The Citizens Research Council of Michigan projects that Michigan's budget challenge will continue to grow through Fiscal Year 2017 (FY17) because virtually every area of the State budget faces spending pressure increases that outpace projected revenue growth. This "structural deficit" will persist even as the economy improves.

Growing "gaps" between Projected Revenues and Spending Pressures
Provisions in the Michigan Constitution require the Governor and Legislature to take annual actions to keep current spending in line with current revenues. The CRC projections in Michigan's Fiscal Future quantify that absent those requirements and without substantial policy changes, structural deficits in Michigan's General Fund, K-12 education finances, and highway finances—by FY17—would grow to:

• $6.0 billion in the state General Fund
• $3.6 billion in K-12 education finances
• $417 million in the state highway program

Access the 8-page summary of Michigan's Fiscal Future

Access the full Michigan's Fiscal Future report (152 pages)

About the report
Using a well-established regional economic forecasting model, CRC and the W.E. Upjohn Institute collaborated on an analysis of Michigan 's future state budget challenges from FY09 through FY17. The analysis is based on a series of assumptions about the performance of Michigan 's economy between 2007 and 2017. This new analysis covers budgets supported by three major state funds: General Fund (GF), School Aid Fund (SAF), and the Michigan Transportation Fund. Major changes in the State's tax structure made in 2007 that will affect future State revenues have been factored into this analysis as have two series of tax cuts required by state law for FY09 and beyond.

Policy Implications
Although Michigan has met the legal requirement that it have a balanced budget (i.e., available revenues equal to or greater than spending) each fiscal year, since FY01 it has done so through the use of reserves and other non-recurring resources and actions designed to minimize spending cuts. As a result, the more fundamental issue of matching current State revenues to current spending pressures remains largely unaddressed. The projection quantifies the extent to which current fiscal policies must be modified. To do that, combinations of spending and revenue policy changes will be needed to force the rates of growth in both sides of the budget to approximate one another.

The Picture by Major Funding Source:

1. General Fund (GF) — General Fund revenue is projected to grow on average at 1.4 percent per year, from $10.0 billion in FY 09 to $11.1 billion in FY17. GF spending pressures, however, are projected to grow 6.8 percent annually which will expand GF expenditures from $10.1 billion in FY09 to $17.1 billion in FY17. As a result, the projected annual gap in the State General Fund will grow from $100 million in FY 09 to $6 billion in FY17. Spending pressures in two areas stand out as major causes of the GF structural deficit: Corrections and health care. Both areas are projected to grow at more than five times the rate of increase in revenues unless policies are implemented that substantially reduce their rates of growth.
2. K-12 Education Finances — On-going resources (state, local, and federal) available to finance K-12 education programs are projected to grow at a rate of about 3.0 percent per year, from $18.1 billion in FY09 to $23.0 billion in FY17. Spending pressures, however, are projected to grow 4.7 percent annually, which will expand expenditures from $18.4 billion in FY09 to $26.6 billion in FY17. As a result, the projected annual gap in K-12 finances will grow from $350 million in FY09 to $3.6 billion in FY17. The K-12 education finance gap is largely attributable to spending pressures for health care for both current and retired school employees. Health care costs for active employees are projected to grow at an annual rate of 9.3 percent and health care costs for retired employees are projected to grow at an annual rate of 11.9 percent.
3. State Highway Finances — On-going resources (state and federal) available for the state highway program are projected to grow at a rate of about 3.5 percent per year, from $1.6 billion in FY09 to $2.1 billion in FY17. Spending pressures, however, are projected to grow at a rate of 5.6 percent per year, which will expand expenditures from $1.6 billion in FY09 to $2.5 billion in FY17. As a result, between FY09 and FY17, the annual gap will grow to $412 million. The figures above, however, do not include costs associated with unmet highway construction, repair or replacement needs from earlier periods. Adding those costs would dramatically increase the projected spread between spending and revenues.