2010 budget reforms tougher

Election year, less money to put state politicians in a bind

Mark Hornbeck / Detroit News Lansing Bureau

Lansing -- If the state budget completed late last week was tough, wait until next year, fiscal experts warn.

A still-struggling economy combined with a leaner stimulus package from the federal government spell deep trouble for a governor and Legislature that took an extra month to finish this year's budget.

On top of that, 2010 is a major election year for state offices, which will make the political climate even cooler for bold budget reforms and painful spending cuts and tax hikes.

"In this environment, the budget is a year-round endeavor. The upcoming election makes it more difficult. It's hard to envision a lot being done on reforms when the budget takes up all the time," said Craig Thiel, director of state affairs for the Citizens Research Council of Michigan, an independent think tank on public finance and policy matters.

"We have seen some signs of reform on the spending and revenue sides. But even if we do get reforms, will they be in place in time to make a big difference in the 2011 budget?"

The budget year that begins Oct. 1, 2010, is already in the hole, experts say. Gary Olson, director of the Senate Fiscal Agency, financial arm of the Senate, said the general fund for next year is nearly $800 million short. And that assumes the $1.7 billion in cuts this year remain in place. The general fund is the state's main checking account.

"How do we cut another $800 million out of the general fund? Where do you go?" Olson asked. He added that absent spending reforms or additional revenue, the state will have no choice but to slice again into aid for universities and the revenue sharing that municipalities rely on to pay police and firefighters.

The school aid fund should hold its own if the cuts made this year are continued and the economy rebounds, Olson said.

Mitchell Bean, director of the House Fiscal Agency, is more pessimistic. He said his "back of the envelope calculation" shows the shortfall in the general fund will be about $1 billion and cutbacks in school aid will amount to an additional $200 to $300 per student.

"We're looking at a terrible hole," he said.

The state balanced the books this year with considerable help from Washington. About $1 billion in stimulus cash was used in the general fund, and $450 million in recovery money helped balance the school aid fund. Olson said next year the state will have only $410 million in stimulus support for the general fund and $184 million for school aid.