Business Week
LANSING, Mich.
Michigan's governor warned Tuesday of a possible 20 percent cut in state spending next year, a draconian step after billions in cuts since 2003 have already dented police and fire services, pushed schools toward insolvency and reduced oversight of prison inmates.
The request from Gov. Jennifer Granholm is a further blow to health care providers, state police, universities and others dependent on public money in a state where revenues, adjusted for inflation, are at about the same level as in 1964.
Double-digit cuts likely mean double-digit university tuition increases, for example.
"I'm certainly having to take a job to find extra income to offset some of these (scholarship) cuts," says Mitch Rivard, a 19-year-old Michigan State University junior from Bay City. "We're going to see a very big gap in terms of who is be able to attend college if these cuts continue."
The state filled a deficit in the budget year that started Oct. 1 by cutting nearly $1.9 billion from spending and relying on about $1 billion in federal stimulus money that won't be available next year. Most departments lost 10 percent from their budgets. So Granholm is laying out a worst-case scenario, asking departments to lay out proposed cuts twice as deep as what they are now absorbing.
Granholm's office says state budget director Bob Emerson is predicting next fiscal year's deficit could hit $1.4 billion -- with little remaining federal recovery money to cushion the blow.
While many states are having fiscal woes, few have struggled as mightily as Michigan. Less revenue is rolling in from income, sales and property taxes, while the highest-in-the-nation 15.3 percent jobless rate has spurred demand for food stamps, health care and unemployment checks.
Even California, which notoriously had to pay its bills with IOUs earlier this year, managed to raise taxes to help get its finances back on track. At least 20 states are fighting to find enough money to pay for the programs they agreed to earlier this year.
Michigan's revenue falloff of about 12 percent isn't as sharp as in Alaska, where a drop in oil prices was expected to lower state revenues in the current fiscal year by 45 percent, according to the National Conference of State Legislatures.
In Iowa, where Gov. Chet Culver just ordered an across-the-board 10 percent cut for departments getting general fund money, or in Louisiana and Wyoming, where revenues are falling by double-digit amounts, the pain is just as real.
But where other states have seen their revenues fall below expectations for the past year or two because of the latest recession, Michigan has never recovered from the spiral that began a decade ago. More than $10 billion in deficits have been resolved since 2003.
A 20 percent cut next year could put Michigan in territory most states won't have to explore.
"There are whole parts of departments that would have to be eliminated" with a 20 percent cut, says Mitch Bean, director of Michigan's nonpartisan House Fiscal Agency. "That's ... really significant."
School districts, which are losing $300 to $600 per student this year, could see their funding drop by $200 to $300 more per student next year -- an additional hit of $300 million to $400 million.
Tina Templin, superintendent of DeWitt Public Schools, just north of Lansing, says her district is already suffering after losing $869,000 -- nearly 4 percent of its budget -- halfway through its fiscal year. It is looking at cutting transportation, sports and enrichment programs.
"We can't make those cuts in fuel or teaching supplies and come up with that amount of money," Templin said. "The only way we can only do that is wages and jobs, and that's going to further depress the Michigan economy."
Granholm won't formally present her budget until February.
Balancing next year's budget "is a tall order when you take into consideration the state's revenue picture, the loss of the federal dollars ... and the growth in services that people rely on in tough times," says Liz Boyd, Granholm's spokeswoman. "We want a realistic plan for 2011."
The request from Gov. Jennifer Granholm is a further blow to health care providers, state police, universities and others dependent on public money in a state where revenues, adjusted for inflation, are at about the same level as in 1964.
Double-digit cuts likely mean double-digit university tuition increases, for example.
"I'm certainly having to take a job to find extra income to offset some of these (scholarship) cuts," says Mitch Rivard, a 19-year-old Michigan State University junior from Bay City. "We're going to see a very big gap in terms of who is be able to attend college if these cuts continue."
The state filled a deficit in the budget year that started Oct. 1 by cutting nearly $1.9 billion from spending and relying on about $1 billion in federal stimulus money that won't be available next year. Most departments lost 10 percent from their budgets. So Granholm is laying out a worst-case scenario, asking departments to lay out proposed cuts twice as deep as what they are now absorbing.
Granholm's office says state budget director Bob Emerson is predicting next fiscal year's deficit could hit $1.4 billion -- with little remaining federal recovery money to cushion the blow.
While many states are having fiscal woes, few have struggled as mightily as Michigan. Less revenue is rolling in from income, sales and property taxes, while the highest-in-the-nation 15.3 percent jobless rate has spurred demand for food stamps, health care and unemployment checks.
Even California, which notoriously had to pay its bills with IOUs earlier this year, managed to raise taxes to help get its finances back on track. At least 20 states are fighting to find enough money to pay for the programs they agreed to earlier this year.
Michigan's revenue falloff of about 12 percent isn't as sharp as in Alaska, where a drop in oil prices was expected to lower state revenues in the current fiscal year by 45 percent, according to the National Conference of State Legislatures.
In Iowa, where Gov. Chet Culver just ordered an across-the-board 10 percent cut for departments getting general fund money, or in Louisiana and Wyoming, where revenues are falling by double-digit amounts, the pain is just as real.
But where other states have seen their revenues fall below expectations for the past year or two because of the latest recession, Michigan has never recovered from the spiral that began a decade ago. More than $10 billion in deficits have been resolved since 2003.
A 20 percent cut next year could put Michigan in territory most states won't have to explore.
"There are whole parts of departments that would have to be eliminated" with a 20 percent cut, says Mitch Bean, director of Michigan's nonpartisan House Fiscal Agency. "That's ... really significant."
School districts, which are losing $300 to $600 per student this year, could see their funding drop by $200 to $300 more per student next year -- an additional hit of $300 million to $400 million.
Tina Templin, superintendent of DeWitt Public Schools, just north of Lansing, says her district is already suffering after losing $869,000 -- nearly 4 percent of its budget -- halfway through its fiscal year. It is looking at cutting transportation, sports and enrichment programs.
"We can't make those cuts in fuel or teaching supplies and come up with that amount of money," Templin said. "The only way we can only do that is wages and jobs, and that's going to further depress the Michigan economy."
Granholm won't formally present her budget until February.
Balancing next year's budget "is a tall order when you take into consideration the state's revenue picture, the loss of the federal dollars ... and the growth in services that people rely on in tough times," says Liz Boyd, Granholm's spokeswoman. "We want a realistic plan for 2011."
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