Citizens Research Council of Michigan

Transcription

1 Michigan s Budget Crisis and the Prospects for the Future Presidents Council State Universities of Michigan Board of Directors March 23, 2006 Lansing Tom Clay, Director of State Affairs Citizens Research Council of Michigan Citizens Research Council of Michigan Founded in 1916 Statewide Non-partisan Private Not-for-profit Promotes sound policy for state and local governments through factual research Relies on charitable contributions of Michigan businesses, foundations, and individuals Citizens Research Council of Michigan 2 The Central Message The State of Michigan has a Structural Deficit Affecting: -Public K-12 Education -General Fund Financed Programs Its Causes Have Both Spending and Revenue Components We Will Not Grow Out of It Only Structural Policy Changes Will Fix The Problem Citizens Research Council of Michigan 3 The Michigan Budget FY2006 Appropriations Total State Budget - $41.2B State s Two Major Funds: General Fund - $9.0B School Aid Fund - $12.8B Other State Funds Restricted for Other Purposes, e.g. Transportation, Federal Over 80% of All Spent Outside State Government Citizens Research Council of Michigan 4 1

2 Six Years of Budget Problems Worst Budget Problems Since World War II Declining General Fund Slow Growth in School Aid Fund Structural and Cyclical Deficits at Play Deficits Defined Cyclical Caused by Economic Downturn - Worsen - Some Spending Pressures Increase - Deficit Erased When Economy Recovers Structural Caused by Cost Increases to Maintain Current Policies Outpacing Revenue Growth, Even in Good Economic Times Citizens Research Council of Michigan 5 Citizens Research Council of Michigan 6 Components of the Structural Deficit Self-inflicted Changes in Revenue Structure -Tax Rate Cuts -Federal Changes in Tax Law Failure to Amend State Law -Increased Use of Slow or No-growth Revenue Sources (e.g. Tobacco Taxes) Weakening Connections of Economy With -Sales Tax -Income Tax Components of the Structural Deficit Expenditures Health Care is Everywhere in the Budget and Growing Faster Than Largest Component in State Budget -Medicaid -Health Insurance for School & State Employees -Health Insurance for School & State Retirees -Prisoners Citizens Research Council of Michigan 7 Citizens Research Council of Michigan 8 2

3 Components of the Structural Deficit Expenditures Corrections Largest State-operated Program Employees Nearly 1/3 of All State Workers Michigan s Costs Significantly Above Our Great Lakes Neighbors Incarceration Rate More Than 40% Higher Growth in Spending Outpacing Budget Deficit Pressures Both Funds Outspending Regular Operating Deficits for Six Straight Years Significant One-time Resources Used-- $6.6 Billion Citizens Research Council of Michigan 9 Citizens Research Council of Michigan 10 General Fund & School Aid Operating Deficits ($ in Millions) $600 $400 $200 $0 ($200) ($400) ($600) ($800) ($1,000) ($1,200) School Aid Fund General Fund FY00 FY01 FY02 FY03 FY04 FY05 Citizens Research Council of Michigan 11 Summary of One-Time Resources FY2001-FY2005 (in Millions) Rainy Day Fund FY2000 School Aid Fund Surplus FY2000 General Fund Surplus Medicaid Benefits Trust Fund Advance State Education Tax Collection Date Tobacco Settlement/Merit Award Temporary Federal Fiscal Assistance Bond for Pay-as-you-go Capital Projects Revenue Sharing Accounting Change Refinance Bonds Employee Wage Concessions Other $1, ,203 $6,585 Citizens Research Council of Michigan 12 3

4 Causes of Michigan s Budget Problems Weak Economy Tax Cuts Stock Market Decline Michigan s Deteriorating Share of Auto and Light Truck Market Structural Imbalance Between and Spending How Weak is the Economy? Michigan s Recent Statistics: 50 th in Personal Income Growth 46 th in Unemployment Rate 48 th in Employment Growth (Decline for Michigan) 49 th in Index of Economic Momentum (Population, Personal Income, Employment) Citizens Research Council of Michigan 13 Citizens Research Council of Michigan 14 Millions of Units Big 3 Losing Market Share % % % 12 60% % 6 50% % 0 40% U.S. Light Vehicle Sales Big 3 Share Source: Automotive News, 2005 Sales are Agency Averages. Citizens Research Council of Michigan 15 Monthly Employment (1000s) 1, Michigan Manufacturing Employment Lost 1 in 4 Manufacturing Jobs Jan ,900 Jul , Source: U.S. Department of Labor, Bureau of Labor Statistics. November ,000 Citizens Research Council of Michigan 16 4

5 Perspective On General Fund in FY03, FY04, & FY05 Below FY1995 Inflation-Adjusted General Fund Below 1972 Level General Fund $10,000 $9,500 $9,000 $8,500 $8,000 $7,500 $7, Citizens Research Council of Michigan 17 Citizens Research Council of Michigan 18 General Fund Budget FY % of General Fund Spending in 4 Areas: 1. Higher Education ($1.9B) 2. Community Health Mental Health, Public Health, Medicaid ($2.9B) 3. Corrections ($1.8B) 4. Human Services Family Services, Juvenile Justice, Public Assistance ($1.1B) All Other General Fund Programs $1.3B Citizens Research Council of Michigan 19 Looking Back: Reshaping the General Fund Budget Reductions Higher Education-$275M in 4 Years (13%) Human Services-$172M in 5 years (14%) School Aid-$323M in 5 years (84%) Revenue Sharing-$447M in 5 years (29%) State Employees-7,400 in 4 years (12%) Smallest Workforce Since 1974 Citizens Research Council of Michigan 20 5

6 Reshaping the General Fund Budget Percentages of General Fund Spending FY2001-FY2006 Increases FY2001 FY2006 Department of Community Health-$263M in 5 years (10%) Medicaid Community Mental Health Community Health Corrections Human Services Higher Education Other Corrections-$175M in 5 years (11%) Totals Citizens Research Council of Michigan 21 Citizens Research Council of Michigan 22 Percentages of General Fund Spending FY2001-FY2006 Community Health and Corrections Now Claim 52.7 Percent of General Fund Spending Increased from 43.6 Percent in FY2001 State Revenue Sharing Revenue Sharing Allocations From State Sales Tax Constitutional 6 tenths of a penny Distributed on Per Capita Basis Statutory 85 hundredths of a penny Complicated Formula Distribution Statutory Payments Were Cut Beginning in FY2002 Money Stays in General Fund Citizens Research Council of Michigan 23 Citizens Research Council of Michigan 24 6

7 Statutory Revenue Sharing The Other General Fund Revenue Cuts in Statutory Revenue Sharing Add to General Fund FY2007 Budget Uses $600 Million to Supplement General Fund 1000 Cities, Villages, Townships Will Receive no Statutory Payments Over Half of Remaining Statutory Payments ($405M) Go to Detroit ($215M) Total Revenue Sharing Payments Down $442M Since FY2001 Beyond FY2007: The General Fund Structural Problem Continues Expenditure Causes Medicaid Corrections Revenue Causes Antiquated Revenue Structure Revenue Sources Unresponsive to Economic Growth Citizens Research Council of Michigan 25 Citizens Research Council of Michigan 26 Percent State Taxes as a Percent of Michigan Personal Income The Headlee Revenue Limit FY1995 State at the Limit (9.49% of Personal Income) FY2007 State 18% Below the Limit (7.75% of Personal Income) Fiscal Year Citizens Research Council of Michigan 27 Gap Equals $5.8 Billion Citizens Research Council of Michigan 28 7

8 General Fund Budget Scenario Medicaid & Corrections Projections Growing Faster Than Other Areas of General Fund Spending Assumed to Increase at 3% per year Grow about 3% per year Major Revenue Sources w/no Growth Retard Overall Growth Combining and Spending Pressures State Will Have Balanced Budgets Constitutionally Required Incremental Problem Each Year Will Exceed $300M (Over 3% of Spending Base) After FY2007 Citizens Research Council of Michigan 29 Citizens Research Council of Michigan 30 General Fund Structural Deficit Projections Balancing Budget by Cutting Spending Millions $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Fiscal Year FY2013 FY2014 Spending Pressures Projected Gap Will Grow to $1.5 Billion by 2011 Exceeds the Projected Size of All Other All Other Includes: Courts State Police Capital Outlay Legislature Governor s Office Attorney General Treasury & 11 Other State Departments Citizens Research Council of Michigan 31 Citizens Research Council of Michigan 32 8

9 School Aid Structural Deficit Spending Pressures Outpace Revenue Growth Retirement Contributions Employee Health Insurance General Pay Raises Other Fuel, Utilities, Supplies Growing Slowly Annual Structural Deficit Over 3% Examples of Structural Changes Spending Reduce Prison Populations Reduce Number of Higher Education Institutions Eliminate Selected Health Benefits/Eligibility Eliminate Remaining Aid to Local Government Sales Tax on Services Modify Personal Income Tax Increase Exemption and Raise Rate Citizens Research Council of Michigan 33 Citizens Research Council of Michigan 34 Citizens Research Council of Michigan CRC Publications Available at Providing Independent, Nonpartisan Public Policy Research Since 1916 Citizens Research Council of Michigan 35 9