Michigan at a Crossroads

Leaders throughout Michigan are heralding its status as the “Comeback State”, citing better than projected private-sector job growth, increased per-capita income and an unemployment rate that is the lowest the state has seen in more than a decade. This is a far different position than the state found itself in during fiscal year 2010-11.

Coming off a national recession largely precipitated by the burst of the housing bubble and a lack of available credit for businesses, the Michigan economy was in a perilous condition. In October of 2010, the unemployment rate was 12.8%. The labor force was shrinking. Michigan housing values had fallen, on average, by 20% across the state. Michigan’s average median household income fell to just over $45,000 in 2010, 4% below pre-recession levels. Jobs were scarce and the state’s poverty rate was climbing, topping out at 17.5% in 2011.

As one might expect, the beleaguered economy had a substantial impact on the state’s budget. Decreased revenues resulted in cuts to state spending of more than $3 billion from FY 2009 to FY 2011.5 As a result of the American Recovery and Reinvestment Act (ARRA), federal spending in the Michigan budget grew during that time. Increased federal funds were provided in an effort to meet the increased demand for social support programs and spur economic growth. However, increased funding that resulted from ARRA was temporary and targeted at specific social programs and economic stimulus strategies, rather than supplanting lost revenue.

Over the past 8 years, the state’s economy has seen significant improvements. Policymakers have enjoyed rebounding revenues and, as a result, have made sizable increases in state appropriations. While the increases have not been equally disbursed across the state budget, most departments have seen meaningful increases, many nearing pre-recession levels of state spending. 

Even with these increases, there remain significant concerns regarding funding for key public policy priorities in the state. Issues that often receive attention, as it relates to funding needs, include public infrastructure, outstanding debts at all levels of government, K-12 education, higher education, and numerous social safety net programs. This list is not exhaustive but demonstrates the broad scope of perceived or demonstrated funding needs.

As the state moves rapidly toward fall elections for both legislative and executive branches, opposing parties are advancing competing narratives about the state’s budget. Many of those aligned on the political left claim there has been a significant and damaging disinvestment in state government. Meanwhile, many on the political right claim that the improved economy is producing growing revenue, which is not needed by the state and should be returned to taxpayers. This paper will examine these claims and show that neither is one hundred percent accurate.

Whether the current claims are a byproduct of political rhetoric or genuine policy disagreement is unclear. However, what remains clear is that regardless of who wins, the next Governor and Legislature will be faced with some difficult financial decisions. This paper is intended to help inform those decisions
and provide needed context for incoming state officials as they navigate the critical tasks of developing, debating and passing the state’s budget.