S.F.A. MEMO SHOWS DEFICITS GROWING TO $1.4B IN '09, $2.7B IN '10

A new memo from the Senate Fiscal Agency shows budget deficits continuing to grow, with a total current year general fund and School Aid Fund deficit of $1.41 billion, and a total 2009-10 general fund and School Aid Fund deficit of $2.71 billion.

The memo says that these figures are the latest that the administration of Governor Jennifer Granholm and legislative leaders are using in discussing the budget solutions.

The memo also says that federal stimulus monies will be sufficient to cover the shortfalls for the current 2008-09 fiscal year, leaving some funds left over for the 2009-10 fiscal year.   But stimulus monies will not be enough to cover the shortfalls for 2009-10, the memo said, and state officials have to prepare to cover anticipated deficits - the "cliff" - that will face the state budget in the 2010-11 fiscal year when no stimulus monies are anticipated.

The memo, which was dated Monday but posted to the SFA website on Wednesday, also came out when various sources acknowledged that Republican lawmakers were reluctantly looking at the possibility that additional revenues, most likely by reducing tax credits, were going to have to be part of the budget solution.

But Republicans are also insisting that the administration and legislative Democrats agree to budget target figures before they begin the effort to determine how much revenue may have to be added.

Since the May revenue estimating conference, state revenues have continued to struggle, falling short of estimates each month thus far.   In May, the SFA estimated a total current year general fund and SAF deficit of $1.3 billion.

The latest memo shows the general fund budget deficit higher by about $100 million, to $983.8 million, from the May estimate of $884.5 million.   The projection for a SAF deficit of $429 million in the current year was unchanged from May.

The memo said state leaders will cover the current year's deficit with federal stimulus monies.   The general fund deficit will be covered with $1.18 billion in stimulus funds, leaving a balance of $199.6 million going into 2009-10.   In May, the SFA had projected a balance of $345.4 million going into the new fiscal year once the deficit had been covered.

In the SAF, the memo estimates a balance of $171 million after stimulus funds are used, with substantially less in stimulus funds than had been anticipated in May.

The anticipated deficits for 2009-10 are based in part on Ms. Granholm's original budget proposal made in February.   In May, the SFA anticipated a general fund shortfall of $1.6 billion.

Now, the SFA memo says the anticipated shortfall in the general fund would total about $1.8 billion.   Even if all federal stimulus funds are used and the state enacts the $166.4 million in tax and fee increases Ms. Granholm proposed in February, the general fund would be in deficit by $420 billion.

In terms of school funding, in May, the SFA anticipated a deficit of $764 million, but in the latest memo that deficit was now $958.6 million.   Use of all the stimulus funds and tax increases expected for schools will still leave the budget some $80 million in deficit.

The memo said the deficit will "likely be eliminated by utilizing a combination of reductions to the level of appropriations recommended by the governor, tax and fee increases and the use of available federal (stimulus) funds."

But the memo also cautions that officials have to carefully balance use of the one-time monies to support the budget.   "Failure to take this into account will almost certainly lead to large imbalances in the FY 2010-11 state budget," the memo said.

The memo indicated that these figures were agreed to by the different sides in the budget discussions.

A spokesperson for Ms. Granholm said only, "They're in the ballpark."

The SFA numbers for the school fund deficit were higher than the House Fiscal Agency's estimate by about $140 million, one source said, adding that one of the driving factors in the budget discussions now was how to avoid a massive budget problem in 2010-11 when no federal stimulus funds are expected.   That could lead to even larger budget cuts overall.

And Senate sources, both Democrat and Republican, confirmed that Republicans are considering the possibility of additional revenues as part of the budget fix.   But the Republican sources said they want the spending figures set, so officials can determine how much short the state remains after budget cuts and use of the stimulus funds are factored in.   They were not willing to discuss any kind of tax increases before all other options are factored into the budget situation, the source said.