DALLAS — Michigan’s rainy day fund wouldn't last long if there was another economic downturn, according to a report from the Citizens Research Council.

The not-for-profit public affairs research organization says Michigan's rainy day fund is slowly recovering after it was drained during the Great Recession, but the state is still unprepared for a new downturn.

“Even though a new recession does not seem imminent, it is a question of when, not if, the nation and the state will experience another economic downturn,” the CRC wrote in a November report.

A Michigan road sign.
Michigan's $890 million rainy day fund wouldn't last long in a recession, said a report by the Citizens Research Council. Adobe Stock

There is currently about $890 million in the fund and Gov. Rick Snyder's administration wants to see about a $1 billion by the end of the next fiscal year. When Snyder took office in 2011, the rainy day fund balance had been depleted to just $2 million.

The CRC says that won’t last long if a recession of any severity strikes.

“When the state uses rainy day fund revenues during downturns the balance has not lasted long,” the report said.

Eric Lupher, CRC's president, said that the state had done pretty well in stashing money away in the 1990s but the state emptied out nearly $1.3 billion in reserves over three years of downturn.

“This was the most money we’d ever had put away for that but then the single state recession came [in the early 2000s] our legislature spent that record amount of money in three years,” Lupher said. “And then it wasn’t available throughout the balance of single state recession and when Great Recession came during period of 2007 and 2009 we didn’t have any money stashed away.”

Lupher said that in the context of general fund expenditures and school aid fund costs, if the state were to have to solely rely of the rainy day fund the almost $900 million its currently has stashed away would only last ten days. “If it were a milder recession that might be sufficient but again when the nation gets a cold, Michigan gets a flu,” Lupher said.

The CRC published a report in August that 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 said it has accounted for the additional pressure on its general fund.

However the CRC report says it's challenging to set aside more money for savings during good economic times.

“In a booming economy, policymakers often are focused on other battles, whether it be tax reductions or funding new programs,” the report said. “This either-or proposition creates a zero-sum budget situation where saving money is left on the sideline.”

The report also said that saving money during periods of economic growth could lower economic productivity by taking money out of the economy to keep in the state’s bank account, and leaves fewer resources for programs that could use increased funding to set the state up for long-term success.

Michigan has contributed to the rainy day fund four out of the past five fiscal years, and it projects additional deposits over the next two years. In fiscal 2014, Michigan withdrew $194.8 million to provide aid for Detroit, but has since deposited $17.5 million annually to repay the 2014 withdrawal. It has budgeted for deposits for $75 million and $150 million in fiscal years 2017 and 2018, which would increase the rainy day fund balance to $886.2 million.

S&P Global Ratings revised the outlook on Michigan's AA-minus rating to positive from stable in September. The rating agency also affirmed the A-plus rating on the state’s appropriation-backed debt.

Moody’s Investors Service rates the GO bonds Aa1 and Fitch Rating affirmed its AA ratings on the bonds. Both assign stable outlooks.

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