Lansing Update: May 25, 2007

In this issue of Lansing Update:

  1. $1.6B Budget Deficit Looms as Legislature Passes ‘07 Agreement

$1.6B Budget Deficit Looms as Legislature Passes ‘07 Agreement

While the state’s $803 million budget deficit for fiscal year 2007 has been solved after nearly two months of negotiation that included budget cuts, accounting changes and payment shifts, state leaders are now preparing to confront a $1.6 billion fiscal year 2008 budget deficit that many observe will necessitate some sort of revenue enhancement.

Following a rare Friday evening session, legislative leaders announced this week that a solution to the current year’s budget deficit had been found. Highlights of those areas of state government affected by the deal include the following:

A key element of the budget deal is possibly securing some $400 million in tobacco settlement funds, which the state began receiving after a multi-state lawsuit against the nation’s largest tobacco manufacturers was settled. Legislative leaders have stated that the securitization of those funds will be the last possible solution if revenue is not found elsewhere. According to a resolution passed by the House of Representatives “we hereby express support for the securitization of tobacco settlement fund money to the general fund as part of the effort to balance the state budget, provided this step is part of a long-term solution to the structural deficit.”

The 2007 budget deal comes one week before a June 1 deadline imposed by the administration, which threatened to cut Medicaid providers’ reimbursement rates by six percent and to reduce the per pupil foundation allowance by $122 if a solution was not found. Also averted by the budget deal was the layoff of 29 State Police troopers, revenue sharing to local governments, and possible state government program and department shutdowns.

Although the state has balanced its budget for the current year with cuts and an agreement to possibly securitize tobacco funds, leaders must now focus on the $1.6 billion deficit that exists [Link no longer available —Ed.] for the coming fiscal year. Based on past budget fixes that included department and program cuts and accounting shifts, the administration says a tax increase will be needed to balance the revenue shortfall.