April 22, 2009, Although federal stimulus funds can help balance the Michigan budget in Fiscal Years 2009 and 2010, they also create a real possibility of aggravating the ongoing structural deficit by permitting policy makers to postpone actions to bring long-term revenues and expenditures into balance. This is one of the findings of a new State Budget Note released by the Citizens Research Council of Michigan.
The State has been operating with a structural deficit, a deficit that will not be eliminated by a more buoyant economy, during the past decade. It has met the constitutional balanced budget requirement principally by using nonrecurring sources of income totalling over $8 billion over that period and has not solved the basic structural problem. Federal stimulus dollars, available from the American Recovery and Reinvestment Act (ARRA) will provide the State with $7 billion, which will help in the short run, but which may make more difficult the resolution of the structural deficit.
ARRA, which is aimed at the cyclical downturn, will provide significant new funding, but:
- Will not be sufficient to prevent spending cuts
- Will mask the size of the cuts necessary to deal with the structural deficit
- Will not be available long enough see the state through the entire period of reduced revenues caused by the recession
- Will cause a revenue “cliff” when the additional federal funding expires
“Policy makers must take steps to assure that the FY2011 budget is not more difficult than it has to be,” said CRC Director of State Affairs, Craig Thiel. “While we won’t be turning down the federal stimulus funding, we can’t relax our efforts to eliminate the ongoing deficit.”