Michigan Has Projected $1.85 Billion Deficit

By: Associated Press
By: Associated Press

LANSING, Mich. (AP) -- Gov.-elect Rick Snyder and the new Michigan Legislature won't get an official estimate of the state's budget problems until mid-January, but after a recent report warned of a nearly $2 billion shortfall, they're not expecting good news.
State fiscal analysts are scheduled to meet Jan. 14 to build a consensus budget forecast. One of the estimates they'll use pegged the possible gap between available revenue and projected spending levels at about $1.85 billion for the fiscal year that begins in October 2011. The estimate was released last week in a 41-page report from the nonpartisan Senate Fiscal agency.
The House Fiscal Agency will release its projections closer to the revenue estimating conference. The agency will project a shortfall based on factors including the economy, the expiration of temporary financial assistance from the federal government and tax policy changes.
"There's no doubt in anybody's mind we've got a problem," Mitch Bean, director of the House Fiscal Agency, said Tuesday.
Snyder, a Republican, takes office Saturday in place of term-limited Democratic Gov. Jennifer Granholm. The new, Republican-led Legislature is expected to begin session in mid-January, and Michigan's budget problems will dominate their early meetings.
Michigan's current overall budget is more than $46 billion, including federal funds and all other sources. Most of the spending debate in Lansing focuses on the state's $13 billion school aid fund and its roughly $8 billion general fund, which helps pay for a variety of state departments and services including prisons, health care, welfare and universities.
The school aid fund does not appear in danger of falling short on revenue this year or next year, at least based on the Senate Fiscal Agency projection. No further general fund deficits are expected for the state's current fiscal year, meaning Snyder and lawmakers may not have to immediately cut spending to balance the budget.
But holes are expected in the 2011-12 budget that starts Oct. 1.
More than $1 billion in temporary help from the federal government and other one-time sources is expected to expire. The state's income tax rate is scheduled to drop from 4.35 percent to 4.25 percent, which could lower state revenue by more than $160 million. The rate drop was included in the legislation that increased the state's income tax rate in 2007.
The pressure to increase spending in some areas of state government -- including for Medicaid, human services caseloads and possibly prisons -- is expected to continue into the next fiscal year.

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