Senate Fiscal Agency predicts growing state deficit

The non-partisan Michigan Senate Fiscal Agency predicts in a new memo (PDF) that Michigan’s General Fund deficit will continue to grow in Fiscal Year 2009/2010 despite starting with nearly $200 million in leftover federal aid from 2009. The memo says:

A comparison of estimated revenue and the Governor’s appropriation recommendations leads to a projected $1.8 billion imbalance. This estimate does not assume any change in tax or fee policy from current law and does not factor in the potential use of any available Federal ARRA funds…

The Governor’s budget submitted to the Legislature in February 2009 did include a recommendation for $166.4 million of increased GF/GP revenue through the enactment of several proposed tax and fee increases. These proposals have yet to be considered by either the House of Representatives or the Senate. The Senate recently passed FY 2009-10 appropriation bills that reduced the level of GF/GP appropriations recommended by the Governor by approximately $900.0 million. A total of $1.2 billion of Federal ARRA funding is available that could be utilized to reduce the projected budget deficit. This includes $199.6 million of ARRA funds not utilized in FY 2008-09. The projected $1.8 billion FY 2009-10 GF/GP budget imbalance likely will be eliminated by utilizing a combination of reductions to the level of appropriations recommended by the Governor, tax and fee increases, and the use of available Federal ARRA funds.

In addition to the deficit in the General Fund, the SFA also predicts a shortfall in the School Aid Fund of nearly $1 billion:

The Governor’s budget submitted to the Legislature in February 2009 did include a recommendation for $65.2 million of increased SAF revenue through the enactment of several proposed tax and fee increases. These proposals have yet to be considered by either the House of Representatives or the Senate. The Senate recently passed a FY 2009-10 SAF appropriation bill that reduced the level of SAF appropriations recommended by the Governor by $412.7 million. This level of appropriation reductions, combined with the amount of Federal ARRA funds available, will provide for stable funding for K-12 school districts in FY 2009-10 and FY 2010-11, after the $412.7 million of appropriation reductions are factored in. The total amount of Federal ARRA funding available to support the K-12 SAF budget is $805.1 million. This includes $171.0 million of surplus ARRA funds from FY 2008-09 and $634.1 million available in FY 2009-10. Negotiations are currently underway between the Governor and Legislative Leadership regarding the proposed solutions to eliminate the FY 2009-10 SAF budget deficit.

The memo also warns that the federal funds being used to cover the fiscal imbalances in both funds are one-time appropriations that will not be available in FY 2010/2011. The SFA urges the governor and the legislature to “carefully balance the use of these one-time funds to support ongoing appropriations. Failure to take this into account will almost certainly lead to large imbalances in the FY 2010-11 State budget.”