Few options to filling state budget hole

The state’s top bean counters are getting together in a couple of weeks to figure out how big of a hole Michigan’s government is in.

Early indications are it’s deep. And that’s likely going to mean a lot of midyear budget cuts.

The numbers coming out of the May 15 revenue setting meeting will lean heavily on projections from the University of Michigan, which predicted a $2.6 billion drop in state revenue.

That’s a lot of money. Michigan’s entire state budget is $59 billion. Only $10 billion of it is discretionary General Fund spending. The rest is either federal money or specific fees and taxes that go to specific things.

To make matters worse, we’ve only got five months remaining in Fiscal Year (FY) 2020, so a lot of money has already been spent.

“The legislature and executive office will have a slightly greater challenge in addressing the state’s budget problems because Michigan came into this crisis under-prepared,” said Jordan Newton, of the Citizens Research Council of Michigan during a CRC/MIRS webinar.

Michigan has become too reliant on federal money for the last 20 years, which ties state government’s hands on how it spends its money, Newton said. A study by Moody’s Analytics found Michigan didn’t have enough holed away to make through a moderate recession.

What we’re going to experience is going to be much more than that.

Higher taxes — at this point — likely isn’t an option for the Republican Legislature. That doesn’t leave a lot of options, but here’s Michigan’s best two:

— The rainy-day Budget Stabilization Fund has $1 billion in it. Legislators aren’t going to drain the whole thing, but they’ll likely use a good chunk of it.

—Federal money. During the Great Recession, Michigan used federal stimulus dollars to make the cuts in state government less awful than they would have been otherwise.

According to the House Fiscal Agency, at least $5.6 billion is coming to Michigan, but a lot of that money won’t flow through state government, such as the direct payments to individuals, the expanded unemployment benefits and Small Business loans.

Michigan and other states will either need a more federal money or the strings attached to whatever federal money we do get will need to be loosened.

Maybe Michigan being a swing state that President Donald Trump probably needs to have to win the White House will come in handy.

Otherwise, the options don’t look great. The free market-based Mackinac Center for Public Policy came out with its options last week. They were pretty ugly. Take a look at the big dollar savers:

— Eliminating non-constitutional revenue sharing for cities, villages, townships and counties: $490 million. With Lansing and other cities gasping for air, this isn’t going to go over well.

  —Setting state university money at $5,000 per in-state pupil: $412.6 million. Say hello to higher tuition costs.

— Suspend the final three months of funding to the state’s Great Start Readiness program since most, if not all, of the local programming is getting shut down for the rest of the academic year: $68 million. The only problem is next year’s budget doesn’t look great either so this could be on the shelf a while.

— End any General Fund money to the Department of Licensing and Regulatory Affairs. Instead, let all licensed industry pay the fees that cover the cost to regulate them: $124 million. This would entail the Republican legislator to suck up a vote on higher fees. Good luck.

—Ending economic incentives like the Michigan Business Development and Community Revitalization programs: $95.8 million. The Mackinac Center has always had a problem with these programs, which allow Michigan to compete with jobs — which one could argue we’re going to need a lot of soon.

Permanently reducing state staff levels. This comes off Gov. Gretchen Whitmer’s 10-day layoff of non-essential staff. The Mackinac Center claims if more programming can be cut, $18.3 million could be saved.

Senate Majority Leader Mike Shirkey has ordered the budget subcommittee chairman to draft a proposal that could slice 10%, 20% or 30% from their respective budgets.

“There are no line items, no projects, no budgets, and no persons that’s immune from this analysis,” Shirkey said.

For a state that’s been living on a shoestring budget during good economic times, these options aren’t going to look great.

With the price of gas at $1.50 a gallon, maybe Gov. Gretchen Whitmer’s 45-cent-a-gallon hike on gas doesn’t look so bad after all.

(Kyle Melinn, of the Capitol newsletter MIRS, is at melinnky@gmail.com.)