Report: Michigan facing $2.6B budget deficit, 'difficult decisions' ahead

Craig Mauger
The Detroit News

Lansing — Michigan lawmakers and Gov. Gretchen Whitmer will have to make $2.6 billion in cuts and adjustments to the state's nearly $60-billion budget in the next few months largely because of the COVID-19 pandemic, a new analysis says.

On top of that, the state will have $3.3 billion less revenue than previously projected for its next budget, according to the analysis.

The forecast released by the Senate Fiscal Agency comes a day before state leaders meet to set official revenue projections for the state's current-year and 2021 fiscal year budgets. 

Michigan Gov. Gretchen Whitmer (right) presents her ‘fiscal year 20 budget proposal,’ called, ‘The Road To Opportunity,’ to lawmakers during a joint meeting of the House and Senate appropriations committees in the Senate Hearing Room on the ground floor of the Boji Tower in Lansing, Tuesday morning, March 5, 2019. With her are Deputy State Budget Director Kyle Jen (left) and and Budget Director Chris Kolb (center).

State lawmakers are looking to the federal government for help and are considering tapping into the state's rainy day fund, which has about $1.2 billion. But "difficult decisions" are going to have to be made, said House Appropriations Chairman Shane Hernandez, R-Port Huron.

"Some of this is going to have to be some difficult cuts," Hernandez said.

The Senate Fiscal Agency is predicting a $1.4-billion deficit in the state's General Fund and a $1.2-billion deficit in the School Aid Fund for the fiscal year that ends on Sept. 30. The numbers require total mid-year adjustments of $2.6 billion "to ensure expenditures do not exceed available revenues," according to the agency's report.

"The bulk of the change is related to the pandemic," said Chris Harkins, director of the Senate Fiscal Agency. "Going into March, most of our revenues looked to be on pace for the January estimate.

"Since that time, we've seen significant declines in sales tax, we're projecting significant declines in withholding, which are really connected to the pandemic itself."

Michigan confirmed its first COVID-19 cases on March 10. Since then, 4,787 deaths here have been linked to the virus.

Whitmer effectively shuttered the state's economy on March 23 when she issued a stay-at-home order that required most people to stay inside their homes. Michigan residents have filed 1.7 million unemployment claims since March 15, according to state data.

The Michigan Capitol is pictured in December 2019.

The House Fiscal Agency issued its own revenue projection Thursday but didn't detail deficit estimates like the Senate Fiscal Agency did. Both agencies are overseen by Republican legislative leaders. 

The House Fiscal Agency is recommending revising revenue expectations for the 2020 fiscal year downward by $3.1 billion, which is not the same as a deficit projection. The agency is recommending revising expectations for the next fiscal year, which begins on Oct. 1, downward by $2.7 billion.

The Senate Fiscal Agency is recommending revising revenue expectations for the 2020 fiscal year ending Sept. 30 downward by $3.6 billion and $3.3 billion for the next fiscal year.

Whitmer has already made some moves to try to relieve financial pressures on the state. This week, her administration said it hopes to save up to $80 million by requiring thousands of state employees to take two days of furlough per pay period through July 25. 

Michigan has received $3.8 billion in coronavirus relief aid from the federal government, but those dollars are for "very particular uses," Hernandez said.

Some lawmakers are hoping for more flexibility in how the funds can be spent.

"I think we all expected the numbers to not be great going into this," Sen. Curtis Hertel, D-East Lansing, said of the projections Thursday. "I am not surprised."

Eventually, under state law, the governor will have to issue an order, providing adjustments to bring the budget into line. The House and Senate appropriations committees will have the ability to approve of the changes or disapprove.