1 michigan’s fy2004 executive budget march 2003 citizens research council of michigan march 2003...
TRANSCRIPT
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Michigan’s FY2004 Executive Budget
Michigan’s FY2004 Executive Budget
March 2003
Citizens Research Council of Michiganwww.crcmich.org
March 2003
Citizens Research Council of Michiganwww.crcmich.org
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The National Situation
• States face Worst Budget Crisis Since World War II
• State Revenue Structures Are Mismatched With Spending Responsibilities
• Spending Growth Outpacing Revenue Increases
• Medicaid a Nationwide Budget Problem for the States
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The FY2003 Michigan Budget
• Total State Budget — $39 Billion• State’s Two Major Funds are Affected• General Fund — $8.8 Billion • School Aid Fund — $11.5 Billion
• Other State Funds are restricted for other purposes and generally cannot be used for General and School Aid Fund Problem
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The General Fund
Structural Problem
$5,000.0
$6,000.0
$7,000.0
$8,000.0
$9,000.0
$10,000.0
$11,000.0
FY 98 FY 00 FY 02 FY 04 FY 06
Mill
ion
s
Revenues
Expenditures
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School Aid Revenues and Spending Gaps(in Millions)
$8,000
$9,000
$10,000
$11,000
$12,000
1997 1998 1999 2000 2001 2002 2003 2004
Base Revenues Non-Federal Spending
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Causes
• Weak Economy• Stock Market Decline—Capital
Gains Dropped Significantly• Tax Cuts Eroding the Revenue
Base• Failure to Implement Permanent
Budget Balancing Actions
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The Tax Rate Cuts
• Single Business Tax — 26% of General Fund Revenue
• Individual Income Tax Cut — 8% of General Fund Revenue
• Implication: State Could Afford to Finance Existing Programs With A Third Less Revenue
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Michigan May Have Done Most of Any State to Damage Itself
• Failed to Act Timely
• Used $4.5 Billion of Reserves and One-time Actions
• Tax Cuts Continued During Recession
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Summary of One-time Resources (in Millions)
• Rainy Day Fund $1,264 • FY2000 School Aid Fund Surplus 984 • FY2000 General Fund Surplus 212• Medicaid Benefits Trust Fund 561• Advance State Education Tax Collection Date 474• Bond for Pay-as you-go Capital Projects 211• Tobacco Settlement Revenues 259• Employment Contingent Fund 90• Sale of Properties 72• Executive Order 2002-22 204• Other 168
– Total $4,499
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Tax Rate Cuts
• Rate Reductions in Single Business Tax and Personal Income Tax:
• FY2001 $664 Million• FY2002 $864 Million• FY2003 $1,059 Million
– Three Year Total: $2,577 Million• Incremental Effects of Other Cuts $854 Million
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Current Status—FY2003
• Economy not Improving Yet
• Executive Order 2002-22—General Fund Cut $460 Million in December
• Executive Order 2003-3—General Fund Cut $158 Million in February
• School Aid Cut $127 Million
• Revenues Up Slightly in February
• Risk Still Downside
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School Aid — FY2003
• Reductions this Fiscal Year
• Revenues $127 Million Short
• Pro-rata Reductions
• Legislative Efforts to Develop Alternative Stalled
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($1,600)
($1,400)
($1,200)
($1,000)
($800)
($600)
($400)
($200)
$0
$200
$400
$600
($ in
Mill
ion
s)
FY00 FY01 FY02 FY03 FY04
School Aid Fund
General Fund
General Fund & School Aid FundOperating Gaps
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School Aid — FY2004
• Appropriations Already Made for FY2004—No Increase from FY2003 Appropriations
• Revenues $366 Million Short—3%
• Revenue Growth Insufficient to Offset Loss of One-time Revenues
• Downside Risk
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General Fund — FY2004
• Growth in FY2004 and FY2005 Constrained By Income Tax Cuts and Federal Tax Reform
• Gap of $1.7 Billion
• Gap is not Eliminated by Sustained Economic Growth
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Broadening the Base for the Solution
• Tobacco Settlement Revenues—Eliminate Some Programs and Reallocate Revenue
• Raise Fees to Supplant General Fund Revenues
• Cut Local Revenue Sharing—Revenue Stays in the General Fund
• Use One-time Resources to Buy Time
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The FY2004 Challenge
• General Fund short $1.7 Billion
• School Aid Fund short $366 Million
• Tax Increases off the table
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Cutting Spending — 80% of General Fund in Four Areas:
• Higher Education ($2.1B)• Community Health — Mental Health, Public
Health, Medicaid ($2.4B)• Corrections ($1.6B)• FIA — Family Services, Juvenile Justice, Public
Assistance ($1.1B)
--All Other General Fund Programs--$1.7 Billion--
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Reshaping The Structure
• Across-the-board Cuts Avoided• Priorities Evident• Health Care and Assistance for Poor Protected• Higher Education Support Dropped Significantly• Corrections Policy Changes Advocated• Revenue Sharing Cuts Continue• Tax “Loopholes” Closed
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Closing the Gap
• General Fund — $1.7 Billion Problem
-Cuts $937M -One-time Actions 42M
-School Aid Fund Subsidy 198M -Corrections Policy Changes 122M
-Revenue Enhancements (Fees, Tax Loopholes) 234M
-Revenue Sharing—Continue Past Cuts 153M -Other Resources 14M
Total $1,700M
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Another Perspective
• Revenues and Other Resources $288M• Corrections Policy Change 122M• Medicaid 174M• Higher Education—New Cuts 127M• Revenue Sharing—New Cuts 116M• Continue Previous Revenue Sharing Cuts 153M• Continue Executive Order 2003-3 Cuts 133M• Other Spending Reductions 587M
Total $1,700M
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School Aid
• $366 Million Revenue Problem
-New Revenue-Lottery & Tax Loopholes $ 70M
-School Bond Loan Fund Bond Refinance 100M -Durant Bond Refinance 40M -Cut Categorical Programs 138M-Modify Enrollment Count Weighting
40M-Eliminate General Fund Grant (198M)-One-time Savings From Revenue Sharing 199M
Total 389M
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Categorical Program Reductions
• Career Preparation ($22M), Partnership for Adult Learning ($20M), Math & Science Centers ($10M), Gifted & Talented ($5M), and Six Others ($11M) Eliminated
• Adult Education Cut 74 Percent $58M• ISD Operations Cut 7 Percent 6M• Other Reductions 5M• Total Categorical Cuts $138M
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School Aid Increases
• School Lunch Payments $3.2M
• Renaissance Zone Reimbursement 17.7M
• Court-placed Children 2.0M
Total $22.9M
Other Budget Assistance—Retirement Contributions Made By Districts Temporarily Held at 12.99% of Payroll
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School Aid
• First Year-to-Year Decline in School Aid Spending since Proposal A ($78 million)
• One-time Resources concentrated in School Aid
• First $299 Million of FY2005 revenue growth will be needed to offset FY2004 one-time revenues
• FY2005 potential spending increases will be very small
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Higher Education
• Appropriations Cut 6.5 Percent $120M• Private College Degree
Reimbursement Eliminated 7M
Total $127M
• FY2003 Cuts continued—2-Year cuts equal 9.9%
• Double Digit Tuition Increases Likely—Some Will Exceed 20%
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Corrections
• Largest State-Operated Program• Over 30 Percent of State Workforce• $150 Million Increase in Bed Space and
Health Costs Largely Avoided• $33 Million Increase Recommended• Conditional Reintegration Program
Eliminates need for 1,375 Beds• Increased Use of Community-based
Sanctions
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State Government Employment Trends
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1980
1985
1990
1995
2000
2002
2003
Fiscal Year
Em
plo
yme
nt
Corrections
All OtherDepartments
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Community Health--Medicaid
• Federal Waiver Constraining Health Benefits to Health Adults $110M
• Pharmaceutical Purchase Collaboration 40M• Quality Assurance Assessment 57M• Declining Caseloads Projected• EPIC Coverage Increased
(15,000 to 42,000) 38M
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Family Independence Agency
• Caseload Declines Projected
• General Fund Budget Down Slightly from Post E.O. 2003-3 Level
• Staffing may be Most Significant Concern
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Local Revenue Sharing
• Previous Cuts Maintained $153M• Total Payments Reduced 3 Percent From FY2003 Levels
44M• Total FY2004 Earmarked Growth Captured 72M
Total $269M
• All Reductions Taken From Statutory Portion (27%)• Statutory Percentage Equals 21.3% of Sales Tax at 4
Percent Rate• Proposed Allocation is 15.5%• Statutory Revenue Sharing Will Be Eliminated for Some
Units Soon if Cuts Continue
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Other Areas
• Increases in Employee Compensation Not Funded ($140M) — Concessions Expected — 3,000 Jobs at Stake
• Arts Grants Cut 50% $12M• Library Grants Cut 10% 2M• Strategic Fund Cut 12% 5M• Merit Scholarships Cut From $2,500 to $500—
Eventual Savings Nearly $100M
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FY2005 Outlook—General Fund
• Revenue Growth Still Constrained by Tax Cuts
--Remaining Income Tax Cut $43M
--Estate Tax Eliminated-Federal Tax Reform 55M
--Federal Dividend Elimination??? 95M
Total $193M Growth also must cover $42 Million of One-time Revenues
• 4 Percent Growth Produces About $350M
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General Fund Structural DeficitIs It Eliminated?
• One More Year of Very Constrained Budgets Will Be Needed
• Pressures For Spending (Cost) Increases (e.g. Health Care, Corrections) are Likely to Outpace Revenue Growth
• Only Fundamental Structural Changes Will Solve the Problem-Revenue Structure-Program Responsibilities Federal/State
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FY2005 Outlook—School AidState Perspective
• Revenue Growth Must Cover $299 Million of One-time Revenues
• 4 Percent Growth Produces About $440 Million
• Small Spending Increase Possible — Roughly One Percent
• Increased Retirement Contribution Percentage May Be Required —
10+ Percent Increase in Rate
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FY2005 Outlook—School AidLocal Perspective
• Increased Retirement Contribution Percentage could claim entire increase
in State Funding• Pressures on Health Insurance Premiums
will continue• Another Year of Austerity
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The Next Steps
“The Governor Proposes and The Legislature Disposes” — Senator Harry Gast, Appropriations Chair for 18 Years
• It Is Now The Legislature’s Turn
• Will It Be A Long Hot Summer?
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Citizens Research Council
of Michigan
Citizens Research Council
of Michigan www.crcmich.orgwww.crcmich.org