DALLAS — Additional spending being proposed for Flint, Detroit schools, and transportation could end up devouring the revenue growth Michigan expected in its fiscal 2017 budget, according to Moody's Investors Service.
"Taken together, these three areas will absorb much of the revenue growth propelled by the state's economic improvements, and the list of costs related to Flint will likely continue to grow," Moody's said in a special commentary published Wednesday.
Gov. Rick Snyder asked lawmakers to consider a total budget of $54.9 billion, up 0.8% from the current budget. It includes a $10.2 billion general fund, up 1.5 % from last year. The fiscal year begins Oct. 1.
The governor is asking lawmakers for an additional $195 million to help restore safe drinking water to Flint. The funding would come on top of $37 million already approved from a supplemental budget action, bringing total state funding for Flint to $232 million. By comparison, the state only contributed $195 million to the resolution of Detroit's Chapter 9 bankruptcy.
Moody's is concerned that the Flint spending will grow over the next few years because the state has indicated that it plans to tackle the situation head-on. "If this budget is enacted the state will have already contributed more to Flint [population: 100,000] than it did in the bankruptcy of Detroit [population: 690,000]," analysts wrote.
Snyder's 2017 budget recommendation also proposes $591 million of additional transportation spending although only $10.4 million would come from the general fund.
The budget also lays out an action plan that would apply $72 million in annual tobacco settlement proceeds to pay down Detroit Public Schools' operating debt, and fund startup costs for a new district.
Snyder wants lawmakers to prioritize the restructuring of the struggling school district, which could run out of money by this summer.
Michigan has over the past decade experienced both economic and fiscal improvements. Unemployment, for example, dropped to below the US rate in September after climbing to more than 4 percentage points above the US rate in 2009. The state's rainy day fund, which was essentially unfunded in 2011, has grown to more than $610 million today, helping win an upgrade from Moody's last year.
The state's consensus revenue estimate reflects incremental operating fund tax revenue growth of about 3.3%, or $725 million, but most of it would be allocated to incremental spending increases in Flint, DPS and transportation.