School districts, universities and local governments that got more state money this year probably will have to give back some or all of that increase, Senate Fiscal Agency director Gary Olson said Thursday.
The director of the nonpartisan agency spoke to The Associated Press after listening to University of Michigan economists lay out their national economic forecast in Ann Arbor. The forecast for Michigan will be released Friday by the university.
With the school's economists saying the nation is in recession and no upturn is likely until mid-2009 or later, Olson said it's clear the state won't be getting as much tax revenue as predicted at the May revenue estimating conference.
He has been telling state senators to expect a $450 million to $900 million revenue shortfall in the current budget year, which started last month. He said some of the deficit will be covered by around $400 million carried over from the past fiscal year, and added that $650 million could come to Michigan from a stimulus package Congress is expected to pass after Barack Obama becomes president in January.
But Olson said the state can't rely on those one-time fixes and has to make cuts or raise taxes this year to avoid dealing with a "massive hole" in the fiscal 2010 budget, which starts Oct. 1.
"We may have to cut '09 to carry over a surplus to 2010 to be responsible," he said. Universities, community colleges, K-12 school districts, job training programs and local governments set to get higher state payments this year "should be worried."
Olson said the next budget year likely will be worse.
"We're going to have to make some pretty significant cuts if we don't have tax increases," he warned. "It's not going to be easy."
Michigan lawmakers last year raised the state income tax rate and placed a surcharge on business taxes in a bid to stop the recurrent revenue shortfalls caused by earlier tax cuts and the state's sluggish economy.
But the national recession could thrust the state back into an acrimonious battle over how to balance its budget this year as revenues shrink because of lost jobs and constricting consumer spending. Last year's action didn't come until after the state government shut down for several hours as lawmakers scrambled to reach an agreement.
Gov. Jennifer Granholm has said she expects to make cuts through executive orders by the end of the year, but was offering no specifics until her administration has time to weigh Friday's economic forecast.
"She'll be taking that information and sitting down with the budget director ... and his team, deciding on the best path to follow," Granholm spokeswoman Liz Boyd said Thursday.
The Democratic governor cut short a Mideast trade trip by a day so she could be in Washington, D.C., on Thursday to lobby Congress for a loan for to help struggling domestic automakers. Congress left without voting on a bailout, but could come back in early December to take up the issue again.