CHICAGO — Michigan faces a $1.6 billion deficit next year as its federal stimulus funds run out, but the state could begin to see slight revenue growth by mid-2011, analysts said this week after releasing new estimates.
“The good news is that we’re forecasting the state’s economy will bottom out in 2011,” said Gary Olson, director of the independent Senate Fiscal Agency, which crafts revenue estimates jointly with the House Fiscal Agency. “The bad news is that the U.S. economy will probably start getting consistent job growth in the spring or the summer, but it will be at least another year before that happens in Michigan.”
The weakness of the U.S. automakers is holding down job growth, Olson added. “They’re not at the bottom yet, where they need to be,” he said. “They’re still downsizing.”
Gov. Jennifer Granholm will use the new revenue figures to craft the 2011 budget. She will present the proposed spending plan to the Legislature before Feb. 12, as required by state law. The state’s fiscal year begins Oct. 1.
Treasurer Robert Kleine said the 2011 budget was likely to be the most difficult in years, and analysts predicted that the legislative year would once again be dominated by a debate over whether to increase taxes.
Current estimates project that revenue for the state’s general fund and school aid fund — its two main accounts — will decline by 6.3% and 4.2%, respectively, this year.
“That’s better than the dismal performance in 2009, when general fund revenues were down 21.3% and school aid fund revenues down 5.1%,” said Olson, who will present the projections to the Senate Appropriations Committee today.
In 2011, analysts expect revenues to uptick slightly — about 1% in the general fund and 0.2% in the school aid fund.
“That’s better than we’ve seen in prior years, but certainly it’s nowhere near enough revenue to have a dent in the problem in 2011, which is the phase-down of federal stimulus money,” Olson said. “The general fund will see an almost $900 million drop in federal funds supporting permanent programs. That’s the majority of the so-called projected imbalance, plus no revenue growth.”
Michigan relied on $1.2 billion of stimulus funding to patch its current 2010 budget. The funding will dwindle to just $210 million in 2011 without a new infusion. Total general fund and school aid fund revenue is expected to total $17.35 billion in fiscal 2010 and $17.45 million in 2011.
Assuming no new revenue-raising measures and that the state freezes the amount of aid it provides to local governments, the budget will need to reconcile a $1.2 billion shortfall in the general fund and a $422 million shortfall in the school aid fund, according to revenue reports.
“The major question that will be facing the governor and the Legislature involving the [2011 general fund and school aid fund] budgets will likely involve the debate between additional significant reductions in appropriations to balance the budget or a lessening of these appropriation reductions to be offset by increases in state tax revenue,” Olson wrote in a memo sent to senators Monday.
“In many respects this was the same debate between the governor and the Legislature regarding the  budget. The outcome of this debate almost certainly will be the key policy decision made regarding the  state budget.”