DALLAS-- Michigan Gov. Rick Snyder's administration and lawmakers will work in the coming weeks to trim $333 million from the 2016 and 2017 budget plans due to a downward revision of revenues expected in the current biennium.
The administration said it would work with lawmakers to make cuts in a number of areas and expects to have a revised budget plan in place by early June.
"We are continuing to work with the Legislature on supporting Flint as the city recovers from the water crisis, and on improving Detroit Public Schools," said Snyder spokeswoman Anna Heaton. "The Legislature has been incredibly supportive and flexible as we've worked together to address challenges, and because the state is on solid financial footing we will be able to continue those efforts without any spending cuts."
The revenue shortfalls was announced Tuesday as the state's formal revenue estimating conference released revised projections. Lower-than-expected growth in sales tax revenues due to lower gasoline prices and a longer-term shift to the purchase of non-taxable goods and services as well as poorer-than-expected corporate income taxes triggered the downward revisions in revenue estimates, according to Michigan State Treasurer Nick Khouri.
The projections for the current fiscal 2016 budget, the fiscal 2017 budget that would take effect Oct. 1 as well as fiscal 2018 were agreed to by Khouri, Senate Fiscal Agency director Ellen Jeffries, and House Fiscal Agency director Mary Ann Cleary.
In 2016, the combined shortfall for the General Fund and School Aid budgets was set at $174 million, which brings the combined General Fund and School Aid budgets to $21.8 billion. In 2017, the shortfall is $159 million. Those two gaps pose a more immediate challenge while a deficit in 2018 of $70 million can be tackled later.
"The good news is that Michigan's economy continues to improve. As a result of falling unemployment, Michigan's income tax revenue has been revised up over $200 million this year," said Khouri. "Unfortunately, sales tax revenues are projected to come in below original estimates."
Michigan Rep. Al Pscholka, R-Stevensville, suggested the state could save $180 million by cutting the auto insurance credit and other programmatic increases in spending currently in the budget. The House budget plan has already trimmed spending by $120 million from Snyder's initial budget proposal.
"I would like to see us protect K-12 spending, protect revenue sharing and some other priorities … but everything else should be on the table," said Pscholka. "I think that if we clean up our auto insurance tax credit and a couple of other small changes, we'll have a balanced budget."
Additional Flint funding proposed by Snyder includes $37 million for safe drinking water, $15 million for food and nutrition, $63 million for physical, social and education well-being, $30 million for water bill relief and $50 million toward a reserve fund.
The state has already passed $67 million in supplemental appropriations to help Flint.
Rescuing Detroit Public Schools could come at a cost of as much as $712 million but the final tab remains up in the air as lawmakers in both the Senate and House work to resolve differences between their respective legislation.
In March, S&P Global Ratings lowered its outlook on the state's general obligation bonds and appropriation-backed debt to stable from positive. S&P said that rising costs tied to Flint and DPS limited Michigan's ability to build reserves over the next two fiscal years.
Moody's Investors Service has also expressed concern over the state's spending. In February, it said that additional spending being proposed for Flint, Detroit schools, and transportation could end up devouring the revenue growth Michigan expected in its fiscal 2017 budget
Michigan has over the past decade experienced both economic and fiscal improvements. Unemployment, for example, dropped to below the U.S. rate in September and the state's rainy day fund has grown to more than $610 million today, helping win an upgrade from Moody's last year. Snyder did not propose adding to the surplus in fiscal 2017.
