Moving Michigan Forward: Continuing Our Comeback

Presented by:

John E. Nixon, CPA State Budget Director, Michigan

Michigan Municipal League

April 10, 2013

Where We Started • Perpetual $1.5B deficit • Uncapped liabilities • Job killing tax system • $2M in savings account –

depleted rainy day fund • Several accounting gimmicks

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What We’ve Done • Overcame perpetual $1.5B deficit • Started accounting for one-time versus ongoing money • Implemented multi-year budgeting • Addressed long-term liabilities • Eliminated job killing tax system • Invested in rainy day fund • Linked policy decisions to funding (capital outlay reform) • School bond loan fund reforms • Retirement reforms

―Michigan Public School Employees Retirement System ―Michigan State Employee Retirement System

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Accomplishments Year 3: Looking forward

• Maintain structural balance • Protect education and stabilize

state agency budgets • Invest in critical infrastructure,

economic development and public safety needs

• Meet the needs of the most vulnerable among us by investing in important safety net programs

• Save for the future 4

• Growing more jobs • Personal income is increasing • Home sales and prices are

increasing • Our population is growing again

Turning the Corner

5

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Michigan’s Economic Turnaround • GDP growth 6th best in nation in 2011; ranked 50th in 2008 and 2009 • 2012 was second consecutive year of job expansion after 10 straight

years of declines • Payroll employment growth rate was 5th strongest among the states in

2011; 46th in 2009 • Per capita income growth 7th best in nation in 2011; ranked 42nd in 2008 • Housing starts increased 22 percent in 2012 and were up 66 percent

from the 2009 level • State motor vehicle production increased 17 percent in 2012; production

was almost double 2009 production • The State is much stronger than it was in last decade

Michigan’s Employment Expected to Increase in 2013 - 2015

Michigan Wage and Salary Employment Year-Over-Year Change (In Thousands) 7

Note: U.S. Bureau of Labor Statistics. 2012-2015 estimates are 1/11/13 Consensus Forecast. 1/25/13.

-112.7-76.8 -71.1

-16.9 -9.3

-63.3 -58.7

-105.6

-291.6

-7.2

72.3 51.0 36.0 48.0 53.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Consensus Forecast

Michigan’s Unemployment Rate Improving Faster Than the U.S. Rate

8 Source: U.S. Bureau of Labor Statistics. 2013-2015, 1/11/13 Consensus Forecast. 1/25/13

0%

3%

6%

9%

12%

15%

2001 2005 2009 2013

2015 United States

7.1%

2015 Michigan 7.6%

Consensus Forecast

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Michigan Personal Income Continuing Growth in 2013 - 2015

Michigan Personal Income Year-Over-Year Change

Note: U.S. Bureau of Economic Analysis. 2012-2015 estimates are 1/11/13 Consensus Forecast. 1/25/13.

2.5%1.0%

3.7%

1.6% 2.0%2.8% 2.8%

2.0%

-6.3%

3.1%

5.6%

3.4%2.6%

4.3% 4.4%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Consensus Forecast

10 Sources: U.S. Bureau of the Census & Treasury Forecast 1/11/13

Michigan Housing Starts are Rebounding

0

10,000

20,000

30,000

40,000

50,000

60,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Treasury Forecast

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Fitch said the upgrade reflects “the state’s solid economic and fiscal recovery over the last two years.”

• Fitch Ratings upgraded Michigan’s general obligation credit rating to AA

• Standard and Poor’s upgraded Michigan’s credit outlook to “positive”

• Moody’s upgrades Michigan’s bond rating from stable to positive

April 2, 2013: People are Taking Note

Health and Human Services $22.6 Billion

Education $15.3 Billion

Jobs $6.1 Billion

Public Safety $3.1 Billion

Government Services $2.7 Billion

Environment $922 Million

Budget Stabilization / Health Savings Fund $178 Million

FY 2014 Total $50.9 Billion

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Total FY 2014 Budget Recommendation

Budget Stabilization/

Health Savings Fund

Jobs

Education

Government Services

Environment

Public Safety

Health and Human Services

Total Gross: $50.9 Billion

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Total New GF/SAF Investments in FY 2014 Budget

Budget Stabilization/ Health Savings Fund

$178M 30%

Jobs $84.5M

14%

Education $187.7M

31%

Government Services $51.4M

9%

Environment $14.9M

2%

Public Safety $52.6M

9%

Health and Human Services

$27M 5%

Total: $596.1 Million

Key Policy Investments • Infrastructure • Jobs • Public safety • Long-term savings

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Driving the Economy Forward • Invest $1.2B more per year in our road infrastructure • Four layers to a common sense outcome

‒ Make regular payments to avoid huge bill ‒ Save on vehicle repair costs ‒ Grow the economy by creating jobs ‒ Save nearly 100 lives per year

• Roads, bridges, public transit, rail, harbors

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Source: OEI, RMF – 07/27/12

Investing in Our Roads

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$25B Gap

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Supporting Job Creation • $10M for a new skilled trades program • $20M to assist banks in extending capital to

underserved communities • $3M for a new food and agriculture growth initiative • $4M increase for Pure Michigan

Making Michigan Safer • Increase strength of Michigan State Police ranks

‒ Trained 78 troopers in FY 2012 ‒ Anticipate training 152 troopers during FY 2013 ‒ $15.2M to train 107 troopers in FY 2014

• $2M for mental health courts • $3M for treatment courts • $9.5M for blight elimination and $4M for “Good Neighbor”

property maintenance

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Long-term Savings

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• One-time, surplus funds • Important for Michigan’s ratings • Rainy Day Fund • Michigan Health Savings Fund • Disaster and Emergency Contingency Fund

$1,264.4

$994.2

$145.2

$0.0 $81.3

$2.0 $2.0 $2.1 $2.2 $2.2 $2.2 $2.2

$365.1

$505.1 $580.1

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Projected

2014Projected

Mill

ions

Fiscal Year

The Budget Stabilization Fund (BSF) peaked at $1.3 billion in FY 2000, but was quickly depleted. Michigan has started to rebuild the BSF balance in FY 2012 and projects that the

balance will be approximately $580 million by the end of FY 2014.

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History of the BSF

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Other Items of Interest • Constitutional Revenue Sharing • EVIP • Regional Prosperity Initiative • Competitive Grant Assistance Program • IT Innovation Fund • MiDeal • eProcurement

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Constitutional Revenue Sharing • FY 2014 payment up 4.1 percent over prior year • 11 percent growth in payments for cities and villages since FY 2010 • Cities and villages receive $382.5M, or 52 percent, of FY 2014

payments

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Economic Vitality Incentive Program • Provides incentive payments to eligible participants • 93 percent of eligible participants are cities and villages (452);

7 percent for townships • 98 percent of funding, or $220M, earmarked for cities and

villages; 2 percent for townships

Regional Prosperity Initiative • New FY14 investment of $5M • Voluntary competitive grant program • Program goals

‒ Regional reinvention ‒ Empower locals to drive economic prosperity ‒ Encourage regional collaboration

• Existing State-Designated Planning Regions and Metropolitan Planning Organizations are eligible to apply in the following three categories: ‒ Regional Prosperity Collaborative, $250,000 maximum grant ‒ Regional Prosperity Council, $375,000 maximum grant ‒ Regional Prosperity Board, $500,000 maximum grant

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• Financial help to offset costs of combining local government operations; long-term financial benefits to local governments

• $45M state investment over three-year period • 60 awards, totaling $14.9M, in FY 2012; examples:

‒ Grand Rapids, Flint and Lansing combined income tax processing and tax payment systems - $2.1M savings

‒ Macomb County, Clinton Township and Sterling Heights consolidated dispatch and communications operations - $15M savings

‒ Waterford Township and Pontiac consolidated fire services - $12M savings

Competitive Grant Assistance Program

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ICT Innovation Fund • Program that allows jurisdictions to partner on IT projects to

make state and local government more productive • Venture capital loans available to state agencies, local units

of government, and nonprofits • For instance:

‒ Eastern Upper Peninsula Intermediate School District Integrated Information Systems Five integrated management systems, a platform

transferable to other school districts

• Allows local units of government to use state contracts to buy goods and services

• Membership is open to cities, townships, villages, counties, school districts, universities, community colleges and nonprofit hospitals ‒ Flexible, voluntary use program ‒ Currently, more than 1,000 members ‒ More than 300 contracts available ‒ Thousands of products and services ‒ Average savings of up to 25 percent or more ‒ Mitigates cost of procurement ‒ Eliminates administrative duplication

MiDeal

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• DTMB Procurement will be moving from our current bid solicitation system, Bid4Michigan, to Buy4Michigan which is a robust eProcurement software system that provides ‒ Greater procurement efficiency ‒ Integration of best practices ‒ Cooperative purchasing ‒ Spend analytics ‒ Cost savings throughout the procurement process

eProcurement

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• The State has purchased a perpetual, irrevocable, unlimited, enterprise-wide license for the system

• Our license includes all State of Michigan users, all prior Bid4Michigan system users and all MiDEAL member users interested in participating – There is no limit on the number of users

• Additional Information is available at: http://www.michigan.gov/micontractconnect 517-335-0230

eProcurement

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Thank you.

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