Michigan Capitol | Susan J. Demas
State leaders have come to a bipartisan consensus on how to fill the $2.2 billion budget hole for the 2020 fiscal year, and the plan is dependent on the state’s rainy day fund and federal funding for COVID-19 relief.
Two supplemental bills went in front of the House and Senate Appropriations committees Wednesday. Both bills then passed through the Senate with a 36-1 vote.
The Legislature is expected to wrap up the budget supplemental this week before sending to Gov. Gretchen Whitmer’s desk.
“It didn’t happen overnight,” Budget Director Chris Kolb said Wednesday. “And it wasn’t determined by any one party involved. It was … a negotiated agreement between the executive and legislative branches of government.”
During a joint meeting of the House and Senate Appropriations committees, Kolb presented the plan which includes state employee furloughs, $350 million of the state’s $1.1 billion rainy day fund, federal COVID-19 relief money and cuts to a number of state agencies.
Prior to the COVID-19 pandemic, the state budget, roughly $60 billion, was expecting 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.
However, after many Michigan businesses were forced to close and the state saw a massive loss in revenue, the pandemic has blown a multi-billion dollar hole into the state’s once healthy budget.
State lawmakers also will need to come up with a plan for Fiscal Year 2021, which is estimated to have a $3 billion budget hole. Whitmer must sign that budget by Sept. 30 to avoid a partial government shutdown.
The Democratic governor’s executive order cuts $666 million from the state’s current budget through spending cuts where federal relief money can be spent, as well as via furloughs and hiring freezes.
The plan largely made it through the GOP-controlled committees with support from both sides of the aisle.
Sen. Jeff Irwin (D-Ann Arbor) voted no on the budget amendment, saying that it’s too early to assume that Congress is going to supply enough funding to the state for the next fiscal year.
“It’s betting on the fact that the federal government is going to come with more relief, and if they do, that might make this compromise look more reasonable in my mind,” he said. “But until Congress acts, I think it’s a mistake for us to burn up all of our dry tinder, burn up all of our reserve fuel, when we don’t know what Congress is going to do … I hope Congress does something, too. But if they don’t, we’re putting ourselves in a very difficult position for next year.”
As the Advance reported Wednesday, the Democratic-led U.S. House, GOP-controlled U.S. Senate and the White House have been trying to negotiate another COVID-19 relief package, which may provide additional funding for struggling state and local governments.
Irwin said the Legislature instead should be looking at ways to cut spending and increase revenue.
Sen. Curtis Hertel (D-East Lansing) called the budget deal a “good bipartisan agreement.”
“The fact that you were able to work together and actually solve this is a testament to each of your public service and each of your own integrity, so I really want to commend everyone on working together,” Hertel said to the committee members.
Senate Appropriations Chair Jim Stamas (R-Midland) said he is glad that they could come to an agreement so that they can start putting together a Fiscal Year 2021 budget.
“This has been a very intense … two to three weeks time where we’d certainly encountered disagreements,” Stamas said. “We found a way to come together to find a solution. Our mission needs to be to protect the hardworking taxpayer dollars of our communities.”
House Appropriations Chair Shane Hernandez (R-Midland) added that it “has been an unusual process. I don’t think it’s anything any of us planned or thought this was how it would go, but we have been able to come together and put this plan on the table that I am able to support today.”
On June 30, Whitmer, state House Speaker Lee Chatfield (R-Levering) and Senate Majority Leader Mike Shirkey (R-Clarklake) announced their blueprint plan to balance the state’s budget.
After tapping into the rainy day fund to help cover the major loss in revenue, the state’s savings account is left with $836 million.
Cutting some state funding to a number of state agencies will help ease the budget shortfall, including a $115 million reduction from the Michigan State Police and $393 million from the Department of Corrections. But payroll costs for both of those agencies will instead be covered through federal COVID-19 relief funding.
Kolb also announced that the state will save $27 million through furloughs of state employees, $21 million through hiring freezes at the state level and $47 million through discretionary spending freezes.
The plan also includes massive state funding cuts to K-12 schools, colleges and universities, but will be covered through federal dollars.
K-12 schools will actually see an increase of $136 million due to $512 million of federal aid, money from the rainy day fund and money allocated from the General Fund. Also coming from the Coronavirus Relief Fund (CRF) is $53 million in hazard pay for teachers.
Per pupil funding will see an increase of $175, after a CRF allocation of $350 per pupil and a state funding cut of $175 per pupil.
Universities will be balanced out with a $164 million cut in state funding and an allocation of $164 million from the CRF. Community colleges also will not see a loss in funding after a $36 million reduction in funding and an allocation of $36 million from the CRF.
“If you had told us a month ago that we would be able to come to an agreement that certainly solves lots of major and difficult problems, but also provides more money for schools and cities, and at the end of this process doesn’t result in major layoffs and a lot of other things, I think most people would have told you that you are crazy,” Hertel said.
With $94 million leftover in federal relief money and the $836 million left in the rainy day fund, the Legislature will now need to refocus plans on the 2021 Fiscal Year budget, which begins Oct. 1.
Kolb said he is grateful for the leftover funds in the state’s savings accounts and warns that it will likely be needed for the next budget.
“This year, when we need it, it’s there and we can utilize it … but we’ll also probably for [Fiscal Year 2021] have to look at that as an instrument,” Kolb said.
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