CHICAGO -MichiganGov. Jennifer Granholm yesterday unveiled a $44.8 billion fiscal 2009 budget that relies on refinancing a chunk of outstanding debt in order to generate new revenue in the economically struggling state.
Budget director Robert Emerson presented the all-funds budget yesterday to state lawmakers, who focused their questions on the borrowing and refinancing plans, while praising the budget's lack of new taxes or fees. The budget comes amid a deteriorating economy and after an acrimonious year among state leaders who eventually enacted a mix of tax increases and budget cuts to eliminate a $1.75 billion deficit.
"We enter 2009 in a stronger position than in recent memory after the difficult work of last year eliminated much of the structural deficit," said Emerson.
The budget, which is 2.9% higher than the 2008 budget, anticipates that general fund revenues will total $9.86 billion and that appropriations will total $9.85 billion - leaving a surplus of roughly $10 million at the end of fiscal 2009. For the school aid fund, the budget projects total revenues of $13.52 billion with total spending of $13.51 million. Most tax revenues are expected to remain flat or actually decline through 2009. The budget also proposes a $100 million infusion into the rainy day fund, the first deposit in five years.
The state would save roughly $160 million from refinancing up to $550 million in outstanding general obligation and tobacco bond debt. In addition, the state would sell $300 million in new-money bonds to finance the creation of 100 small schools, and the Department of Transportation would sell another $150 million in state trunk line bonds as part of a two-year, $1 billion road improvement and building construction program.
Granholm has proposed that the double-A-minus rated state refinance $400 million in outstanding general obligation bonds, a move that officials estimate would save the state $100 million through 2010. "The recent actions by the Federal Reserve Board reducing interest rates is giving us the ability to refinance our existing debt at lower rates," Emerson told lawmakers yesterday.
Treasurer Robert Kleine said the state would maintain current maturity schedules on its general obligation debt, but would push out payments by four years on $150 million of its tobacco bonds. That restructuring would also convert the existing taxable tobacco debt into tax-exempt debt and save $60 million that would act as a one-time expenditure to promote tourism and local businesses.
Despite a 0.45% income tax hike implemented by state legislators last year, Granholm's budget anticipates that income tax revenue would decline a bit - after refunds - by the end of fiscal 2009.
Income tax revenue earmarked for the general fund is expected to decline to $4.91 billion by the end of 2009 from $4.98 billion at the end of 2007. Income tax earmarked for the school aid fund is expected to increase slightly to $2.12 billion by the end of fiscal 2009, up from $2.10 billion in 2007.
Revenue from tobacco taxes is also expected to decline, dipping to $648.5 million by the end of fiscal 2009 from $662.5 million at the end of fiscal 2007.
But the budget projects significant revenue boosts stemming from increases in the Michigan business tax and the sales tax. By the end of fiscal 2009, the Michigan business tax is expected to bring in $729 million compared to $341 million in 2007, while sales tax revenue is expected to reach $4.78 billion from $4.75 billion at the end of 2007.
Early reactions to the budget from the Republican-controlled Senate hinted that they would like to change some of the spending plans.
"There are things that we like in this budget, like no new fees, no new taxes and putting money into the budget stabilization fund," said Republican Sen. Ron Jelinek, chairman of the Appropriations Committee. "But we still have some concerns with the bonding, and questions over refinancing that we'll be asking in the future."
Michigan last year suffered a round of downgrades due to its declining economy and one-time revenue shots - including selling new bonds to make debt service payments on outstanding debt - to shore up the 2007 budget.
"It's one of our weakest states, largely for economic reasons," said Moody's Investors Service analyst Ted Hampton. "We're waiting to see whether they can to continue to manage the difficult economic headwinds they face, including debt management as well as budgetary measures," he said, adding that the agency maintained a stable outlook on the state.
Fitch Ratings and Standard & Poor's maintain negative outlooks on the state. Michigan's fiscal year begins Oct. 1.q
CHICAGO -MichiganGov. Jennifer Granholm yesterday unveiled a $44.8 billion fiscal 2009 budget that relies on refinancing a chunk of outstanding debt in order to generate new revenue in the economically struggling state.
Budget director Robert Emerson presented the all-funds budget yesterday to state lawmakers, who focused their questions on the borrowing and refinancing plans, while praising the budget's lack of new taxes or fees. The budget comes amid a deteriorating economy and after an acrimonious year among state leaders who eventually enacted a mix of tax increases and budget cuts to eliminate a $1.75 billion deficit.
"We enter 2009 in a stronger position than in recent memory after the difficult work of last year eliminated much of the structural deficit," said Emerson.
The budget, which is 2.9% higher than the 2008 budget, anticipates that general fund revenues will total $9.86 billion and that appropriations will total $9.85 billion - leaving a surplus of roughly $10 million at the end of fiscal 2009. For the school aid fund, the budget projects total revenues of $13.52 billion with total spending of $13.51 million. Most tax revenues are expected to remain flat or actually decline through 2009. The budget also proposes a $100 million infusion into the rainy day fund, the first deposit in five years.
The state would save roughly $160 million from refinancing up to $550 million in outstanding general obligation and tobacco bond debt. In addition, the state would sell $300 million in new-money bonds to finance the creation of 100 small schools, and the Department of Transportation would sell another $150 million in state trunk line bonds as part of a two-year, $1 billion road improvement and building construction program.
Granholm has proposed that the double-A-minus rated state refinance $400 million in outstanding general obligation bonds, a move that officials estimate would save the state $100 million through 2010. "The recent actions by the Federal Reserve Board reducing interest rates is giving us the ability to refinance our existing debt at lower rates," Emerson told lawmakers yesterday. State treasurer Robert Kleine said the state would maintain current maturity schedules on its general obligation debt, but would push out payments by four years on $150 million of its tobacco bonds. That restructuring would also convert the existing taxable tobacco debt into tax-exempt debt and save $60 million that would act as a one-time expenditure to promote tourism and local businesses.
Despite a 0.45% income tax hike implemented by state legislators last year, Granholm's budget anticipates that income tax revenue would decline a bit - after refunds - by the end of fiscal 2009.
Income tax revenue earmarked for the general fund is expected to decline to $4.91 billion by the end of 2009 from $4.98 billion at the end of 2007. Income tax earmarked for the school aid fund is expected to increase slightly to $2.12 billion by the end of fiscal 2009, up from $2.10 billion in 2007.
Revenue from tobacco taxes is also expected to decline, dipping to $648.5 million by the end of fiscal 2009 from $662.5 million at the end of fiscal 2007.
But the budget projects significant revenue boosts stemming from increases in the Michigan business tax and the sales tax. By the end of fiscal 2009, the Michigan business tax is expected to bring in $729 million compared to $341 million in 2007, while sales tax revenue is expected to reach $4.78 billion from $4.75 billion at the end of 2007.
Early reactions to the budget from the Republican-controlled Senate hinted that they would like to change some of the spending plans.
"There are things that we like in this budget, like no new fees, no new taxes and putting money into the budget stabilization fund," said Republican Sen. Ron Jelinek, chairman of the Appropriations Committee. "But we still have some concerns with the bonding, and questions over refinancing that we'll be asking in the future."
Michigan last year suffered a round of downgrades due to its declining economy and one-time revenue shots - including selling new bonds to make debt service payments on outstanding debt - to shore up the 2007 budget.
"It's one of our weakest states, largely for economic reasons," said Moody's Investors Service analyst Ted Hampton. "We're waiting to see whether they can to continue to manage the difficult economic headwinds they face, including debt management as well as budgetary measures," he said, adding that the agency maintained a stable outlook on the state.
Fitch Ratings and Standard & Poor's maintain negative outlooks on the state. Michigan's fiscal year begins Oct. 1. q
