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What State Budget Cuts Are Looming? We’ll Have a Better Sense Friday

May 12, 2020

How deep is Michigan’s budget hole for the current fiscal year?

Answering that question will go a long way toward charting the road ahead for business and government alike.

Friday’s Consensus Revenue Estimating Conference in Lansing will provide one of the first substantive glimpses into the state’s fiscal outlook as the economy re-opens in phases, and will set the backdrop for budget negotiations amid historic unemployment.

This week, the Detroit Regional Chamber participated in calls with two legislators who will be front and center in the budgeting process: State. Sen. Jim Stamas (R-Midland) and State. Rep. Shane Hernandez (R-Port Huron) – who serve as Appropriation Committee Chairs for the Senate and House of Representatives, respectively.

Below are some key things to watch based on the conversations with the lawmakers:

How big is the budget shortfall for this fiscal year?

There’s been much speculation that the hole in this fiscal year ranges from $1 billion to $5 billion. While there is some recent optimism that the shortfall may not be as large as initially feared, we should expect the fiscal realities to be grim. Friday should provide the information needed to start making the budget cuts for this fiscal year and planning next year’s budget.

Will partisanship flare as budget talks heat up?

With partisanship ramping up around the re-opening of Michigan’s economy, one might expect that political brinkmanship to continue into budget negotiations. However, addressing this fiscal year’s budget will require some form of legislative sign off. So the administration and Legislature will have to work together at some point – something the legislators said is already occurring with the budget office – perhaps limiting the fireworks.

To what extent will the Rainy Day fund utilized?

There is little doubt Michigan’s Rainy Day Fund of nearly $1.2 billion will be used to help fill budget gaps this year and next. Expect that be debated as programs and services land on the chopping block and lawmakers haggle over how much should be spent. While $1.2 billion sounds large, it is not. Bridge Magazine reported in March that the State “blew through” much of a $1.26 billion Rainy Day Fund between 2000 and 2002, so the money goes fast. Current state statute, however limits spending from the fund to 25%, or about $300 million each fiscal year.

Will lawmakers have enough info to pass next year’s budget by July 1?

No matter the result of Friday’s conference, expect many questions to persist due to delays in tax collections. The state may be forced to pass a bare-bones budget covering large categories such as School Aid, local government, essential state functions, and Medicaid – with the Legislature opting to finalize the budget after the July 1 deadline as more precise information on revenues become available. The extent to which federal funds can be used to backfill budget gaps will play a key role moving forward, but more clarity is needed.

Will any business attraction funding survive?

At some point in the budget process, funds for economic development will be debated – and based on this week’s conversations, expect there to be little appetite for business attraction dollars. Given the fiscal realities, anticipate that any economic development funding that survives cuts to be earmarked for business retention.

The Consensus Revenue Estimating Conference will be broadcast live at 9 a.m. on Friday, May 15. Tune in via the internet at the following sites: