General Tax increases? Legislative stalemates? The Legislature in session for weeks at a time? That is so 2007. Or at least those who make their living around the State Capitol in Lansing hope that is the case. That doesn't mean that situation isn't as dire, if not more dire than it was in 2007 concerning the state budget. You probably recall that in 2007, the Legislature finally solved its billion-dollar-plus budget deficit with a mixture of tax increases, modest structural reforms, and the promise of bigger and better reforms to come.
Thus far, those promises of structural reform have been largely ignored. That coupled with an economy falling at nearly unprecedented speed has put Michigan in another situation facing multi-billion-dollar deficits over the next several years. The difference between 2007 and 2009, of course, is the massive number of dollars that have come into the state from the federal government in the form of President Obama's stimulus package.
Just this May, when the economists that make revenue projections for the state forecasted a $1.3 billion deficit for the current budget year, the state was able to paper over the problem with only $300 million worth of cuts and fill the rest in with stimulus dollars. While this is troubling for those who would like to see the state finally make some tough decisions, the federal dollars come with strings attached that require a maintenance of effort for K-12 education and Medicaid - meaning essentially that those dollars must be used to supplement state spending, not replace it.
This means that two of the biggest budget items in the state budget are off the table when it comes to potential cuts. The current year issues are only part of the problem because for the next fiscal year budget, which the Legislature is currently debating, the deficit is at least $1.7 billion. This figure assumes that General Motors bankruptcy proceedings arc similar to Chrysler's and not worse.
With this challenge though, comes a very good opportunity. Stimulus dollars...