CHICAGO — Michigan Gov. Rick Snyder Thursday unveiled a $48.2 billion fiscal 2013 budget that he said reflects the state’s improving fiscal position, boosting spending for education and roads and making a deposit into the state’s anemic rainy-day fund.
The spending plan includes no tax changes.
Unlike last year when Snyder needed to eliminate a $1.5 billion budget shortfall, Michigan is now enjoying economic growth. Revenues are projected to increase by $630 million over last May’s expectations and the government ended fiscal 2011 with a $457 million surplus.
“We’re clearly on the path to success,” Snyder told legislators in a presentation with budget director John Nixon and Lieut. Gov. Brian Calley. “This is an exciting budget because it shows how far we have come and how much progress we’re making.”
Snyder said Michigan continues to face challenges, including potential fallout from the federal deficit and financially challenged local governments across the state that will continue to suffer from property tax declines for at least the next few years.
Lawmakers will use the proposal as a starting point for debate before adopting a budget plan over the next few months. Michigan’s fiscal year begins Oct. 1, but one of Snyder’s goals has been early passage of the budget. Last year, the Legislature approved a final plan — which largely adhered to Snyder’s proposal — in late May, marking the earliest finish in three decades.
The $48.2 billion spending plan marks a $2.3 billion increase over the current budget. The general fund totals $8.6 billion, up 3.1% from the current year.
If enacted as proposed, the budget would leave a small surplus for the 2014 budget, Snyder said. In addition to providing a deposit into the rainy-day reserve, the budget proposal also fully funds the actuarially required contributions for both pensions and other post-employment benefits.
Most of the spending increases are tied to incentives. Schools that want to qualify for part of the roughly 3% spending increase need to meet certain testing standards, and colleges and universities that want a piece of the 3% spending increase need to hold down tuition hikes to 4% or less and raise their graduation rate. Community colleges are also in line for a 3% raise, but the money is tied to the number of degrees earned in certain fields, Snyder said.
The budget also hikes aid to local governments, though it remains significantly down from previous levels due to a major change to the formula enacted with the current-year budget. Constitutional revenue will rise 2%, while a $126 million incentive-based program will replace the statutory revenue sharing program that was eliminated as part of the current budget.
The budget includes $119 million in general fund dollars for transportation, which the Republican governor said is the largest ever general fund commitment for transportation. The additional dollars are aimed at ensuring that Michigan will have matching funds to secure federal grants.
On the bonding side, the budget sets aside debt-service dollars to finance about $125 million in borrowing for water and sewer projects. Higher-education capital funding is confined to 18 projects already approved by the Legislature.
The proposed budget would set aside $130 million in the rainy-day fund, the second consecutive year the state has set aside money in the fund. Michigan’s once-flush reserve held $1.3 billion in 2000, Snyder reminded lawmakers.
“Well, the rain came,” he said, noting that it dwindled down to $2 million for several years before the $255 million deposit last year. “We have a ways to go.”
Snyder touted the rainy-day fund as an important part of the budget proposal and urged legislators not to ignore it. “The reasons to have the fund, it’s clearly for economic downturns, and hopefully we’re on a path to avoid that, although we still have challenges,” he said.
Snyder said he is hoping for an upgrade from rating agencies. The governor and Nixon met with agencies last month, and analysts from Moody’s Investors Service and Standard & Poor’s recently toured the North American Auto Show in Detroit, Snyder said.
“We’ve had good meetings,” he said. “By following this path of the great budget last year and this year, I believe we’re going to see a positive response from the rating agencies.”
Moody’s rates Michigan Aa2. S&P rates it AA and Fitch Ratings rates it AA-minus with a positive outlook.
