The COVID-19 pandemic has led to skyrocketing unemployment and bred an almost-certain recession, nationwide and in Michigan. Recessions lead to budget shortfalls, which means cuts to, well, usually everything in the state: schools, infrastructure, public safety, the safety net and more.
How bad is it going to get? Well, I’ve been covering Michigan budgets for 16 years. And right now, things look worse than I’ve ever seen during Michigan’s decade-long recession — which, of course, was capped off by the national Great Recession from 2007 to 2009.
Michigan, of course, hasn’t had to handle a pandemic for more than a century since the 1918 influenza outbreak. But we have had to deal with dozens of years of being broke — even as recently as during the last decade!
Unfortunately, that experience won’t really come in handy. You can’t find too many lawmakers who had to craft budgets during recessions, thanks to term limits. But Gov. Gretchen Whitmer did, having served 14 straight years in the Legislature, starting in 2001 (around the last recession’s start in Michigan). That should give her some advantage against the GOP Legislature’s obstinance, at least.
Right now, the Department of Treasury, Management and Budget (DTMB) pegs the revenue loss for the current fiscal year of 2020 between $1 and $3 billion. The budget is $59.4 billion. It gets worse for Fiscal Year 2021 (the budget lawmakers and Whitmer are working on), with another revenue shortfall projected between $1 and $4 billion.
We have $1.2 billion in our rainy day fund for emergencies (it’s pouring, so this is a break-the-glass moment). But that’s obviously not enough to fill the hole.
DTMB spokesman Kurt Weiss stresses that the situation is “fluid with a lot of unknowns.” People are throwing out a lot of numbers right now — some even higher (!). Fiscal experts are set to gather, as they do every May, for the second Consensus Revenue Estimating Conference (CREC) of the year. That’s basically when we find out how much money the state has. While no one knows for sure, the safe bet is: not much.
And other states are in the exact same boat. I’ll break this down further in a moment.
But first, let’s look at the big picture. If you think that the budget battle between a GOP Legislature and Democratic governor was bad last year (and it was … not great), just wait until the state doesn’t have money.
To briefly recap: In March 2019, Whitmer presented her first budget after being elected that included a 45-cent gas tax to fix the roads. Republicans and several Democrats rejected that, but no one came up with a way to raise the $2.5 billion annually experts say is needed for infrastructure. The Legislature passed preliminary budgets and mostly left for the summer.
Let’s take a stretch break.
OK, the Legislature came back before the Sept. 30 budget deadline. Whitmer, House Speaker Lee Chatfield (R-Levering) and Senate Majority Leader Mike Shirkey (R-Clarklake) were hammering out a budget (which is the way it always works). But those talks broke down because of (you guessed it) roads. So Republicans passed their own un-negotiated budgets (which is not the way it works) in September, basically daring Whitmer to shut the government down.
She didn’t. But she did veto almost $1 billion from the almost $60 billion budget, including for areas Republicans love, like charter schools, an anti-abortion outfit and private colleges. Then Whitmer had an administrative board Dems control move around another $625 million for her priorities. For the next several weeks, there was a lot of back and forth and GOP threats to clamp down on her power.
After all that, leaders inked a compromise in December, restoring some funding in supplemental spending legislation, with some new rules, like that budgets must be on the governor’s desk by July 1 (good luck). They had a second supplemental right as COVID-19 hit, that would have funded goodies like Pure Michigan. But given the state’s fragile fiscal picture, Whitmer ended up vetoing $80 million in spending and Republicans agreed.
OK. Go take a (socially distant) walk around the block. I’ll wait.
Great. So here’s where we’re at. Before the COVID-19 outbreak hit Michigan, fiscal experts at the January CREC said Michigan was on track for modest revenue growth, with $321 million more in revenue for FY 2020 and $412 million more for FY 2021.
Whitmer in early February proposed a $61.9 billion budget for FY 2021 with some modest increases for schools, clean water and safety net programs for childcare, maternal and infant health and more. The plan represented a 4% increase, a little more than the 2.3% rate of inflation.
That’s all out the window now. We don’t have any money. And unlike the federal government, which can run big deficits — and does! — states have to balance their budgets. Every year.
The hail Mary pass is for a big bailout to state and local governments from the feds, which can rack up debt to get the economy moving again. President Trump signed another $2 trillion COVID-19 stimulus last month which does send some cash to states. But there’s a catch.
“Right now, the way the language is written, you can only use the federal funds for things that don’t currently exist in your state budget,” Weiss told me. “States are working with legislative leaders in D.C. to try to rectify that, because every state is facing revenue loss. And without the ability to use federal dollars to replace lost revenue, then states are going to have to look at drastic cuts.”
That bill included bailouts for airlines, hotels and more, in addition to some good things, like upping unemployment benefits and sending $1,200 relief checks to folks. So why not really help other governments? They’re clearly not afraid to spend big right now.
But assuming that doesn’t happen, we’re in a lot of trouble.
Now’s the time for fiscal conservatives to bust out the intellectually dishonest argument that it’s not hard to cut billions upon billions of fat from a $60 billion budget. (This is their argument when the economy is booming, too, just like it’s always a good time to cut taxes).
In reality, lawmakers are limited in what they can cut. Almost 40% of the budget already comes from federal funding with big strings attached for areas like roads, schools and health care, and another 18% is in other restricted funds.
There are two funds that legislators have discretion over. One is the School Aid Fund, which was estimated in January to be roughly $14 billion, and is for K-12 schools (some goes into colleges now, which is a whole other debate).
The other is the General Fund, which has been basically flat for the last 20 years and was estimated to be $11 billion. That handles funding for pretty much everything else, like local governments, parks, state police, veterans affairs, the environment, the safety net and the big one: prisons.
So slashing these funds is not quite as easy as right-wingers lazily claim (but they’re never deterred by actual budget numbers, so expect to see this argument a lot).
Deeply frightening figures aside, you also have the political dimension. The last time Michigan was in the poorhouse during divided government, we got not one, but two government shutdowns in 2007 and 2009. (I remember thinking during one of the feverish, all-night sessions in 2007 that I was witnessing history and would never see something like this again. Boy, was I naïve).
Will Michigan leaders cast partisanship aside and try to devise the best budget they can under terrible circumstances? Well, I’d really like to think so. That’s what we need right now.
But on Thursday, Michigan surpassed 21,000 cases of COVID-19 and had almost 1,100 total deaths. We also hold the dubious distinction of having the third-most cases in the nation. And the case numbers are likely much higher, especially in rural areas, where testing is scarce due to federal shortages.
Given the fact that we haven’t hit peak yet, Whitmer just signed an extension of the stay home order — and tightened up travel and non-essential purchase rules to boot.
Republicans were absolutely livid. Chatfield declared on Twitter: “The governor’s extended Stay-at-Home order is the wrong call and is bad for Michigan families. We had a chance today to protect public health and take a positive step towards recovery. Unfortunately, rather than focus on what’s safe, the governor decided again who is ‘essential.’”
State Rep. Triston Cole (R-Mancelona) had some very specific concerns: “Boat owners are not even allowed to pick up their boats from winter storage right now, you’ve got to be kidding me.”
So if Republicans don’t take a pandemic with a mounting death toll seriously — and are instead using it as an excuse to bash the Democratic governor — what are the odds that they won’t play political games with a cratering budget, even in emergency times?
I’d say they’re about as good as Trump not holding another unhinged COVID-19 press conference.