Presents All Cut Options — Adds Fuel To Debate
Senate Fiscal Agency (SFA) Director Gary OLSON today told the Senate Appropriations Committee that the worst thing they could do is to do nothing.
"Defaulting on bonds is an option," Olson explained after noting that the state will need to make some $37 million in debt service payments in early October and without some sort of passed budget, there is no legal authority to make those payments. "But, it would take years if not decades [for the state] to recover."
Olson made his remarks while presenting cuts outlined by Senate Majority Leader Mike BISHOP (R-Rochester). Recall that last Friday Bishop announced he was proposing $1 billion in cuts and spending reforms.
In that press release, the Senate Majority Leader promised that the SFA would also present other cut options to the Senators, which is exactly what Olson did (See "Bishop Proposes $1B In Cuts," 09/07/07).
Essentially, the SFA chief began by explaining the following budget reality:
- That combined, lawmakers essentially punted on a $1.3 billion budget deficit from the current fiscal year by borrowing against the state's tobacco settlement dollars and other one-time fixes and borrowing gimmicks
- That $1.3 billion has now moved over into the Fiscal Year 2008 budget year column. However, added to that column to maintain the so-called "continued services" budget are economic increases for workers funding for rising caseloads and other items — meaning the budget hole grows to some $1.75 billion.
- To date, the House-passed budget bills have overspent the so-called "continuation budget" by $235 million. The Republican Senate-passed budgets have come in $176.2 million below the $10.08 billion General Fund continuation services budget.
- The SFA and the House Fiscal Agency have been doing research on continuation budgets and see no constitutional challenge to continuing the budget resolution for one-week, two weeks, one month or longer. However, he warned that the longer the state overspends into the fiscal year, the harder cuts are to make.
- That right now, revenue estimates are holding firm and that a continuation budget would be pegged to existing budget revenues.
Olson also outlined a series of cuts that could be used to further balance the budget (Bishop's plan brings the budget deficit down to $656.4 million). Included in those additional cut options are:
- Eliminating of statutory revenue sharing, saving $398.7 million
- Redirecting $75 million in 21st Century Jobs funds to the General Fund
- Cutting $25 million from the Healthy Michigan Fund
- Not pay the skipped higher education $138 million payment from the current year
- Cutting state aid to libraries by $12.1 million
- Cutting Fire Protection Grants by $10.9 million
- Cutting $77 million in School Aid Fund categorical spending
- Cutting $14 million in secondary road patrol grants from the State Police
- Eliminating Michigan Promotion Funding, saving $5 million
- Cutting Comprehensive Transportation Fund Grants (non-constitutional), saving $78 million
- Changing in state law to release prisoners earlier or change sentencing guidelines and the shuttering of three to four prison facilities
The list was long and clearly rattled some of the Democratic members on the panel.
"I'm speechless," said Sen. Liz BRATER (D-Ann Arbor). "I hope I can frame these questions, but after the picture you painted here, I'm even more distressed about this budget picture than I was before."
At one point, under questioning by a Republican member, Olson gave the GOP at least some cover politically for a tax increase. He argued that statistically, there's not much impact on the state's economy by either raising or cutting the sales tax by one-penny.
"Yes, a tax increase or a tax reduction is going to take money out of someone's pocket or into someone's pocket, but it's also going to impact state and local government ability to deliver services," Olson added. "I think in an overall sense, and we've got to understand when we talk about tax increases at the state level it's a very small percentage of our state's economy."
Sen. Irma CLARK-COLEMAN (D-Detroit) asked, "If we move forward with the Bishop proposal, with all of these draconian cuts, what does this do to our bond rating?"
"What the rating agencies are looking for is the fundamental ability of state and local governments to pay their obligations," Olson added that it's because the state's used one-time spending solutions that its credit rating has been souring.
"I do believe if fundamental decisions are made to reduce spending that will not be detrimental to our bond rating," he added. "It may have other political fall out."
He then reminded Clark-Coleman and the other members present that such decisions are "decisions that you as elected officials, not me, not others, have to make to get to a fundamentally balanced budget."