The much-anticipated Consensus Revenue Estimating Conference forecast released last Friday shed light on the Fiscal Year 2009 and 2010 budget outlooks for the State of Michigan. Meanwhile, the basic financial condition of the State shows a weakened cash position in the face of Michigan's ongoing structural deficit. This is the principal conclusion of a new analysis of the State budget by the Citizens Research Council of Michigan.

The report, Michigan's Weakened Financial Position and the Problem of Dual Deficits, notes that Michigan is ill-prepared to deal with the current cyclical problems associated with the national economic recession because it has failed to deal with the underlying structural deficits that have existed since FY2000. At the end of FY2000 the State had amassed over $3.9 billion in major fund cash reserves to deal with the 2001 recession. Today it faces a cash deficit of approximately $400 million that it must finance by means of both internal and external borrowing.

The report notes that Michigan is ill-prepared to deal with the current cyclical problems associated with the national economic downturn recession because it has failed to deal with the underlying structural deficits that haves existed since FY2000. At the end of FY2000 the State had amassed over $3.9 billion in major fund cash reserves to deal with the 2001 recession. Today it faces a cash deficit of approximately $400 million that it must finance by means of both internal and external borrowing.

"Policy makers must take care to adopt policies that will not deal with the cyclical deficit at the cost of worsening the structural deficit," said Craig Thiel, CRC Director of State Affairs. "The approaches that have been used for much of this decade will no longer work. Tactics aimed at achieving only short-term balance in FY09 will simply compound the problem for future years."

The report may be accessed on the CRC website.

To read more specific implications for schools, read MASA’s January 9 Legislative Update.

The Citizens Research Council of Michigan is a private, nonprofit public affairs research organization, founded in 1916 to analyze issues pertaining to state and local government organization and finance in Michigan.