CHICAGO - Expectations of nearly $1 billion in new revenue for rebounding Michigan would not be enough to offset budget shortfalls if the Legislature and Gov. Rick Snyder rely on general fund dollars to finance road repairs, according to a new report.
The report from the independent public affairs research organization Citizens Research Council of Michigan comes as lawmakers try to hammer out a final plan to raise at least $1.2 billion in new revenue for badly needed road repairs. The Legislature has been unable to reach final agreement, but both chambers this summer passed plans that rely on at least $600 million in annual general fund revenue. The rest of the money would come from motor fuel tax increases and registration fee increases.
The CRC report examines the long-term impact of diverting that chunk of money out of the general fund in light of other spending pressures facing the general fund through 2019.
"It really precipitates a pretty serious budget crunch in Michigan over the next three year period," said Bob Schneider, the CRC's director of state affairs and author of the report.
With a decade-long recession now in the rear window, Michigan has enjoyed revenue growth over the last few years, with forecasts predicting $1 billion in new revenue coming in over the next few years.
Rising employment, a growing rain-day fund and balanced budgets prompted Moody's Investors Service to upgrade the state To Aa1 from Aa2 in July and Standard & Poor's to revise the outlook on its AA-minus rating to positive from stable.
"A lot of folks have been encouraged by that $1 billion in new revenue, saying, 'We can take that money for roads,' but no one has tried to count up the spending pressures," Schneider said. The central spending pressures are Medicaid expansion under the Affordable Care Act, which requires states to start to pick up a growing share of the expansion costs starting next year, and employee retirement costs, Schneider said.
Diverting $600 million from the general fund would mean a $177 million shortfall in the current fiscal year. The shortfall would climb to $480 million in fiscal 2017, accounting for 5% of the general fund, according to the CRC. The shortfall would decline to $344 million in fiscal 2018 and $125 million 2019.
"We'd go through a really hard crunch right away but even three years down the road, we're still below the base line," Schneider said.
Relying heavily on the general fund for roads could also imperil Snyder's push to rebuild the state's rainy-day fund, a key factor in recent ratings upgrades. "It is important to note that every budgetary decision involves tradeoffs, and the eventual solution to the state's road funding troubles will as well," the CRC report concludes. "Motor fuel and registration tax increases will redirect disposable income of Michigan citizens to the roads. Likewise, redirecting existing [general fund/general purpose] revenues for road use will require reductions in other areas of the state budget. Lawmakers - and the public at large - should be cognizant of those tradeoffs as any road funding plan is finalized."