Column: The COVID-19 public health crisis has now become a fiscal crisis

April 24, 2020 6:22 am

Michigan Capitol | Susan J. Demas

Part of the disorientation that so many of us are experiencing right now stems from the reality that COVID-19 changed our lives so rapidly and so profoundly that the ground seemed to drop from beneath us. 

We left our workplaces and in many cases lost our jobs, while essential workers forged ahead to keep us fed and safe. We isolated ourselves from family and friends. We watched loved ones become sick and in some cases lose their lives. 

Gov. Gretchen Whitmer, like many of her peers in other states, responded quickly and forcefully with an eye on protecting the health and safety of Michiganders. She issued executive orders to keep residents and K-12 students safely at home, to ensure hospitals were not overrun by delaying nonessential medical procedures, to help prevent evictions and utility shutoffs, and to ensure child care services for essential workers. 

The public health crisis isn’t over, but the state’s bold moves have helped to flatten the curve so Michigan hospitals and medical providers can manage the rapid spread of COVID-19. As Michigan moves slowly to reopen businesses, schools and other components of community life, one thing is clear — we now have an unavoidable fiscal crisis on our hands. 

As Michigan’s economy screeched to a halt, state revenues began to drop. More people are out of work, so fewer are paying income taxes. And, with unemployment high and many stores and other commerce shut down, sales tax revenues began to drop. Together, individual income taxes and sales tax taxes are the backbone of the state’s budget—representing over 60 percent of the state’s financial resources.

While the exact estimate will be worked out on May 15, when state economists and fiscal experts meet to assess how deep the revenue losses will be, it is now projected that the state will lose between $2 billion and $7 billion over the next 18 months. For the current budget year alone, a cut of $1 billion to $3 billion would make a serious dent in the state’s General Fund budget that stands at roughly $10.4 billion, as well as School Aid Fund spending at $13.3 billion—with all the cuts having to occur in the five months remaining in the 2020 fiscal budget year, which ends on Sept. 30. 

Michigan is required to balance its budget every year. Without significant and flexible federal aid, the revenue losses related to the coronavirus crisis will necessitate deep cuts in state services. 

Unfortunately, history shows that the places most vulnerable to cuts include some of the very services needed to help Michiganders dig out of a recession — public and mental health services, human services, early childhood and K-12 education, and workforce development. The reality of a recession is that the need for help with such basic needs as food and housing rises, while the funds available to meet those needs fall. 

The federal government has taken critical steps to mitigate the harms to families and businesses that are being caused nationwide by COVID-19. In addition to direct stimulus payments to individuals, Congress approved expansions in unemployment insurance, increases in food assistance, an education stabilization fund, and resources to protect small businesses.

One critical step by Congress was the approval of $150 billion for states and local governments to help cover the added expenses of combating COVID-19. Michigan’s share of that funding is expected to be approximately $3.1 billion for the state, and an additional $793 million for local governments. 

Unfortunately, these funds currently cannot be used to fill holes in state and local budgets, and must be expended before the end of December — even though unemployment is expected to remain high at least until 2022, and Michigan is anticipating a large gap between available revenues and the need for basic state services for several years. 

We join with the Washington, D.C.-based Center on Budget and Policy Priorities and other national advocates in calling for additional state fiscal relief that is flexible and tied to economic conditions, rather than a strict calendar deadline. The much-appreciated federal relief provided so far to states is targeted to an immediate public health crisis, not a longer-term state fiscal crisis. 

Without that relief, Michigan’s economy could be dragged lower than it was during the previous recession, with another slow recovery. Michigan residents and businesses can’t afford that setback.

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Pat Sorenson
Pat Sorenson

Pat Sorenson rejoined the Michigan League for Public Policy in September 2012 as a senior policy analyst working on state budget and tax policies. Pat was the senior director for policy and advocacy at the Early Childhood Investment Corporation; vice president for policy at Michigan’s Children; and a senior planning and research associate at the League, serving as the organization’s first Kids Count director.