23
Michigan Association of Counties Traverse City, September 19 th , 2011
Michigan Association of Counties
Traverse City, September 19th, 2011
February 2011 2
September 2011 3
Real and Nominal State GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$280.00
$290.00
$300.00
$310.00
$320.00
$330.00
$340.00
$350.00
$360.00
$370.00
$380.00
$390.00
$400.00
$336.79 $336.98
$351.43
$361.97 $365.19
$375.26 $376.61
$387.09
$375.44 $369.67
$384.17
$328.78
$338.40 $342.68
$339.10 $340.51 $333.74 $334.22
$319.83
$303.99 $312.94
Nomina...
Billion
s
Job Change in Michigan
Source: U.S. Bureau of Labor Statistics and May 2011 Consensus Estimates
1991-2000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
88.0
(112.7)
(76.7) (71.0)
(16.9) (9.3)
(63.2) (58.7)
(105.6)
(291.9)
(11.0)
66.0 39.0 48.0
Th
ou
san
ds
Average AnnualJob Change
June 2011 4
2011 - 2013are May 2011
Consensus Estimates
FY 2011-12 BudgetAdjusted Gross Funding Sources
Federal$19,299,605,500
41.31%
Local/ Private$496,887,600
1.06%
Other$26,921,160,300
57.63%State Restricted$18,470,177,500
39.54%
GF/ GP$8,450,982,800
18.09%
Adjusted Gross = $46,717,653,400
56.2%of State Sources
fundingis paid to
local governments
June 2011 5
FY 2011-12 GF/GP
Debt Service4.5%
Other10.8%
Community Health33.1%
Colleges / Universities
13.7%
Corrections22.2%
Human Services12.7%
State Police3.1%
4.5%$382 million
Debt Service and SBA Rent
Treasury21.9%
Judiciary16.7%
School Aid13.0%
DTMB12.6%
Legislature10.9%
MVA3.6%
LARA3.4%
Agriculture3.2%Attorney General3.2%
DEQ3.1%
Transportation
0.1%
Civil Rights1.2%
DNR1.9%
Executive Office0.5%
Legislative Auditor General1.2%
State1.2%
Education2.4%
FY 2011-12 Total = $8,450,982,800*
June 2011 6* = Includes one-time boilerplate appropriation
School AidMajor Spending Categories
Foundation allowances(used for school operations)absorb over $2 out of every $3 spent
Foundation Al-lowances
872330000068.9%
Special Education1414869100
11.2%Federal Programs (non-Special Ed)
12159318009.6%
One-Time Best Practices / Retire-
ment$442,000,000
3.5%Other Programs376400800
3.0%At-Risk Programs
3089882002.4%
Early Childhood Programs
1154750000.9%
ISDs62108000
0.5%
FY 2011-12 Total = $12,659,072,900
Note: Does not include local revenue.
June 2011 7
State Tax and Fee RevenueFY 2011-12
Education46.7%
Corrections4.3%
Community Health7.2%
Transportation7.5%
Other34.2%
FY 2011-12 Total = $26,921,160,300
June 2011 8
June 2011 9
Total Base Cuts $1,583.4 Million
Corrections ($110.8 million)
Community Health ($219.9 million)
Human Services ($149.8 million)
Higher Education ($222.4 million)
Community Colleges ($12.0 million)
Statutory Revenue Sharing ($143.9 million)
State employee concessions ($145.0 million)
Other ($50.6 million)
School Aid reductions ($529.0 million)
School Aid Cuts
June 2011 10
Reduces Foundation Allowances by $470 Per Pupil
Makes the FY 2011 $170 per pupil reductions permanent by rolling the cut into the foundation allowance
Reduce all foundations by $300 per pupil, for a total foundation allowance reduction of $470 per pupil
Additional $300 per pupil cut equals a savings of $452.5 million
Certain Categorical Funding programs eliminated – totaling $76.5 million
School Aid Cuts
June 2011 11
Intermediate School District (ISD) General Operations
Reduces payments by 5% or $3.3 million
School Aid Fund (SAF) Revenue Shifts Totaling $1.0 Billion
Tax proposal reduces SAF revenue ($689.9) million
Budget proposal increases GF/GP transfer to SAF ($100.0) million
SAF revenue shifted into Community College budget ($195.9) million and Higher Education budget ($200.0) million
Higher Education
June 2011 12
Each university’s appropriation is reduced by 15% ($222.4 million GF/GP)
Tuition restraint incentive funding ($83 million)
Funds would be paid only if a university held its FY 2011-12 resident undergraduate tuition/fee increases below the prior-five-year state average
Individual incentive amounts (based on average annual tuition/fee rate increase over the last five years) ranging from 5.1% to 9.8% of proposed FY 2012 appropriation amounts
Total Appropriations forState University Operations
FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 YTD
FY 12 YTD
$1,615.5 $1,565.9
$1,433.3 $1,428.6 $1,419.8 $1,433.2 $1,452.7 $1,467.3 $1,461.2
$1,420.3
$1,207.2
$1,527.2
$1,379.6 $1,341.6
$1,286.5 $1,278.4 $1,260.3 $1,284.2 $1,267.0
$1,216.7
$1,018.4
Actual Dollars
Adjusted for Inflation
Note: Appropriations include delayed payments in FY in which funds were originally appropriated
June 2011 13
Tax Plan as Enacted
June 2011 14
Net Revenue Reductions
Reduce total revenue $535.2 million in FY 2011-12 [GF/GP up $154.7 million, SAF down $689.9 million]
Reduce total revenue $224.0 million in FY 2012-13 [GF/GP up $438.0 million, SAF down $662.1 million]
Cut business taxes $1.64 billion (FY 2012-13)
Increase personal income tax $1.42 billion (FY 2012-13)
Summary
June 2011 15
Cut services $1.6 billion to address the budget shortfall
Provide a $1.6 billion [83%] net tax cut for business
Replace business tax revenue with $1.4 billion [23%] increased income tax revenue by freezing income tax rate and modifying the pension exemption
June 2011 16
Sales/Use Tax Share Declining
Taxable Sales as a Percent of Personal Income
FY 78
FY 79
FY 80
FY 81
FY 82
FY 83
FY 84
FY 85
FY 86
FY 87
FY 88
FY 89
FY 90
FY 91
FY 92
FY 93
FY 94
FY 95
FY 96
FY 97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
FY 08
FY 09
FY 10
31%
33%
35%
37%
39%
41%
43%
45%
47%
49%
51%
FY 1035.20%
Perc
en
t of
Pers
on
al
Inco
me
Michigan Gasoline Tax Revenue
FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11*
$800
$825
$850
$875
$900
$925
$950
Mil
lion
s
Source: Michigan Department of Treasury, February 2011
February 2011 17*FY 11 Amount is an Estimate
June 2011 18
Impact ofTax Exemptions/Credits/Deductions
Billion
s
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
$10
$15
$20
$25
$30
$35 Tax Exemptions/Credits/Deductions
Revenue
Revenue$6.8 Billion
HIGHER
Revenue$10.6 Billion
LOWERFY 2011 (000)
Consumption
$14,275,574Individual Income
8,645,147Property
8,035,690 Business Privilege
2,639,180Other
215,826
June 2011 19
Tax expenditures are an alternative to direct spending.
They can be used to effectively continue to spend tax dollars on policy initiatives while the budget is being reduced.
They're "off-budget" for all practical purposes.
Transparency and government accountability demand they be reported and evaluated.
Why Consider Tax Expenditures?
June 2011 20
Fewer People Pay Income Tax
Tax Liability < $0 19.5% 29.3%
Tax Liability = $0 8.0% 8.5%
Tax Liability Between $0 and $100 6.1% 4.7%
Tax Liability < $100 33.6% 42.5%
2000All Filers 2009
June 2011 21
Property Value Growth SlowingYearly Change
Inflation RateMultiplier
for PropertyTotal SEVGrowth
Total TaxableValue Growth
1997 2.8 % 8.2 % 5.7 %1998 2.7 % 9.5 %6.1 %1999 1.6 % 9.9 % 6.0 %2000 1.9 % 9.0 % 5.5 %2001 3.2 % 10.0 % 7.1 %2002 3.2 % 9.8 % 6.7 %2003 1.5 % 7.5 % 4.8 %2004 2.3 % 6.3 % 5.7 %2005 2.3 % 5.9 % 5.6 %2006 3.3 % 5.0 % 5.8 %2007 3.7 % 3.8 % 5.2 %2008 2.3 % −1.1 % 1.4 %2009 4.4 % −5.4 % −0.8 %2010 −0.3 % −9.2 % −6.6 %2011 2.5 % N/A −4.3 %
June 2011 22
Constitutional Revenue Limit
Billions of Dollars
FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13
$0.16
($2.41)
($3.92)($4.18)($4.44)($4.22)
($4.95)($5.32)
($4.65)
($7.99)
($8.91)
($6.90)($7.17)
($8.41)
FYs 10 - 13are May 2011
Consensus Estimates
Average increase of Michigan revenue = 0.4% per year from 2000 through 2012
Average growth of Michigan personal income = 2.0% per year from 2000 through 2012
