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Budget update: the perils of plenty

The state's top economists met last week to forecast state tax revenues for the next fiscal year, and they found both good and bad news. On the good side, projected revenues to the state School Aid Fund were higher than previous estimates, making some $153 million more available for the current fiscal year than estimated in January. Estimated revenues for next year (fiscal 2018) were also revised upward, adding almost $190 million to projected revenues, mainly on the strength of higher sales tax collections.

On the bad side, lower income tax collections and disappointing business tax revenues will reduce the funds available to support the main government budget (the General Fund). Revised estimates for the current year were almost $180 million less than thought in January; projections for next year are also down by $114 million.

While this sounds like good news for schools, hold off on celebrating. The Legislature's reaction to situations like this in the past involved shifting any costs they can legally move over to the School Aid Fund out of the GF budget to reduce the strain. Since the School Aid Fund can legally be used for "education" generally, parts of the community college and state university budgets have been shifted over to the SAF in every budget since Gov. Snyder took office.

This year, the governor's budget proposal called for all but $3 million of the $398 million community college budget to come out of the School Aid Fund, instead of just half; the House version goes all the way and has the SAF pay for the entire community college budget. While all the current budget proposals would continue to take about 15% of the higher education budget out of the SAF, that still leaves almost $1.3 billion which could, in theory, be shifted over to the School Aid Fund.

There has been much noise in Lansing over the last few months about lawmakers' choice to budget lower expenditures than the governor proposed in order to leave room for an income tax cut, or funds to pay one year's worth of the up-front costs of closing the state-run teacher retirement system entirely (replacing the current hybrid system). [See our action alert here.] These revenue projections have definitely thrown a wrench into the works on that front, though it can be hard to predict how Michigan lawmakers will react. Actually paying for public services has not been especially popular in the state capitol building for the last few years, and there is always a vocal group of legislators who see any revenue shortfall as an opportunity to "starve the beast." Negotiations around the state budget are among the most opaque pieces of sausage-making on the legislative calendar. The only chance most citizens have to have an impact is to engage with their local legislators now, before any informal agreement on the shape of the budget is made. Once basic decisions have been made, no one wants to re-open a can of worms, and making substantial change is well nigh impossible. Please see our accompanying analyses of the different school aid budget proposals to get informed about the budget and have concrete concerns to bring to your local lawmakers.

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