Michigan’s top economists said Tuesday the state could face an overall budget deficit of nearly $1 billion.
Lawmakers and economists met at the state Capitol for the revenue estimating conference that determines the state’s budget outlook. The economists reached an agreement that the General Fund-General Purpose and School Aid revenue will fall $233 million in 2001 and $728 million in 2002.
The lower revenue estimates mean that 2002 fiscal budgets, which began Oct. 1, will need to be reduced to compensate for the deficits. Michigan has a constitutional requirement to balance its budget.
“This lets us get our arms around it and get a sense of what we are looking for in the shortfall,” said Kelly Chesney, a spokeswoman for the state budget office. “Now that we have finalized numbers, this is where the tough work starts in bringing the budget into balance.
“It will require some tough decisions on where we can cut spending.”
Chesney said it was important for the state to gage revenue intake after the Sept. 11 attacks.
“It caused havoc with our nation’s economy, and Michigan wasn’t immune to that,” she said. “As a result, revenue coming into the state was much lower than projected. We know that there is no way to support the 2002 budget.”
The state has a $1.2 billion Budget Stabilization Fund, which can be used as a rainy day fund to help the state manage budgets during the slowdown.
“The next few months will not be easy, but they will be far easier than they would have been without the prudent budget practices of the last few years,” said State Treasurer Douglas Roberts in a statement.
The May consensus projected the national economy would be revived by early fall, but economists now agree that the nation is in a mild recession in the aftermath of the terrorist attacks.
“Sept. 11 did have a negative impact on our economy, and that is why we are having the revenue estimating conference so early,” said Todd Harcek, a spokesman for state Rep. Marc Shulman, R-West Bloomfield, who is chairman of the House Appropriations Committee. “Most members of the Appropriations Committee and even the Legislature are aware that we are going to have to make some spending reductions,”
Economists say low interest rates, low energy costs and federal tax cuts will help the economy gain momentum in 2002 - increasing state revenue collections.
“Anything to get the economy going, especially after the events of Sept. 11, will be good for Michigan,” Harcek said.
In the meantime, the Senate Democratic Caucus announced it would return 12 percent of its state appropriated money back to the state. During the past two years, the Senate Democrats said they returned more than $1.1 million in unused money.
“The bottom line message is that we have to make some serious changes in the revenue that is being collected, and the way we are spending it,” said state Rep. Gretchen Whitmer, D-East Lansing, a member of the Appropriations Committee.
“It is a matter of priorities, and we are going to have to make some cuts this year.”
