Citizens Research Council of Michigan President Eric Lupher says a 20% reduction in a budget of $10-billion can sound kind of abstract. But he says it helps to think about what that money is spent on in Michigan.
The public policy group has released a new report on the state budget projecting that Michigan will face tough decisions in coming years because it will have at least $2-billion less in its general fund. But the CRC says that number could be as high as $5-billion by Fiscal Year 2022. Lupher says the state could raise taxes to make up that shortfall. Otherwise, he says cuts will be needed in areas like Medicaid, Corrections, Higher Education and Revenue Sharing for local units of government.
Lupher says several factors contribute to the looming problems. He says Michigan has a $56-billion total budget, but much of that is set aside for things like schools and roads. He says that leaves $10-billion in the general fund to pay for many things. The Citizens Research Council report says the claiming of business tax credits, a personal property tax reimbursement, additional highway funding and expansion of Medicaid coverage through the Healthy Michigan Program will lead to a strain on the general fund budget. Lupher says there was an assumption that other tax revenue would increase, but he says economic growth didn’t reach those levels.
The Citizen Research Council warns the state’s future budget problems would be made worse by an economic downturn. Lupher says the question is not if, but when is there going to be a slowdown. He says eight years is a long time historically between recessions. Lupher says Governor Rick Snyder and state lawmakers deserve credit for building up some money in a rainy day fund to prepare for a downturn. But he says historically that money gets used quickly.
Lupher says 10 years ago during the great recession, Michigan policy makers were told that the state faced a cyclical and structural budget problem. He says cyclical problems get solved when the economy improves. Lupher says some of the structural problems were addressed, but he says new spending and tax exemptions are creating new structural problems in the state budget. “We seem to be repeating the mistakes that we went through a decade ago.”