Governor’s Budget Tackles Aspects of Structural Deficit, But Work Remains

 

Against a backdrop of nearly a decade-long economic slide, Governor Granholm released her eighth and final executive budget recommendation two weeks ago.

Her budget contains a number of proposals, some old and some new, to address a combined FY2011 General and School Aid Fund budget shortfall of $1.4 billion. Some of the recommendations endeavor to address aspects of the long-term structural deficits facing the two major budgets. Such solutions have been largely ignored over the past two fiscal years (FY2009 and FY2010) as policymakers have sought to deal with the dramatic fall-off in state revenues and escalating spending pressures arising from the "Great Recession".

The Citizens Research Council (CRC) of Michigan has released a paper, "The FY2011 Executive Budget: 'Déjà Vu All Over Again'", examining the Governor’s FY2011 executive budget, with special attention to those aspects intended to address the long-term structural imbalance plaguing the General and School Aid Fund budgets.

"Although a full economic recovery is not predicted during the next 24 months in Michigan," said CRC’s Craig Thiel, "an environment of declining job losses and a stabilization of state revenue reductions in 2010 and 2011 provides state officials with another opportunity to re-focus on the state’s long-term fiscal health."

The exhaustion of the temporary federal recovery funds used to support state spending in FY2009 and FY2010 and the revelation of the resultant "revenue cliff". in FY2011 will bring the state’s structural deficit problems into clearer focus. Absent any further extraordinary sources of fiscal relief, the Michigan legislature is now tasked with passing appropriations bills and associated legislation that reduce spending and/or raise taxes to achieve balance in the coming fiscal year.

CRC will continue to monitor the development of the state’s FY2011 spending plan and the extent to which long-term solutions are offered over the coming months. Although the state’s fiscal year does not begin until October 1, many sub-state entities that rely on state appropriations for funding have fiscal years that commence on July 1. Fiscal planning for these entities is extremely difficult when resolution of the state budget is delayed, as has been the case in two of the last three years.

Click here to read the CRC Analysis