State budget update; revenue sharing report

It appears that approval of the state budget for the 2011 fiscal year will come down to the final weeks or perhaps days before it is implemented. While late budget approvals are becoming way too common in recent years, there were quite a few Capitol insiders who thought that due to election year activity, there was more incentive to get the budget approved earlier rather than later this time. The Legislature will return to Lansing on Sept. 7, following a brief Labor Day break. The new state fiscal year begins on Oct. 1, 2010.

The Legislature is facing deficits totaling $786 million in this fiscal year and next. There is an existing $302 million hole that remains in current 2009-10 fiscal year. The $480 million deficit for next year is largely due to the state receiving $200 million less in Federal Medical Assistance Percentages (Medicare pharmaceutical payments) and recent projections that state revenue collections are not meeting original estimates. In mid-August, the governor outlined two strategies to address the current year budget shortfall. She is suggesting a transfer of more than $200 million from the School Aid Fund to community colleges and bringing forward $94 million in Medicare pharmaceutical payments. She is also advocating for a tax amnesty program, creating new state liquor licenses (that allow longer bar hours), restructuring the state's long-term debt, shortening (from five years to three) the time the state takes to process and sell unclaimed property and providing incentives for school district consolidations. Her plans also include a 3 percent cut across the board for all state departments along with some specific cuts in the departments of Community Health, Human Services and Corrections.

The governor's announced budget solution did not address the issue of revenue sharing for local governments. However, in recent weeks there has been discussion inside the GOP caucus in the Senate about further cuts to revenue sharing. Senate Majority Leader Mike Bishop (R-Rochester) has stated that overall the governor's budget solution does not involve enough cuts to satisfy the Republicans in the Senate.

The Senate Fiscal Agency issued a report in mid-August that takes an early look at the impact of the 2010 Census on revenue sharing. The report titled, "A Preliminary Look at the Impact of the 2010 Census on Revenue Sharing," warns that once the new 2010 Census data is available, there will be drastic changes in revenue sharing payment amounts for local governments all over Michigan, which will result in significant underfunding of revenue sharing. The report states, "Some local units that experience population growth will see commensurate increases in their revenue sharing payments, while others will experience no change at all -- losing statutory payments on a dollar-for-dollar basis as constitutional payments increase. Other local units with population increases will fare between these two extremes." By statute, the 2010 Census population numbers will take effect in April 2011, having an immediate impact on revenue sharing payments. MTA is working to make sure there are no changes to this process, as there have been some suggesting a delay in effective date to allow the state more time to assist communities that are losing population. The report can be found at, http://www.senate.michigan.gov/sfa/Publications/Notes/2010Notes/NotesSum10dz.pdf.