Economists delivered the expected bad news about Michigan's economy and state government finances Friday, and the outlook could get worse next year.
Legislative fiscal analysts and state Treasurer Bob Kleine agreed to lower their tax revenue estimates by $195 million, which means the state is facing a deficit of around $800 million in this year's budget when higher-than-expected spending on prisons, welfare and health care for the poor is factored in.
Because the state's fund for K-12 public schools is short $200 million, districts could see cuts of $116 per student June 1 unless Gov. Jennifer Granholm and lawmakers find a way to avoid them. Democrats say a tax increase is needed, while Republicans say this year's budget can be balanced without a tax hike.
Joan Crary with the University of Michigan estimated that domestic automakers' share of vehicles sold in the U.S. could drop below 50 percent for the first time in 2008.
"Hardly anything good for Michigan's economy can come from this," she said during a tax revenue-estimating meeting at the Capitol held by the House and Senate fiscal agencies and the Granholm administration.
Crary also said the state's average unemployment rate will be 7.5 percent in 2008, above an estimated 6.9 percent rate this year. Job losses are expected to continue through next year, but the rate of job losses should be lower than in recent years.
State economists gathered Friday morning to forecast tax revenues and gauge the Michigan economy. It had been expected that the deficit in the fiscal year that ends Sept. 30 would surpass $700 million.
Based on Granholm's proposed budget for next year, a shortfall of tax revenue could create another deficit of more than $1 billion.