Michigan policymakers should find a mix of solutions to maintain long-term “structural balance” in future budgets, according to a report that outlines how the state’s COVID-19-affected cash position indicates fiscal health.
The Citizens Research Council of Michigan (CRCM) addresses the idea that Michigan’s successful 10-year struggle to gain strong cash reserves would help it weather the current coronavirus-related recession that’s resulting in state revenue losses.
“The approach state policymakers take to crafting Fiscal Year 2021 and Fiscal Year 2022 budgets will determine the long-term outlook for the state’s cash position,” according to the CRCM.
“They may be forced to choose between the goals of maintaining a strong cash position and crafting budgets with minimal spending cuts to live within available revenues. Finding the right mix between spending cuts, revenue increases, rainy day fund dollars and federal assistance will be necessary to maintain structural balance over the long-term," the CRCM says.
The report presents possible negative financial impacts to Michigan’s “cash on hand” due to the coronavirus pandemic, and specifically, how those impacts could be realized.
“Michigan collections for the General Fund and School Aid Fund were $1.48 billion, down 44 percent from the previous year,” the CRCM says. “That represents a $1 billion reduction in revenue compared to the previous year.”
The state’s cash position could be reduced if the General Fund and School Aid Fund have deficits “in one of the next few fiscal years” because policymakers didn’t balance the budget, according to CRCM.
“The resiliency built in the state’s cash reserves over the last decade should be sufficient to last through the recession,” the CRCM said in the report. “As long as policymakers make responsible choices in response to the current economic downturn, Michigan should not be at risk of a cash deficit due to the recession.”
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