DALLAS -- Michigan says it can withstand rising pressures on its general fund that a recent report warns will result in the loss of at least $2 billion by 2022.
The report from the Citizens Research Council, a 101-year-old not-for-profit public affairs research organization, projects that the state’s $10 billion general fund could see a decrease by more than $2 billion by 2022 on the back of tax cuts, increased road construction, past economic development incentives and other factors.
The state says its aware of the additional pressure on its general fund and has accounted for it.
“We do feel that Michigan remains in a strong financial position and we feel that our demonstrated commitment to paying down our long-term liabilities and our commitment to continuing to grow our reserves will be credit positive,” said state budget office spokesman Kurt Weiss.
Weiss said that the state’s budget is balanced and benefits from a rainy day fund projected to reach $886 million in the next fiscal year, up from just $2 million in 2011.
Michigan has a $56 billion total budget for fiscal 2018, which takes effect Oct. 1. The budget includes about includes $10 billion in appropriations from the state’s discretionary general fund. “That said, we are definitely monitoring the spending pressures that are placed upon the general fund in the out years and we are planning for them,” Weiss said.
The CRC's Aug. 1 report found that the general fund isn’t expected to grow over the next three years relative to inflation because of a few major revenue diversions, including some that have yet to take effect. The expenses include the cost of business tax credits, a personal property tax reimbursement, and additional highway funding. The expansion of Medicaid coverage through the Healthy Michigan Program will also eventually lead to a strain on the general fund budget.
The report warns the state’s future budget problems could worsen if the economy takes a downward turn.
“When viewed as a whole, the possibility of a decline in General Fund revenue, increase in costs to the system, and decline in federal funding approaches $5 billion, close to half of the current General Fund budget,” the CRC report stated. “Moving in to the next decade, the state has the potential to see a budget environment with a higher demand for funding with a lower level of funding relative to inflation.”
Moody’s Investors Service analyst Dan Seymour said the state has made a lot of progress since the last downturn. Moody's rates Michigan Aa1 with a stable outlook.
“In the current situation Michigan is in good shape,” said Seymour. “If and when costs go up we assume that the state will be able to absorb those costs into its general fund. But the state isn’t likely to grow out of these problems, it is probably something it will have to manage through good budget management and conservative fiscal practices.”