Finley: Start cutting the state budget
Legislative leaders and Gov. Gretchen Whitmer found it impossible to agree on a budget last year, when Michigan was enjoying prosperity and state coffers were full.
That doesn't create a lot of optimism for their ability to meet the enormous fiscal task ahead of them this year, with tax revenues collapsing due to the COVID-19 shutdown, the budget shortfall reaching astronomical heights and time for finding a solution running short.
Policymakers have just over five months to address a deficit pegged at between $1.5 billion and $3.5 billion, depending on how much longer the lockdown lasts and how quickly Michigan businesses recover.
Yet there seems to be no sense of urgency to begin swinging the budget ax.
Senate Majority Leader Mike Shirkey says his chamber's various committee chairs have been studying their budgets to find potential cuts, but negotiations have not begun with the governor's office.
"I believe the deficit will be at the higher end, $2.5 to $3 billion," Shirkey says. "We're running out of time. Every day that goes by makes what we will have to do more difficult."
If Shirkey's projection is right, the deficit will amount to 20 to 25% of the General Fund.
And that's to balance this year's budget, which has only five months left before it expires on Oct. 1. By law, Michigan can't carry over a deficit to next year.
Where will the state find that kind of money?
The Rainy Day Fund is an easy target. It was sitting at $1.2 billion in March. But draining that fund dry has consequences — it will impact Michigan's bond rating and raise the cost of borrowing. That's significant since Whitmer hopes to sell $3.5 billion in road construction bonds this year.
And even if the rainy day money is used, it won't be enough to fill the hole.
"This is going to be a bigger challenge than anything we faced in the Great Recession," Shirkey says. "No plan, no project, no line item will be immune. Everything is on table."
He says public safety and education will be prioritized, but not necessarily held harmless. Even the money set aside in the General Fund to supplement road repairs is up for discussion, he says.
Smoothing roads was a top priority in good times; but compared to the social and health needs Michigan residents are facing, it drops down the list. Corrections spending is also a prime spot for finding savings.
Regardless of where the cuts are made, the pace of discussions must accelerate. Shirkey says Legislative budget officials have talked with their peers in the governor's office, but the leadership and the governor have not yet engaged.
Whitmer has trimmed $80 million in state spending and enacted a hiring freeze. That’s a small step compared to what’s needed.
Most non-essential state workers remain on the payroll, despite calls from some legislative Republicans to enact widespread layoffs.
Compare the state's approach to that of the city of Detroit, which last week moved to make steep cuts in the workforce to get ahead of its own budget shortfall.
At the very least, Whitmer, Shirkey and House Speaker Lee Chatfield should be talking more intensely, and more often. Shirkey had a 20-minute conversation with Whitmer on Monday — their first in more than two weeks — but didn't discuss the budget.
Chris Kolb, the governor's budget chief, did not return calls for comment.
Deep spending cuts need to happen now. They can't wait until September when the options are fewer.
Waiting until the clock approaches midnight will raise the temptation for tax hikes. That would be the worst solution. It will be hard enough for Michigan businesses and citizens to get back on their feet without saddling them with a higher tax burden.
Strong leadership from Lansing demands juggling all aspects of this pandemic-induced crisis. The tough decisions necessary to assure the state remains solvent and able to meet the needs of its citizen must be made today.
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