Rep. Ryan Berman (R-Commerce Twp.) insists schools will be fully funded even without federal aid, but his Republican colleagues warn cuts to K-12 might run deep.
LANSING, MI — One of the knock-on effects of the novel coronavirus pandemic is the impact it has had on state and local budgets. But while Gov. Gretchen Whitmer is calling on the federal government for assistance, Republicans in the Michigan legislature are seeking to prevent that from happening.
In testimony to members of Congress, Gov. Whitmer referred to the pandemic’s impact on states’ budgets as “economic havoc” tearing through the budgeting process.
“In addition to facing a public health emergency unlike any we have seen in our lifetimes, COVID-19 has also left Michigan and every other state with a fiscal crisis that creates unprecedented budget challenges,” Gov. Whitmer said in her testimony. “As a result, state and local governments are struggling to provide essential services.”
States face budget shortfalls that over the next three years will reach $765 billion, Whitmer said in her testimony. This is because as more Americans are without work and as economic activity is depressed by fears about the pandemic, less money is flowing through the system. With less money moving, income and sales taxes the states would use to operate are dramatically reduced. As a result, Michigan — like other states — has taken a hard, surprising financial hit and lacks a clear means of recovery.
‘No Playbook’ for the Budget Crisis
Michigan is already facing a budget shortfall of more than $6 billion. Entirely exhausting Michigan’s rainy day fund will barely scratch that shortfall, Gov. Whitmer explained.
“To say the numbers we just saw are sobering would be an understatement,” Michigan Budget Director Chris Kolb told Bridge after seeing the projected shortfall. “There’s no playbook that’s on the shelf to truly address a loss of revenue of this size this quickly. This is potentially as bad, if not worse than, the Great Recession.”
As such, Gov. Whitmer asked for federal assistance. But while waiting for a response from Congress, Republicans in the state legislature want to prevent that assistance. The Republican-controlled legislature introduced House Bill 267, which would prevent Michigan from receiving federal assistance by asking Congress not to authorize it to begin with.
“It should not be incumbent on the federal government and American taxpayers to bail out states for their fiscal irresponsibility,” the bill states, adding that Michigan is “prepared to address revenue shortfalls without a federal bailout” thanks to the rainy day fund.
Because the fund can’t cover the shortfalls, the Republican plan would also necessitate heavy budget cuts.
Introduced by Rep. Michele Hoitenga (R-Manton), the sponsors of the bill include state reps. Ryan Berman (R-Commerce Twp.), Steven Johnson (R-Wayland), Pamela Hornberger (R-Chesterfield Twp.), John Reilly (R-Oakland Twp.), Daire Rendon (R-Lake City), Luke Meerman (R-Polktown Twp.), Kathy Crawford (R-Novi), Matthew Maddock (R-Milford), and Gregory Markkanen (R-Hancock).
The legislation is a House resolution and not a proposed law, meaning it does not have to be signed by Gov. Whitmer but lacks the authority to directly refuse funds. Instead it seeks to “memorialize” the Congress to not pass bailouts for state and local governments at all.
What Are We Going to Cut Instead?
Kolb said that entirely eliminating 12 of the state’s smaller departments — including the entire budget for the Legislature and the judiciary — only makes up $2 billion of that shortfall. Other potential cuts include a 25% reduction in K-12 education, which state Sen. Wayne Schmidt (R-Traverse City) cautioned is possible as a result of coronavirus-induced shortfalls.
“I’m not going to pretend state spending cuts won’t likely be needed,” Commerce’s Rep. Berman said in comments provided to The ‘Gander. “The budget picture is bleak. Many of our local businesses were shut down or slowed significantly during COVID-19, which impacts how much the state collects in income and sales taxes.
“I believe Michigan should tap into the funds we already have and can readily access,” Berman said.
Though the rainy day fund is designed to be used to stabilize budgets in the event of a sudden shock to a state’s economy, Michigan’s is not nearly capable of addressing the fiscal impact of the coronavirus. The fund totals less than a fifth of the projected shortfall.
Berman encouraged focusing on budget cuts to resolve the shortfall. Berman pointed to the state’s long history of avoiding significant debts and sound financial management as reasons to avoid taking a federal bailout in the current crisis.
Berman insists that he is not intending to cut education funding to cover the gap, and bristled at the notion.
“Over the past few days, I have heard concerns over my support for a recently introduced House Resolution which opposes the idea of unrestricted bailout money from the federal government to help with state budget shortfalls created by COVID-19,” he said. “I maintain that I’m committed to prioritizing and fully funding our education system while respecting your tax dollars.”
In order to address the budget shortfall without assistance, however, the over $6 billion shortfall makes up more than 10% of the state’s $60 billion budget. The state’s budget director agreed that Michigan has been largely successful with financial management in recent years, but that only served to highlight the unusual nature of the current shortfalls.
“Michigan is a well-managed state with a good credit rating and a healthy rainy day fund,” Kolb told reporters at a press conference. “Our revenue shortfall is a direct result of COVID-19 and the economic toil it has taken. This is a 50-state problem.”