Citizens Research Council of Michigan President Eric Lupher says there’s always a strong constituency for cutting taxes, and for spending more on services such as schools, corrections, and health care. But he says there’s not a constituency for putting money into the “rainy day fund,” to prepare for the next economic downturn.
While no one can says for sure when the next recession will happen, eventually the economy will slow down. The Citizens Research Council recently prepared a report on how well the state has saved for tough economic times.
Michigan first established its “rainy day fund” in the 1970’s. Lupher says the idea was to put money aside, so that the state could balance its budget without raising taxes or cutting services during a recession. But the state suffered greatly between 2000 and 2010. First through the “single state recession” in the early part of the decade, then as one of the hardest hit states in the “Great Recession.” Lupher says the state spent the money in the “rainy day fund” quickly, and had no extra money stashed away when the “Great Recession” arrived.
The state has been putting money away since the economy started growing again, but Lupher says it would only get Michigan through a “mild recession.” He says the fund is at about $890-million. Lupher says that sounds like a lot of money, but not for a state with a 10-billion dollars general fund budget, and more than that in the school aid fund.
Lupher says the “rainy day fund” is designed to put money away when things are good, but limit withdrawals, so they only happen when state really needs it. The fund can only be 10% of what’s in the general and school aid fund. Lupher says right now it’s at 4%. The Citizens Research Council report says the state should consider making the cap a little bit higher, and then work to get to that. But Lupher acknowledges that could be difficult politically.
Historically, Lupher says the “rainy day fund” has helped the state during previous recessions. But he says the state has never put enough money aside to really make a difference. Lupher says during previous downturns, Michigan has used resources quickly so any savings don’t last long during a recession.
