22 May 2009

State Budget Deficit Could Climb Over $2B In 2010

Southfield (WWJ) -- A new Senate Fiscal Agency report released Wednesday projects Michigan's 2010 budget deficit will climb to $2.4 billion.

The 48-page report predicts a $1.5 billion general fund deficit and a nearly $1 billion dollar school aid fund deficit for the new budget.

The state still is implementing plans to deal with a $1.3 billion shortfall in the current budget year. Federal stimulus money is expected to be used to offset $1 billion. Governor Granholm recently issued an executive order cutting $300,000 from the current budget.

The Senate Fiscal Agency projects that the U-S economy will grow weakly in 2010 while Michigan's economy will remain in recession, specifically the US Economy down 4%, but Michigan economy down 3.4%.

The report predicts light vehicle sales down almost 4 million units. And says while most recessions average 10 months, now at 15 months into recession, declines in Michigan are accelerating, not slowing yet.

The report says there are risks to achieving forecast:

1) "weakness in housing market, and how it will influence both consumer behavior and credit market liquidity"
2) " high levels of risk aversion in financial markets and how it will affect wealth, consumer and business borrowing, and investment"
3) "the international economy..."
4) "the degree to which consumers increase their savings in response to the economic collapse"

"If energy prices begin rising sooner or more rapidly than expected, such increases will likely reduce growth and/or prolong the recession," the report said.

A more complete picture of the state's budget situation will be determined Friday when state economists get together for an official revenue estimating conference.

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