We now have a better understanding of the impacts of the pandemic on the state budget following last week’s Consensus Revenue Estimating Conference. The state typically holds this conference twice a year but the unprecedented effects of COVID-19 on the state’s revenue prompted state leaders to hold a third convening last week.

CMF’s Government Relations and Public Policy Team has been closely monitoring the pandemic’s effects on the state’s budget and resources to understand how it may impact the state’s capacity to deliver services, resources and programs that are critical to building a stronger and more equitable future for Michigan. 

As the Policy Team tuned in to the conference they were particularly focused on the possible effects of budget shortfalls on health, education and economic prosperity, the three policy domains identified by the CMF Public Policy Committee and Michigan Philanthropy COVID-19 Working Group. As CMF announced last week the COVID-19 Working Group is an ad hoc committee of CMF, composed of foundation leaders and partners focused on advising and galvanizing our community of philanthropy’s immediate and long-term strategies to the pandemic and address both public health and economic disparities, especially those embedded in systemic racism.

Conference Key Takeaways

During the Revenue Estimating Conference, officials reported that emergency aid and federal stimulus dollars have helped to significantly expand the state’s resources to respond to the immediate challenges of this emergency. Revenue growth in the second quarter of this year was fueled almost entirely by deferred tax payments, Unemployment Insurance (UI) withholdings, the Paycheck Protection Program (PPP) and federal Economic Impact Payments which supported continued consumer spending amid the pandemic. Together these programs added nearly $43.3 billion to Michigan’s economy in the second quarter.

Still, officials estimate a $926.4 million budget shortfall in the General Fund / General Purpose and School Aid Fund combined remains for the current fiscal year. Budget estimates for the 2020-21 and 2021-22 fiscal years are $2.5 billion and $1.71 billion below pre-pandemic projections, respectively. The state has received nearly $3.1 billion in time-bound federal aid for emergency pandemic response, but many of these funds must be spent by the end of the year, could not be used to fill budget holes and are quickly being depleted. The state will still need additional, unrestricted federal support to mitigate the effects of a $926.4 million shortfall this year and future budget impacts. 

Health

The Michigan Department of Health and Human Services (MDHHS) base cost estimates were not as high as projected in May but are still up from earlier estimates. The costs for MDHHS programs have increased and therefore would need a projected $116.5 million from the state in the current fiscal year, with $347.8 million projected in the 2020-21 fiscal year and $188.6 million the following year. The state has allocated $648 million of the $3.1 billion received from the federal government for COVID-19 emergency response to public health emergency response.

Education

In May the Revenue Estimating principals projected a $1.3 billion shortfall in the School Aid Fund. They are now projecting a $211.1 million shortfall for the current fiscal year. In July the Legislature approved $350 million to be transferred to help fill budget holes in the School Aid Fund. The Governor’s Education Emergency Relief Fund (GEER) and federal Elementary and Secondary School Emergency Relief (ESSER) funds have also provided additional support to help fill some emergency funding gaps for districts this year. Both of these emergency funds have equitable allocation/application formulas; however, districts still face growing concern around bridging the digital divide and obtaining operational and advisory support as they design and execute their return to learn plans.

Economic Prosperity

Michigan lost nearly 1 in 4 jobs this spring. According to preliminary federal data, the state regained 909,000 of those jobs by the end of July but was still down about 370,000 jobs compared to February. Employment and job outlook projections presented at the conference revealed manufacturing had a much smoother recovery than most predicted, which has contributed to some of the positive employment and economic trends in Michigan. There is still considerable concern about job loss in “slow recovery industries” which include many lower-wage jobs in the service and hospitality industries.

CMF’s Government Relations and Public Policy Team will continue to monitor the budget to understand where there may be holes and gaps in resources that service Michigan families and share those updates with CMF members.

Want more?

Register today to learn more about the state budget and budget implications during our September 2 conversation with the State Budget Director Chris Kolb and State Treasurer Rachael Eubanks.

Join either of the "Reimagining Our Policy Framework for COVID-19 and Beyond" community conversations happening September 2 and September 3 to discuss the Michigan Philanthropy COVID-19 Working Group policy framework. The conversation will focus on ways we can strengthen our collective voice to impact policy change during the pandemic and beyond.  

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