LANSING – The current 2012-13 fiscal year is expected to have much slower revenue growth than the one the state just concluded, and while that is expected to keep the books balanced, it could spell problems for future fiscal year budgets, the Senate Fiscal Agency said in a report released Thursday.
“It’s not like we’re descending back into the depth again in terms of the economy, it’s just we’re growing more slowly than we thought we were in May,” David Zin, chief economist for the SFA, said in an interview.
The state has not yet closed the books on the 2011-12 fiscal year, but preliminary final fiscal year General Fund and School Aid Fund revenue is up 0.4 percent, a reflection of an improving economy combined with a fundamental change in business taxes that lowered revenue, the report said. Estimates show the General Fund budget will close the year with a $1.04 billion balance and the School Aid Fund with a $240.3 million balance.
But nearly all of that is needed to cover spending in the current 2012-13 fiscal year budget.
In the 2012-13 fiscal year, General Fund revenue is expected to decrease 6.5 percent from the last year’s level to $8.7 billion, while School Aid Fund revenue is projected to increase 2 percent to $11.1 billion. Even so, the SFA projects the General Fund balance for the current fiscal year budget will be $146 million and the School Aid Fund at $0.
For 2012-13, SFA estimates the state will raise about $9.3 billion in total revenue to the General Fund. Roughly $8.6 billion will be spent in ongoing appropriations there, and another $365.7 million in one-time appropriations. Other expenditure adjustments include $130 million for the Health Insurance Claims Assessment revenue shortfall, $15 million to the agriculture loan program (PA 305), $5.2 million on indigent burials and payments in lieu of taxes (HB 5367 ) and $5.8 million on the new emergency manager law (SB 865 ). Total expenditures, then, come to about $9.2 billion, leaving only $146 million by year-end.
School Aid Fund revenues for 2012-13 are estimated at $13.3 billion when including federal aid, money from the general fund and other sources, and expenditures include $12.75 billion in ongoing appropriations, which includes $197.6 million to partially fund community colleges and $200.5 million to partially fund higher education. Another $80 million is estimated to be spent in one-time appropriations, $50 million of which will be used for best practices grants and $41 million to the Michigan Public School Employees Retirement System obligation reform reserve fund. Together, the two are expected to balance the budget at $0.
But the balance for both General Fund and School Aid Fund only continues to decrease in 2013-14, when the SFA projects the General Fund will end with $40.9 million and the School Aid Fund will have a deficit of $235.4 million “unless MPSERS escrow funds are available to close the deficit,” the report indicates, referring to money collected from public school employees toward retiree health care that is the subject of a lawsuit.
For the fiscal year 2013-14 General Fund, SFA estimates revenue to be at about $9.1 billion, up 4.9 percent, most of which is expected to be spent in ongoing appropriations based on previous expenditures. SFA estimates it a reduction of $123 million in expenditures for caseloads and cost adjustments for Department of Community Health and another $55 million to the same for the Department of Human Services. Ultimately, it estimates the balance of $40.9 million.
For the fiscal year 2013-14 School Aid Fund, SFA estimates revenue of $11.6 billion, up 2.4 percent. When including federal aid and then subtracting regular K-12 appropriations and continuing to partially fund community colleges and higher education, there is a $235.4 million shortfall.
Zin said the biggest concern is consumer spending. Right now, consumers are spending faster than they are growing, he said.
“The biggest risk is going to be what consumers do over the next two years,” he said. “We’re forecasting there’s not going to be a lot of employment growth and there won’t be a lot of wage growth. They will increase, just not that much.”
The SFA report shows an expectation of less than 1 percent estimated growth in the state’s wage and salary employment in each year for 2013, 2014 and 2015.
Zin also said the issue with the School Aid Fund deals with much the same concern over consumer spending, especially considering the fund is taken care of mostly through the sales tax.
“If you don’t have the wage growth or spending growth, those taxes aren’t growing very fast,” he said.
State unemployment could decline (it went from 10.3 percent in 2011 to 8.9 percent in 2012), the report shows, but also extremely slowly, even remaining at 8.9 percent by the end of 2013. The report shows it will decrease to 8.4 percent in 2014 and 8.1 percent in 2015.
The report also makes numerous changes to previous estimates from the May Revenue Estimating Conference: General Fund for 2011-12 is $220.2 million greater than projected, but the School Aid Fund came up $9.6 million less than anticipated. For the 2012-13 fiscal year, SFA now projects a total of $372.4 million less than previously predicted for the two funds combined, and $275.6 million less in 2013-14 than it projected in May.
Zin said one of the issues causing the declines came with various legislation involving tax breaks, tax deductions, redirecting the sales tax, and other legislation that was passed after the May conference and especially in lame duck.
“(The state) ended up doing, for instance, one where we made changes to the MBT (Michigan Business Tax) that we think will cost us about $14 million,” Zin said of some of the legislation impacting the final numbers. “We also made some changes on how we’re going to do pension incomes for workers that aren’t cover by Social Security, and that costs another $4 million or so. You start adding a number of those up and they start becoming a little more expensive.”
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