Friday, January 13, 2012

Good News from the January Consensus Revenue Estimating Conference, But Don’t Get the State’s Checkbook Out Yet

"We remain committed to reforming state government for the long-term, not just to balance the budget this year or next."

Fiscal Year 2010-11. Revenues were higher than forecasts estimated for the 2010-2011 fiscal year which ended last September 30 by about $400 million, due in large part to surprisingly strong sales tax returns.  Roughly $300 million of that is from the General Fund, and the rest is from the School Aid Fund. These numbers may be a bit of a disappointment to many, as over the last few weeks, some reports have incorrectly said Michigan would have as much as $1 billion left in its coffers for FY12.

Current Fiscal Year 2011-12. The General Fund is now projected to have $278 million more than the May 2011 estimates, while the School Aid Fund is projected to have $138 million more than the earlier estimates, for a total of $416 million more. This is great news, caused by more jobs, decreasing unemployment and rising personal income.

Many interest groups and/or politicians are already spending this money in their minds (and in their blogs and news releases to pander to various potential supporters in the next election). However, this funding does not come from an ongoing source of revenue, and so it should be treated like any other one-time funds. That is, we should not spend these dollars on an ongoing commitment which would only create a hole in next year's budget. Michigan's working families know better than to balance their checkbooks by using one-time money to return to old (over)spending patterns and so should state government.

We also cannot lull school districts and other local government entities into thinking the revenue problems are over and thus entice them into delaying or avoiding the hard decisions to control costs as apparently happened with the expiring federal stimulus funding last year.

The state still has enormous debt and other unfunded liabilities which may be better places to direct these dollars, as well as creating a cushion for potential future fiscal emergencies so that cuts are not needed mid-year. Paying down the long-term debts will give our children and grandchildren a brighter future and a state that is better off than when we inherited it. Fitch Ratings specifically cited our commitment to paying down our debts and rebuilding our rainy day fund when they improved our credit rating outlook.  These fiscally responsible actions have a direct effect on our improving economy.

Last year, we had unexpected one-time funds, and some were used to cushion the high contribution rate (26 – 27% projected for next school year) schools must pay on all wages due to the huge (now over $46 Billion – yes, that is a “B”) unfunded liability in the Michigan Public School Employees Retirement System, aka MPSERS. We need to continue to look for these prudent uses of the funds to best provide for our students long-run.

Fiscal Year 2012-13 (the year for which we will be creating a budget this spring). The forecasts for Michigan's economic future were very positive, giving definite signs of recovery and projecting at least a few years of solid growth. The current estimates are for revenues $125 million for the General Fund and $$90 million for the School Aid Fund higher than previous estimates. Note that this only totals $215 million of “on-going additional money” which could be considered for ongoing commitments.

The economy is turning around and things are finally improving in this state, but we have a long way to go before our work is done. The decisions we made in 2011 improved Michigan's economic climate and stabilized the government after years of financial band-aids and other reckless spending. Fiscally sound, responsible decisions have laid the foundation for this economic recovery, and we will continue to practice responsible leadership as the reforms take hold.  And, there are many significant reforms left to enact.

We worked for months to create a structurally sound budget, which is now paying dividends for Michigan taxpayers. We must keep our commitment to reforming state government and its spending practices and doing the right thing in the long term, rather than simply balancing the budget this year or next. We will not revert back to the old ways of short-term budget fixes and patchwork accounting.  We are finally practicing fiscal responsibility in Michigan and we remain committed to doing so in good times and bad.

Our state has seen many economic ups and downs, and none of us know for sure what next year will bring.  Spending the money unwisely will only cause problems for the next generation of leaders in Michigan. We remain committed to doing the right thing and using the funding where it will have the most effect in improving the lives of Michigan residents.

In short, while we should celebrate the improving economic climate in Michigan, we need to be cautiously optimistic and remain fiscally prudent.