiscal year, according to Olson.
A 0.1 percent annual cut in the income tax rate each of the past three years is responsible for part of the drop. But so is the slumping stock market, which has given investors little or no capital gains in recent years on which to pay taxes.
It’s a trend that has put the state ever deeper in the hole. But Michigan faces not just the effects of tax cuts and a slumping economy but the need to realign its spending, which has continued to go up faster than its base revenues.
“The need still exists for the state to adopt a strategic approach to bringing base revenues and spending back into balance,” the nonpartisan Citizens Research Council of Michigan said in a 2002 report.
Bean estimates there will be about a 2 percent increase in the amount of money Michigan will take in between the current budget year and the one coming up.
But “it certainly doesn’t come anywhere close to covering spending at existing levels. … Some people may have hoped we’d grow enough to get out of it,” but that isn’t going to happen, he added.
Robert Kleine, an East Lansing-based consultant and former state economist, said he thinks the revenue estimators have a better chance of being on target this year.
“A lot of the economic indicators are looking a little better. The stock market is more stable,” he said. “The one thing that still looks weak is employment. … (But) I don’t think there’s any danger that we’re going to go into a recession again.”