As Michigan faces a $2.2 billion budget deficit caused by COVID-19 and a loss of statewide revenue, Democratic Gov. Gretchen Whitmer and the Republican Legislature have come to a consensus on how to balance out the Fiscal Year 2020 budget.
The state must balance its budgets by the end of the fiscal year. The budget year ends on Sept. 30.
Using almost $1 billion in federal COVID-19 relief money, state leaders are trying to keep their heads above water by designating spending cuts, layoffs and hiring freezes in state government and using $350 million of the state’s $1.1 billion rainy day fund.
Federal funds will help ease some of the burden by allocating $512 million to schools, $53 million for hazard pay for teachers, $200 million to universities and community colleges and $150 million to local governments.
The state is also making significant spending cuts now that there is flexibility in federal COVID-19 relief, including cutting $256 million in state aid for schools, $200 million for universities, $97 million for local governments and $475 million in public safety costs.
“We are committed to working together to address the remaining shortfalls in next year’s budget and we are looking to our partners in Congress for support to help maintain the essential services relied upon by our families and small businesses,” Whitmer, Senate Majority Leader Mike Shirkey (R-Clark Lake) and House Speaker Lee Chatfield (R-Levering) said in a joint statement Monday night.
However, in a separate statement, Shirkey urged against federal assistance.
“As Congress contemplates further assistance to states, our caucus encourages them to balance fiscal responsibility with the realities of unprecedented challenges related to this insidious virus. We must resist the urge to default to debt and call it a plan. The immediate needs of our country are very real. Restraint on spending will be difficult in the face of these needs, but absolutely necessary,” said Shirkey.
While Whitmer has been vocal about the need for more federal aid to help Michigan manage its revenue loss, several Republicans have urged against federal bailouts.
In late May, a group of House Republicans introduced a resolution coming out against a federal bailout, claiming that the state’s rainy day fund should be enough to address the budget shortfall, and federal help is not needed.
In a statement Monday, House Appropriations Chair Shane Hernandez (R-Port Huron), who’s running for Congress in the open 10th Congressional District, echoed Shirkey’s call for less spending to close the deficit.
“We are not sitting back and waiting for the federal government to bail out state governments with an additional new spending plan – because that isn’t a plan at all. We instead are working with resources that already are available, while also making tough decisions that are necessary in unprecedented times like these,” Hernandez said.
Michigan was facing a $6.3 billion budget deficit over the next two fiscal years.
A budget deal for the Fiscal Year 2021, which begins Oct. 1, still need to be reached. Last year’s process was rocky in far better financial times.
The General Fund is estimated to see a $2 billion drop in tax revenue for Fiscal Year 2020, which ends on Sept. 30, while the School Aid Fund will see an almost $1.2 billion decrease.
Prior to the COVID-19 pandemic, the state budget was looking at an overflow of about $700 million, with $321 million more in revenue for Fiscal Year 2020 and about $412 million more for Fiscal Year 2021.
Michigan’s annual budget is roughly $60 billion.