Next 2 fiscal years likely to be even more dire for Michigan, officials say
By: Health Insurance
Submitted: 2009-09-30 18:32:21 | Word Count: 850
If you think the sausage-making in Lansing — better known as trying to complete a 2009-10 budget — has been ugly, just wait until next year.And the year after that.
The prognosis for the next two fiscal years in Michigan is more dire than the upcoming budget year as lawmakers work to the edge of a Thursday deadline to close a $2.8-billion deficit with a mix of help from federal stimulus money and cuts.
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“You’ve got this cliff hanging out there, and you need to understand it,” said Mitch Bean, executive director of the House Fiscal Agency.
The state is planning to use about $820 million in federal stimulus money to balance the budget for the fiscal year that begins Thursday. That federal money shrinks to roughly $550 million for 2010-11 and disappears the following year.
Meanwhile, Michigan’s economic woes are not expected to end quickly and, without changes, tax revenue is expected to continue to decline for the next three years.
“Our sympathy level for the state is not real high right now,” said Doug Rothwell, president of Business Leaders for Michigan.
Experts predict Michigan turnaround still far off
Few areas of the state budget will avoid substantial hits when a plan for fiscal year 2010 finally takes shape in the coming days.
Schools will have less money to educate kids. Cities and townships will have fewer dollars to pay for things such as police and fire departments and maintaining parks. Even farmers are getting less money for the crops they turn over to food banks that distribute fresh food to poor people.
And that pain will only be magnified in the next two budget cycles as Michigan's economy struggles to rebound and the federal government stimulus program that will help fill a significant hole in the 2009-10 budget comes to an end.
"In the next 18 months, the economy will be as bad, or worse, as it is right now," said Doug Rothwell, president of Business Leaders for Michigan, a newly composed group of Michigan-based executives who are advocating for broad reforms in the state.Consider the economic predictions for the state:
• Job loss is expected to continue to climb, with 185,000 fewer jobs in the state next year, according to estimates from the Bureau of Labor Statistics and House Fiscal Agency. Fewer jobs means less income tax coming into the state and less spending by consumers, which translates into a decline in sales tax revenues.
• Property values are expected to continue to decline for at least the next three years. In Oakland County, officials are predicting a decline of up to 50% in the value of commercial and industrial property and a 25% reduction in residential values over the next three years. Combined with expected decreases in state revenue sharing payments, municipalities will be forced to cut services.
A survey of 60 prominent business executives released in July showed that 80% don't expect Michigan's economy to get better in the next 18 months, and 88% don't expect to hire any new employees in the next six months.
Those statistics don't bode well for a turnaround anytime soon to help sagging local and state budgets.
Compounding the problem is the federal stimulus money. While it's expected to help out in 2009 and 2010, that's onetime money that the state can't depend on, said Mitch Bean, executive director of the House Fiscal Agency.
"We're still going to be $500 million short for 2011," he said, adding that's on top of a projected $1.9-billion deficit in the general and school aid funds.
Future doesn't look good
In 2012, the problem gets even worse, he said. On Oct. 1, 2011, the state's 4.35% income tax is scheduled to be cut by a tenth of 1% -- leaving a $170-million added hole in the budget.
"People are not focused on the long-term implications of this," Bean said. "The income tax rate cut was passed in 2007 by people who won't be in office anymore when it takes effect."
The time couldn't be riper for broad reforms, Rothwell said.
"We know it's tough, but it's been tough on everyone in the state for the last two years," he said. "People have seen their pay frozen or reduced and all perks eliminated. Everybody has taken cuts, but the state government largely has not."
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