38777 Six Mile Road, Suite 208 | Livonia, MI 48152 | 734.542.8001 115 West Allegan, Suite 480 | Lansing, MI 48933 | 517.485.9444 P.O. Box 1612 | Holland, MI 49422 | 616.294.8359 |crcmich.org November 2017 | State Budget Note 2017-01 Preparing the State of Michigan’s Budget for the Next Recession In a Nutshell 1) Michigan’s rainy day fund is being refilled after sitting empty for many years at the end of the last recession. 2) Current deposits are insufficient for anything beyond a very mild economic downturn. Michigan should continue efforts to build up reserves in that fund. 3) Michigan’s rainy day fund is designed very well to conserve money that has been saved for a recession, but the savings cap might limit the effectiveness of the fund. Once savings reach the fund cap, lawmakers should consider raising the amount that can be saved in the rainy day fund. Introducon Nearly a decade after the Great Recession, the nation is in the midst of one of the longest national recov- eries in history. 1 However, some state governments are beginning to face the next wave of budget pres- sures. Thirty states are experiencing or expected to experience budget shortfalls by the end of 2018. 2 While Michigan is not facing immediate budgetary problems, a series of past policy decisions will put increasing pressures on the state’s budget over the next several years. Even though a new recession does not seem immi- nent, it is a question of when, not if, the nation and the state will experience another economic down- turn. In the face of budget problems and the inevi- tability of the next economic downturn, policymakers should keep a close eye on the mechanisms designed to stabilize the state budget during rough periods. Rainy day funds, the primary savings accounts for most states, serve as a commonly employed tool to weather recessions. Forty-eight states have some form of rainy day fund, usually officially designated as the budget stabilization fund, to lessen the need for drastic program cuts or sizable tax increases during downturns. Recent history shows that these accounts play a significant role in stabilizing budgets; more than 70 percent of states used their rainy day funds to sur- vive the Great Recession (December 2007 through June 2009). 3 Michigan was not one of these states. Michigan’s rainy day fund was emptied in the state’s struggles to cope with its Single State Recession, a leaving no savings to deal with worsening economic conditions when the nation entered into the Great Recession. State budget makers were left to deal with a $2 billion decline in General Fund b revenue from FY2008 to FY2009 without budget stabilization funds. Now that Michigan is seeing a few sunny days that translate into new savings into its rainy day fund, and given that upcoming challenges will require a variety of tools for state policymakers to manage future economic pressures, it is important to understand the capacity of the state’s rainy day fund. a While the rest of the nation suffered from a relatively minor recession from March to November 2001, this period served as the beginning of what was to become Michigan’s Single State Recession which lasted for most of the next decade. b In this piece, when the General Fund is mentioned, we are referencing the General Fund/General Purpose portion of the budget.
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38777 Six Mile Road, Suite 208 | Livonia, MI 48152 | 734.542.8001 115 West Allegan, Suite 480 | Lansing, MI 48933 | 517.485.9444 P.O. Box 1612 | Holland, MI 49422 | 616.294.8359 | crcmich.org
November 2017 | State Budget Note 2017-01
Preparing the State of Michigan’s Budget for the Next Recession
In a Nutshell1) Michigan’srainydayfundisbeingrefilledaftersittingemptyformanyyearsattheendofthelast
Rainydayfunds,theprimarysavingsaccountsformoststates,serveasacommonlyemployedtooltoweatherrecessions.Forty-eightstateshavesomeformofrainydayfund,usuallyofficiallydesignatedasthebudgetstabilizationfund,tolessentheneedfor drastic program cuts or sizable tax increasesduringdownturns.
Recent history shows that these accounts play asignificantroleinstabilizingbudgets;morethan70percentofstatesusedtheirrainydayfundstosur-vivetheGreatRecession(December2007throughJune2009).3Michiganwasnotoneofthesestates.Michigan’srainydayfundwasemptiedinthestate’sstrugglestocopewithitsSingleStateRecession,a leavingnosavingstodealwithworseningeconomicconditionswhenthenationenteredintotheGreatRecession.Statebudgetmakerswerelefttodealwitha$2billiondecline inGeneralFundb revenuefromFY2008toFY2009withoutbudgetstabilizationfunds.
NowthatMichiganisseeingafewsunnydaysthattranslateintonewsavingsintoitsrainydayfund,andgiventhatupcomingchallengeswillrequireavarietyof tools for state policymakers tomanage futureeconomicpressures, it is importanttounderstandthecapacityofthestate’srainydayfund.
a WhiletherestofthenationsufferedfromarelativelyminorrecessionfromMarchtoNovember2001,thisperiodservedasthebeginningofwhatwastobecomeMichigan’sSingleStateRecessionwhichlastedformostofthenextdecade.b Inthispiece,whentheGeneralFundismentioned,wearereferencingtheGeneralFund/GeneralPurposeportionof thebudget.
Preparing the State of Michigan’s Budget for the Next Recession
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ultrices mi velit, sit amet malesuada elit venenatis et.
Sed condimentum sodales justo, a molestie tortor mattis ut. Cras ornare rutrum lorem, a auctor sem hendrerit ac.
Quisque auctor eros eu dui pretium condimentum in in leo. Phasellus interdum tellus in elementum maximus. Quisque
ut condimentum nulla. Nunc lorem ligula, vehicula id pretium ut, gravida sit amet nunc.
Nam gravida turpis a nulla vehicula fringilla. Nam a luctus augue, nec ultrices est. Proin a feugiat massa, id vulputate
metus. Mauris id lacinia elit, et lobortis sem. Sed quis diam pulvinar, egestas urna at, mattis odio. Phasellus bibendum
nulla vitae maximus imperdiet. Vestibulum ac quam volutpat, commodo enim id, molestie tortor. Morbi dapibus dapibus
ornare. Pellentesque quis massa tellus. In interdum in lacus nec fermentum. Nullam ullamcorper euismod justo at
dictum. Phasellus aliquet ultrices dolor, vel tempor diam convallis quis. Vestibulum hendrerit dignissim enim nec
dapibus. Integer volutpat congue tincidunt. Vestibulum sed nunc leo.
Morbi sed sapien vitae urna pretium dignissim eu at sapien. Aliquam eu nisl volutpat, commodo mauris sed, pharetra
ante. Nulla lobortis lectus ac sem imperdiet, at fringilla ante commodo. Aliquam sed ullamcorper nisl. Nullam sollicitudin
dolor purus, nec cursus mauris mattis quis. Pellentesque consectetur tellus vel nisi elementum volutpat. Suspendisse
sed dolor sit amet libero tincidunt congue. In egestas libero neque, vel cursus dui blandit vel.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Aliquam erat volutpat. Sed imperdiet augue sit amet eros rhoncus egestas. Mauris mauris nunc, scelerisque eu dapibus
nec, hendrerit a dolor. Duis vel nisl porttitor, dictum nulla id, molestie lacus. Nulla vehicula placerat justo, vel semper
metus luctus sed. Cras blandit ultrices ipsum sed facilisis. Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam
ut quam ut lorem rutrum cursus non sed massa. Nunc sed sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare
vehicula ante.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam ut quam ut lorem rutrum cursus non sed massa. Nunc sed
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
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Citizens Research Council of Michigan Board of DirectorsALEKSANDRA A. MIZIOLEK, ChairMICHAEL P. MCGEE, Vice ChairLAURA APPEL, Treasurer
TODD ANDERSONBETH BIALYLAWRENCE N. BLUTHCHASE CANTRELLSTEPHAN W. CURRIEDANIEL DOMENICUCCI
TERENCE M. DONNELLYRANDALL W. EBERTSRICHARD A. FAVOR, JR.JOHN J. GASPAROVICJUNE SUMMERS HAASJIM HOLCOMB
MARYBETH S. HOWEWENDY LEWIS JACKSONHARRY KEMPWILLIAM J. LAWRENCE IIIANNE MERVENNEPAUL R. OBERMEYER
JAMES M. POLEHNAJULIE RIDENOURCAMILO SERNACAROLEE K. SMITHCHRISTINE MASON SONERALKATHLEEN WILBUR
The Current EconomyBoththeSingleStateRecessionandtheGreatRe-cessionhittheMichiganeconomyhard.Whilemoststatessawsizableexpansionsduringtheearly2000s,Michiganexperienced thebeginningsof a decadeofeconomicdecline,causingstate taxrevenuetostall.AfterGeneralFundrevenueincreasednearly50percentfrom$7.3billioninFY1990to$10.4billionin FY2000 (despite a reduction in the income taxrate),revenuegrowthcametoahalt.Infact,duringthefirstdecadeofthecentury,staterevenueonlytoppedFY2000revenuetotalsonce,andinFY2010theGeneralFundandSchoolAidFundcombinedtoraise$18.5billiondollars,$2.1billionlessthantheFY2000amount.Whenadjustedforinflation,thisbleak record for the state’s revenues seem evenworse.Inflation-adjustedrevenuetoMichigan’stwolargestfundsshrankinallbutoneyearfromFY2000toFY2010.Thisrepresentsa29percentdeclineininflation-adjustedrevenue.
As revenues slid, a number of circumstances andpoliciescreatedastructuraldeficitofmorethanhalfabilliondollarsannually,including:
Despite these positive developments, turbulentwaters appear to be likely in Michigan’s future.Slowrevenuegrowthduringthecurrenteconomicexpansionisstartingtotakeatollonthebudget.TheCitizensResearchCouncil recentlynotedthatnearly$2billioninrevenuereductionsandspendingincreases are built into the future of theGeneralFundbudget,andotherfactorsoutsideofthestate’s
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ultrices mi velit, sit amet malesuada elit venenatis et.
Sed condimentum sodales justo, a molestie tortor mattis ut. Cras ornare rutrum lorem, a auctor sem hendrerit ac.
Quisque auctor eros eu dui pretium condimentum in in leo. Phasellus interdum tellus in elementum maximus. Quisque
ut condimentum nulla. Nunc lorem ligula, vehicula id pretium ut, gravida sit amet nunc.
Nam gravida turpis a nulla vehicula fringilla. Nam a luctus augue, nec ultrices est. Proin a feugiat massa, id vulputate
metus. Mauris id lacinia elit, et lobortis sem. Sed quis diam pulvinar, egestas urna at, mattis odio. Phasellus bibendum
nulla vitae maximus imperdiet. Vestibulum ac quam volutpat, commodo enim id, molestie tortor. Morbi dapibus dapibus
ornare. Pellentesque quis massa tellus. In interdum in lacus nec fermentum. Nullam ullamcorper euismod justo at
dictum. Phasellus aliquet ultrices dolor, vel tempor diam convallis quis. Vestibulum hendrerit dignissim enim nec
dapibus. Integer volutpat congue tincidunt. Vestibulum sed nunc leo.
Morbi sed sapien vitae urna pretium dignissim eu at sapien. Aliquam eu nisl volutpat, commodo mauris sed, pharetra
ante. Nulla lobortis lectus ac sem imperdiet, at fringilla ante commodo. Aliquam sed ullamcorper nisl. Nullam sollicitudin
dolor purus, nec cursus mauris mattis quis. Pellentesque consectetur tellus vel nisi elementum volutpat. Suspendisse
sed dolor sit amet libero tincidunt congue. In egestas libero neque, vel cursus dui blandit vel.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Aliquam erat volutpat. Sed imperdiet augue sit amet eros rhoncus egestas. Mauris mauris nunc, scelerisque eu dapibus
nec, hendrerit a dolor. Duis vel nisl porttitor, dictum nulla id, molestie lacus. Nulla vehicula placerat justo, vel semper
metus luctus sed. Cras blandit ultrices ipsum sed facilisis. Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam
ut quam ut lorem rutrum cursus non sed massa. Nunc sed sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare
vehicula ante.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam ut quam ut lorem rutrum cursus non sed massa. Nunc sed
c Capitalexpendituresandinfrastructureprojectsareexceptionstothisrule,buthavespecificprocedures.
control could increase the pressure on the statebudget.5SowhileMichiganisgrowinginthemidstofoneofthelongesteconomicexpansionsinthena-tion’shistory,thecombinationofincreasedrevenuediversionsandspending,slowrevenuegrowth,and
Obviously,Michigancanonlyrelyonreservestotheextentthatthestatehassavedpriortoarecession.Each option has its benefits and drawbacks, but,particularlyduringtimesofgrowth,moreattentionisgiventotherevenueandspendingquestions,asthosedebatesarefueledbypoliticalconcernsandorganizedinterests.SavingsinMichigan’srainydayfunddonothaveaprimaryconstituencyoranorga-nizedgroupofinterestsprovidingadvocacy,despitethefuturevalueandsecuritytheybringtothestate.
The Difficulties of Spending ReductionsDuringeconomicdownturns,manyservicesthatthestateoffers,particularlypovertyreliefprograms,likeMedicaidorWelfare,mayseeincreasesindemand.Cuttingprogrambudgetswhiletheyseeanupswingindemandcouldmeanthatarecessionhitsharderon lower income families (and previouslymiddleincomefamiliesaffectedbyjoblossorreductionsinpayandbenefits).Thiscanhavenegativeeffectsonconsumptionaswell,asfamiliesreliantoncoreserviceswillhaveevenlesstospendbeyondbasicneeds.Cutstootherservicescanhavemorelong-termeffects.Reductionsinschoolfundingdonothaveasstrongofashort-termimpact,butcanhaveamuch larger cumulative economic impact if thequalityofeducation in thestatedeclines. Fallingbehind on infrastructure can also have long-termdamagingeffects.Raisingtaxesduringacrisiscanallowthestatetomaintainservicelevelsifdemandincreasesorrevenuesdecline.
The Difficulties of Generating RevenueWhilethereseemtobealotofproblemsreducingspendingduringadownturn,findingnewrevenuetomatchdeclinescanbesomewhattricky.Whenrevenuefallsbybillionsofdollars,asitdidduringtheGreatRecession,largescaletaxincreaseswouldbenecessarytomaintainspending.Inasluggish
Preparing the State of Michigan’s Budget for the Next Recession
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ultrices mi velit, sit amet malesuada elit venenatis et.
Sed condimentum sodales justo, a molestie tortor mattis ut. Cras ornare rutrum lorem, a auctor sem hendrerit ac.
Quisque auctor eros eu dui pretium condimentum in in leo. Phasellus interdum tellus in elementum maximus. Quisque
ut condimentum nulla. Nunc lorem ligula, vehicula id pretium ut, gravida sit amet nunc.
Nam gravida turpis a nulla vehicula fringilla. Nam a luctus augue, nec ultrices est. Proin a feugiat massa, id vulputate
metus. Mauris id lacinia elit, et lobortis sem. Sed quis diam pulvinar, egestas urna at, mattis odio. Phasellus bibendum
nulla vitae maximus imperdiet. Vestibulum ac quam volutpat, commodo enim id, molestie tortor. Morbi dapibus dapibus
ornare. Pellentesque quis massa tellus. In interdum in lacus nec fermentum. Nullam ullamcorper euismod justo at
dictum. Phasellus aliquet ultrices dolor, vel tempor diam convallis quis. Vestibulum hendrerit dignissim enim nec
dapibus. Integer volutpat congue tincidunt. Vestibulum sed nunc leo.
Morbi sed sapien vitae urna pretium dignissim eu at sapien. Aliquam eu nisl volutpat, commodo mauris sed, pharetra
ante. Nulla lobortis lectus ac sem imperdiet, at fringilla ante commodo. Aliquam sed ullamcorper nisl. Nullam sollicitudin
dolor purus, nec cursus mauris mattis quis. Pellentesque consectetur tellus vel nisi elementum volutpat. Suspendisse
sed dolor sit amet libero tincidunt congue. In egestas libero neque, vel cursus dui blandit vel.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Aliquam erat volutpat. Sed imperdiet augue sit amet eros rhoncus egestas. Mauris mauris nunc, scelerisque eu dapibus
nec, hendrerit a dolor. Duis vel nisl porttitor, dictum nulla id, molestie lacus. Nulla vehicula placerat justo, vel semper
metus luctus sed. Cras blandit ultrices ipsum sed facilisis. Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam
ut quam ut lorem rutrum cursus non sed massa. Nunc sed sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare
vehicula ante.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam ut quam ut lorem rutrum cursus non sed massa. Nunc sed
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
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economy,alargeincreaseintaxesrunstheriskofmaking the currentdownturn longerandharsher.Increasingtaxesongoodsandservicesoronindi-vidualincomewilllowerconsumption,whichcoulddeepenthecrisisandharmthosemostatrisk,whileincreasingtaxesonbusinessesthatarestrugglingtosurvivecouldmagnifytheeffectsoftherecessiononemploymentandinvestment,eitherofwhichcouldlengtheneconomictroubles.
The Case for Rainy Day Savings While neither increasing revenues nor cuttingspendinginarecessionareideal,athirdalternativeisMichigan’sabilitytorelyonsavings.Bybuildingrainydayreservescapableofbalancingthebudgetduringadownturn,Michigancanavoidthepotentiallyeconomy-stallingeffectsof increasingtaxrevenuewhilealsomaintainingservicestopreventthelong-term effects of cuts. Devoting additional surplusrevenuetostatesavingsmayalsoprovideastrategytoconstrainstatespendingandgrowthofgovern-ment,preventingprogramspendingtogrowbeyonditsmeansduringperiodsoflargeeconomicgrowth.
Savingsservetoprotectagainstavarietyofuncer-taintiesinstaterevenuesources.ThelawcreatingMichigan’srainydayfundoutlinesthatitspurposeis “toassistinstabilizingrevenueandemploymentduring periods of economic recession and highunemployment.”7ThisdirectshowthelegislaturecanauthorizerainydayfundmoneytotheGeneralFundandSchoolAidFund tomeet shortfalls andattempt to improvehighunemploymentnumbers.Aseconomiccyclesnaturallyseeperiodsofupswingsand downswings, savingmoney in the rainy dayfundallowsthestatetomovesomerevenuefromaboomingeconomytoaslumpingone.Savingscanthus prevent either steep cuts or revenue spikesduringadownturn,limitingthenegativeeffectsofaneconomiccrisis.
Whilesavingsseemlikeagreatsolutiononcethestate is ina recession,actuallysaving themoneyduringtimesofeconomicexpansioncancreateeco-nomictradeoffsthatthelegislaturemustconsider.Inaboomingeconomy,policymakersoftenarefocusedon other battles,whether it be tax reductions orfundingnewprograms.Thiseither-orpropositioncreatesazero-sumbudgetsituationwheresaving
WhileMichigan’s rainyday funddoes leave fewerresourcesforpossiblerevenuereductionsorincreas-esinspending,thesesavingsserveotherpurposesthathelpMichiganinthelongrun,independentofbuildingabulwarkforthenextrecession.Therainydayfundbalanceisapartofthestate’sManageableCommon Cash.d This cash is pooled together tomanage state investments inoneaccount, and isusedtopaystatecostsonaday-to-daybasis.Thisallowsthestate tomanagecashflowsduringtheyearwhencollectionsarenotevenlydistributedtocoincidewiththeperiodswhenthestateneedstospendcash.Bydoingso,thestatecanpreventtheneedtotakeoutshort-termloanstopayday-to-dayexpenses.Ineffect,evenwhennotdirectlyallocat-ed, the rainyday fundhelps smoothout revenuecyclesfortheGeneralFundandSchoolAidFund.
Rainydaysavingsalsohelpthestate’screditposition.Ratingagenciespayattentiontothestate’savailablecashonhand,payingacloseeyetotherainydayfundandstatecashreserves.Whenmakingratingsdecisions, credit agencies see the state’s savingpatternsasanimportantwaytoguardagainstthevolatilityofrevenuesduringaneconomiccontrac-tion,whilecashonhandisanimportantmeasureforthestate’sabilitytopaybillsontimeintheshortterm.8TheratingbenefitsofMichigan’srainyday
d Michigan’sManageable Common Cash pool is a groupingofreservesincludingtheGeneralFund,theSchoolAidFund,theSpecialRevenueandEnterpriseFund,theInternalServiceFund,andtheTrustandAgencyFund.Formoreonthestate’sManageableCommonCash, see Stabilized State Budget andRainyDayFundDepositsImproveState’sCashPosition,crcmich.org/mi-state-budget/state-cash-position/
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ultrices mi velit, sit amet malesuada elit venenatis et.
Sed condimentum sodales justo, a molestie tortor mattis ut. Cras ornare rutrum lorem, a auctor sem hendrerit ac.
Quisque auctor eros eu dui pretium condimentum in in leo. Phasellus interdum tellus in elementum maximus. Quisque
ut condimentum nulla. Nunc lorem ligula, vehicula id pretium ut, gravida sit amet nunc.
Nam gravida turpis a nulla vehicula fringilla. Nam a luctus augue, nec ultrices est. Proin a feugiat massa, id vulputate
metus. Mauris id lacinia elit, et lobortis sem. Sed quis diam pulvinar, egestas urna at, mattis odio. Phasellus bibendum
nulla vitae maximus imperdiet. Vestibulum ac quam volutpat, commodo enim id, molestie tortor. Morbi dapibus dapibus
ornare. Pellentesque quis massa tellus. In interdum in lacus nec fermentum. Nullam ullamcorper euismod justo at
dictum. Phasellus aliquet ultrices dolor, vel tempor diam convallis quis. Vestibulum hendrerit dignissim enim nec
dapibus. Integer volutpat congue tincidunt. Vestibulum sed nunc leo.
Morbi sed sapien vitae urna pretium dignissim eu at sapien. Aliquam eu nisl volutpat, commodo mauris sed, pharetra
ante. Nulla lobortis lectus ac sem imperdiet, at fringilla ante commodo. Aliquam sed ullamcorper nisl. Nullam sollicitudin
dolor purus, nec cursus mauris mattis quis. Pellentesque consectetur tellus vel nisi elementum volutpat. Suspendisse
sed dolor sit amet libero tincidunt congue. In egestas libero neque, vel cursus dui blandit vel.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Aliquam erat volutpat. Sed imperdiet augue sit amet eros rhoncus egestas. Mauris mauris nunc, scelerisque eu dapibus
nec, hendrerit a dolor. Duis vel nisl porttitor, dictum nulla id, molestie lacus. Nulla vehicula placerat justo, vel semper
metus luctus sed. Cras blandit ultrices ipsum sed facilisis. Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam
ut quam ut lorem rutrum cursus non sed massa. Nunc sed sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare
vehicula ante.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam ut quam ut lorem rutrum cursus non sed massa. Nunc sed
What is the Rainy Day Fund?Michigan’s Counter-Cyclical Budget and EconomicStabilizationFund(sometimesdenotedastheBudgetStabilizationFundorBSF)wascreated in1977 inresponsetoaseriesofeconomicchallengesthestatehadfaced.Arecession,whichcauseddeepdeclinesintaxrevenuesandhittheautoindustryparticularlyhard,sentthestateintoascrambletokeepthebudgetbalanced. After thestate recovered,policymakerscreatedtherainydayfundtoeasefuturedeclinesinrevenue.In1984,thestatuteconcerningtherainydayfundwasre-codifiedwithotherlawsintheMan-agementandBudgetAct,wheretheauthorizationfortherainydayfundcurrentlyexists.11
Therainydayfund’soutlineddirectiveisto“reservefundsduringpositiveeconomictimesandthenhavethefundsavailabletouseduringtimesofhighun-employmentandeconomicdownturns.”12The lawoutlines three conditions that allow for deposits
Theadjustedpersonalincomeguidelineisthepri-marymechanismthatcontrolstheflowofrainydayfunds. Under theManagement and Budget Act,fundsaredeposited intotherainydayfundwheninflation-adjustedpersonal income inthestate in-creasesbymorethantwopercentandarewithdrawnwhen inflation-adjustedpersonal incomedeclines.For each percentage point adjusted personal in-comegrowthsurpassestwopercent,thelegislatureisdirectedtodepositonepercentofGeneralFundrevenuesintotherainydayfund.
Finally, the legislature is able tomake appropria-tions toandwithdrawals from the rainyday fundatitsdiscretion.Appropriationsinexcessofthoseoutlinedabovehaverelativelyfewrestrictions;gen-erally the legislaturemay appropriatemore thanrequiredinthebudgettoincreasethetotalamountinsavings,aslongasthebalancedoesnotexceed10percentofcombinedGeneralFundandSchoolAidFundrevenue(seeRainyDayFundBalancebelow).Withdrawalsbeyondemploymentandincome-based
Rainy Day Fund BalanceAttheendofFY2017,thestate’srainydayfundsatat$711million,oraboutthreepercentofcombinedGeneralFundandSchoolAidFundrevenues.Withthe$167.5millionindepositsslatedforFY2018andinterestexpectedtoaccumulateoverthenextyear,thefundisexpectedtoreach$890millionbytheendofFY2018.14
While therainyday fundreached$400millionby1989,theturnofthe1990ssawaquickdeclineinthefundbalancewiththeeconomicslowdownthatstarted the decade. Immediately after the fundnearlybottomedoutin1992,thestatesavedmoneyatarateithadnotcomeclosetobefore;withtheexpansionthatbeganin1992,thestatewasabletosavemorethan$1billionoverthreeyears.
Chart 2 Rainy Day Fund Year-End Balance FY1978 to FY2017
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Source:MichiganDepartmentofTreasury
Note:The gray lines represent the start of national recessions based on National Bureau of Economic Research classification.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ultrices mi velit, sit amet malesuada elit venenatis et.
Sed condimentum sodales justo, a molestie tortor mattis ut. Cras ornare rutrum lorem, a auctor sem hendrerit ac.
Quisque auctor eros eu dui pretium condimentum in in leo. Phasellus interdum tellus in elementum maximus. Quisque
ut condimentum nulla. Nunc lorem ligula, vehicula id pretium ut, gravida sit amet nunc.
Nam gravida turpis a nulla vehicula fringilla. Nam a luctus augue, nec ultrices est. Proin a feugiat massa, id vulputate
metus. Mauris id lacinia elit, et lobortis sem. Sed quis diam pulvinar, egestas urna at, mattis odio. Phasellus bibendum
nulla vitae maximus imperdiet. Vestibulum ac quam volutpat, commodo enim id, molestie tortor. Morbi dapibus dapibus
ornare. Pellentesque quis massa tellus. In interdum in lacus nec fermentum. Nullam ullamcorper euismod justo at
dictum. Phasellus aliquet ultrices dolor, vel tempor diam convallis quis. Vestibulum hendrerit dignissim enim nec
dapibus. Integer volutpat congue tincidunt. Vestibulum sed nunc leo.
Morbi sed sapien vitae urna pretium dignissim eu at sapien. Aliquam eu nisl volutpat, commodo mauris sed, pharetra
ante. Nulla lobortis lectus ac sem imperdiet, at fringilla ante commodo. Aliquam sed ullamcorper nisl. Nullam sollicitudin
dolor purus, nec cursus mauris mattis quis. Pellentesque consectetur tellus vel nisi elementum volutpat. Suspendisse
sed dolor sit amet libero tincidunt congue. In egestas libero neque, vel cursus dui blandit vel.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Aliquam erat volutpat. Sed imperdiet augue sit amet eros rhoncus egestas. Mauris mauris nunc, scelerisque eu dapibus
nec, hendrerit a dolor. Duis vel nisl porttitor, dictum nulla id, molestie lacus. Nulla vehicula placerat justo, vel semper
metus luctus sed. Cras blandit ultrices ipsum sed facilisis. Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam
ut quam ut lorem rutrum cursus non sed massa. Nunc sed sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare
vehicula ante.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam ut quam ut lorem rutrum cursus non sed massa. Nunc sed
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
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7
Preparing the State of Michigan’s Budget for the Next Recession
However,thatmoneywasusedupjustasfastasitwassaved—attheturnofthemillennia,thestateemptied the nearly $1.3 billion in reserves overthreeyearsofdownturn.AsthestatemovedfromtheSingleStateRecessionintheearlypartofthedecadeintotheGreatRecessionin2008,reservesstayedclosetoempty.
Rainy Day Funds and Economic ConditionsTherateatwhichtrendsintherainydayfundtrackwithbroadeconomicfactorsdetermineiffundsare
beingsavedduringeconomicexpansionsandusedduringeconomicdownturns. Chart 3 shows therainy day fund balance and per unit Income Taxcollections (the amount of revenue collected foreachpercentagepointleviedthroughthePersonalIncomeTax).Usingperunittaxrevenuesprovidesatrendofincometaxrevenue,whileadjustingforchangesinthetaxrate.
Chart 3 Rainy Day Fund Balance Compared to Inflation-Adjusted Per-Unit Income Tax Collections
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ions
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Rainy Day Fund Balance Per Unit Income Tax Collections
Sources:MichiganDepartment of Treasury, State ofMichigan Comprehensive AnnualFinancial Reports fromVarious Years, Department of Commerce, and calculations byCitizensResearchCouncil.
Preparing the State of Michigan’s Budget for the Next Recession
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ultrices mi velit, sit amet malesuada elit venenatis et.
Sed condimentum sodales justo, a molestie tortor mattis ut. Cras ornare rutrum lorem, a auctor sem hendrerit ac.
Quisque auctor eros eu dui pretium condimentum in in leo. Phasellus interdum tellus in elementum maximus. Quisque
ut condimentum nulla. Nunc lorem ligula, vehicula id pretium ut, gravida sit amet nunc.
Nam gravida turpis a nulla vehicula fringilla. Nam a luctus augue, nec ultrices est. Proin a feugiat massa, id vulputate
metus. Mauris id lacinia elit, et lobortis sem. Sed quis diam pulvinar, egestas urna at, mattis odio. Phasellus bibendum
nulla vitae maximus imperdiet. Vestibulum ac quam volutpat, commodo enim id, molestie tortor. Morbi dapibus dapibus
ornare. Pellentesque quis massa tellus. In interdum in lacus nec fermentum. Nullam ullamcorper euismod justo at
dictum. Phasellus aliquet ultrices dolor, vel tempor diam convallis quis. Vestibulum hendrerit dignissim enim nec
dapibus. Integer volutpat congue tincidunt. Vestibulum sed nunc leo.
Morbi sed sapien vitae urna pretium dignissim eu at sapien. Aliquam eu nisl volutpat, commodo mauris sed, pharetra
ante. Nulla lobortis lectus ac sem imperdiet, at fringilla ante commodo. Aliquam sed ullamcorper nisl. Nullam sollicitudin
dolor purus, nec cursus mauris mattis quis. Pellentesque consectetur tellus vel nisi elementum volutpat. Suspendisse
sed dolor sit amet libero tincidunt congue. In egestas libero neque, vel cursus dui blandit vel.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Aliquam erat volutpat. Sed imperdiet augue sit amet eros rhoncus egestas. Mauris mauris nunc, scelerisque eu dapibus
nec, hendrerit a dolor. Duis vel nisl porttitor, dictum nulla id, molestie lacus. Nulla vehicula placerat justo, vel semper
metus luctus sed. Cras blandit ultrices ipsum sed facilisis. Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam
ut quam ut lorem rutrum cursus non sed massa. Nunc sed sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare
vehicula ante.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam ut quam ut lorem rutrum cursus non sed massa. Nunc sed
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Similartrendsareseenintherelationshipbetweenunem-ploymentandtherainydayfundbalance. When therearespikesinunemployment,rainydayfunddollarsevap-oratequickly,andtheygrowwhenunemploymentexpe-riences a steep downwardtrend(seeChart 4).Theseshow the use of rainy dayfund dollars typically occurduringperiodsofincreasingunemployment, which fol-lowstheintentofthefund.
Rainy Day Fund Balance CapWhen initially created in1978, the rainy day fundbalancewascappedat25percentofGeneralFundrevenue.Atthetime,schoolaidfundingwaslessthanaquarterofthesizeoftheGeneralFund.Pro-posalAin1994revampedschoolfinancingfromthestatewithincreasesintheSalesTax(fromfourtosixpercent)andotherstatetaxincreases.Becauseofthesechanges,theSchoolAidFundmorethandoubledinsizeandcametobeapproximatelythesamesizeastheGeneralFund.Thisleadthestatetochangetherainydayfundcapfrom25percentofGeneralFundrevenuesto10percentofcombinedGeneralFundandSchoolAidFundrevenues.
BasedoncurrentGeneralFundandSchoolAidFundrevenues, the 10 percent cap equates to roughly$2.2billion.AnyrevenueinexcessofthecapwouldhavetobereturnedtotaxpayersintheformofIn-comeTaxrefunds.Thestatehasneverbeenclosetoreachingthiscap(seeChart 5).Whilerainydayfundbalancesseemedtooutpacegrowthinrevenuesduringthemid-1990s,thefund-to-capratiopeakedat61percentinFY2000,theyearthechangeincal-culationforthefundcaptookplace.EstimatesforFY2018wouldleaverainydayfundreservesbelow45percentofthefundcap.
Chart 4 Rainy Day Fund Balance Compared to the Unemployment Rate
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Sources: Michigan Department of Treasury and FRED Economic Data
Adequacy of ReservesBecausethestatewouldneedtorelyonsavingsintheeventofarecessiontoavoidbudgetcutsortaxincreases,it’simportanttounderstandtheamountofresourcesthatwouldtypicallybeneededtostabilizethebudgetinthecaseofarecession.However,thelackofgeneralagreementonthelevelofsavingsastateshouldholdmakesitdifficulttoestimatehowlarge rainy day funds need to be tomitigate theeffectsofarecession.
Expertsrecommendthatstatessaveanywherefromfive15tofifteenpercent16ofGeneralFund(and,forthe case ofMichigan, School Aid Fund) spendingintherainydayfund.However,inresponsetotheGreatRecessionmanyorganizationshaveincreasedtheir savings recommendation. TheGovernmentFinanceOfficersAssociation,forexample,increasedtheirtargetedsavingsfromonetotwomonthsofoperatingcostsinresponsetotheGreatRecession.
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Preparing the State of Michigan’s Budget for the Next Recession
neverbeenclosetothelimit,makingitdifficulttojudgeifthereisaneedtoraisethecapbasedonrecenthistory.However,Michigan’sexperiencewiththeSingleStateRecessionshowssomeconcernforthestate’sabilitytoweatheranotherdownturn.Atjustover60percentofthesavingslimit,therainydayfundbalancewasexhaustedearlyintheSingleStateRecession,withsavingsalmostentirelydepletedinjust a single year. Current reserves,which sit atabout35percentofthefundcap,arelowerthantheywereinFY2000whenthebalancewasatitspeak.
Togetabetterunderstandingoftheadequacyofbothreservesandtherainydayfundbalancelimit,someorganizations have conducted research intowhatindividualstatesmightneedtopreventspend-ing cuts or revenue increasesduringa recession.ThePewCharitableTrustsfoundthatspecificbalancetargetstendtobearbitrary,andarenotsetbasedonindividualstate’sneeds.Theyrecommendlook-ingatarangeoffactorsincludingastate’srevenuevolatility,thesizeofthestatebudget,andthetype
of revenuesources the staterelies on to determine howmuchstatesshouldsave.17
An analysis by Moody’s An-alytics utilizes these factorsto determine the sufficiencyof state rainy day funds forstateGeneralFundspending.18 Their simulation found thatMichigan’srainydayfundwasinsufficient to cover the de-clineinrevenueandincreaseinMedicaid spending in theGeneralFundforamoderaterecession,oronethatissimilartotypicalrecessions.Moody’sestimatestheneteffectofrev-enuereductionsandspendingincreases would be a $1.54billion need in the GeneralFund. While their reportdidnotestimatetheneedsoftheSchoolAidFund,theGeneralFundwould needmore thantwice the current rainy day
TheMercatus Center at GeorgeMasonUniversityconductedasimilaranalysisusingdatafromFY2015andpredictedthatinanaverage-severityrecession,Michigan’sGeneralFundwouldrequire$1.4billioninrainydayfunddollarstoweatheradownturnwithoutcuttingspendingorincreasingrevenue.19
Whilethereissomelevelofvariationbetweenthetwoestimates,bothMoody’sandtheMercatusCen-terpredictthatGeneralFundneedsduringatypicalrecessionwould require double the current rainydayfundbalance,andthatisbeforeaccountingfortheSchoolAidFund.Thecombinationofthestate’srelativelyweakcashpositionandpotentialupcomingbudgetissuesmakeitunlikelythatcurrentrainydayfundreserveswillbesufficienttosmoothoutrevenuedeclinesinanaveragerecessionwithoutsteepcutsorlargerevenueincreases.
Chart 5 Rainy Day Fund Balance Relative to Fund Cap
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Fiscal Year End Balance Fund Cap
The cap calculation changed after 1999
Sources:Department of Treasury and Senate Fiscal Agency
Note:The gray lines represent the start of national recessions based on National Bureau of Economic Research classification.
Preparing the State of Michigan’s Budget for the Next Recession
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ultrices mi velit, sit amet malesuada elit venenatis et.
Sed condimentum sodales justo, a molestie tortor mattis ut. Cras ornare rutrum lorem, a auctor sem hendrerit ac.
Quisque auctor eros eu dui pretium condimentum in in leo. Phasellus interdum tellus in elementum maximus. Quisque
ut condimentum nulla. Nunc lorem ligula, vehicula id pretium ut, gravida sit amet nunc.
Nam gravida turpis a nulla vehicula fringilla. Nam a luctus augue, nec ultrices est. Proin a feugiat massa, id vulputate
metus. Mauris id lacinia elit, et lobortis sem. Sed quis diam pulvinar, egestas urna at, mattis odio. Phasellus bibendum
nulla vitae maximus imperdiet. Vestibulum ac quam volutpat, commodo enim id, molestie tortor. Morbi dapibus dapibus
ornare. Pellentesque quis massa tellus. In interdum in lacus nec fermentum. Nullam ullamcorper euismod justo at
dictum. Phasellus aliquet ultrices dolor, vel tempor diam convallis quis. Vestibulum hendrerit dignissim enim nec
dapibus. Integer volutpat congue tincidunt. Vestibulum sed nunc leo.
Morbi sed sapien vitae urna pretium dignissim eu at sapien. Aliquam eu nisl volutpat, commodo mauris sed, pharetra
ante. Nulla lobortis lectus ac sem imperdiet, at fringilla ante commodo. Aliquam sed ullamcorper nisl. Nullam sollicitudin
dolor purus, nec cursus mauris mattis quis. Pellentesque consectetur tellus vel nisi elementum volutpat. Suspendisse
sed dolor sit amet libero tincidunt congue. In egestas libero neque, vel cursus dui blandit vel.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Aliquam erat volutpat. Sed imperdiet augue sit amet eros rhoncus egestas. Mauris mauris nunc, scelerisque eu dapibus
nec, hendrerit a dolor. Duis vel nisl porttitor, dictum nulla id, molestie lacus. Nulla vehicula placerat justo, vel semper
metus luctus sed. Cras blandit ultrices ipsum sed facilisis. Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam
ut quam ut lorem rutrum cursus non sed massa. Nunc sed sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare
vehicula ante.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam ut quam ut lorem rutrum cursus non sed massa. Nunc sed
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
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10
National ComparisonWhileahistoricalanalysisshowssomepossibleissueswiththestate’srainydayfund,thecontextoftherecovery from theGreatRecession isabsent. AnanalysisofwhereMichiganstandsrelativetootherstatescangiveanideaofhowtherecoveryofMich-igan’srainydayfundisfairinginthecurrentcontext.
Asof2016,48stateshavesomesortofrainydayfund. Colorado and Illinois are the only stateswithoutanofficialrainydayfund(thoughtheyhaveotheraccountsforsavings).KansasandMontanaestablishedtheirrainydayfundswithinthelastfewyears,whichlimitsinformationthatcanbeinferredfromcomparingthemwithMichigan.
Rainy Day Fund BalancesInterstatecomparisonsarebestperformedwhen normalized toreflect differences in size andeconomic abilities. Just know-ing that the average rainy dayfundbalanceacrossthestatesinFY2016wasjustover$1billionandthatthenationalmedianwas$477million does not help tounderstandthe levelofsavingsrelative to the size of thebud-gets.AveragesandrangesareskewedbystateswithsignificantbalancessuchasCalifornia,witha balance above $7 billion, orAlaska and Texas, which havesignificant reservesbuiltmostlydue toeachstates’vastsupplyofoilreserves.
Wh i le the med ian makesMichigan’s FY2016 balance of $612million seemrelativelylarge,ranking17thamongallstates,theutility ofMichigan’s rainy day fund actually rankstowardsthebottom.Whenmeasuringrainydayfundbalancesagainstbudgetsize,e5 Michigan’s rainy day e5 For all states other thanMichigan this is General Fundspending.ForMichigan, it ismeasuredagainstGeneralFundandSchoolAidFundSpending.MichiganisuniquenationallyforhavingaseparateSchoolAidFund.ActivityintheSAFisreflectedintheGeneralFundinotherstates;thus,weadjusteddatain
As of 2016,Michigan’s rainy day fund could onlyoperate state accounts for 10 days, compared tothenationalmedianofjustunder19days.Chart 6 showsthat,whileMichigan’srainydayfundstartedthemillennia above themedian and close to thenationalaverage,therainydayfundwashithardbytheSingle-StateRecessionandbecauseofthis,Michigan’srainydayfundhasyettocatchuptothenationalaverageormedian.
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Preparing the State of Michigan’s Budget for the Next Recession
Disbursement of Rainy Day FundsMichiganhasoneofthetightestsetsofcontrolsonits rainyday fund,as itsuse is limited tospecificeconomicandincomebasedconditions,orbyuseofalegislativesupermajorityvote.Infact,Michiganisoneofonly19statesthathaveanexplicitpur-poseforthefundsthatisdirectlyoutlinedinlaw.21 ThePewCharitableTrustslistthisassignificantforstatesavingsbecauseitallowsstatestomakemoreinformeddecisionswhenpreparingforandexperi-encingadownturn.
Michiganisalsooneofonly11statestolinkrainydayfundwithdrawalstoeconomicvolatility,andisoneof14statesthatrequiresasupermajorityvoteinthelegislaturetomakediscretionarywithdrawals.22 ThecombinationoftheseleavesMichiganwithsomeof themostpointed rules for rainyday funduse,whichensuresthatsavingsareusedduringeconomicdownturns.Savingsarethuswellsafeguardedwhilesimultaneouslybeingaccessibleduringaneconomicdownturn.
Rainy Day Fund CapsMichigan’scapontherainydayfundishigherthanthemedianat10percent;10otherstateshavetheircapsetat10percentofrevenues,whilesevenstateshaveacaphigherthanMichiganandanothersevendonotcaprainydayfundbalances.23PriortotheGreatRecession,21stateshadhittheirrevenuelimit.
Giventhat22statesexhaustedmorethantwo-thirdsof their rainyday fundbalancesduring theGreatRecession, thedirenatureofmanystatebudgetsraisedseveralquestionsaboutthesufficiencyofbothrainyday fundbalancesandrainyday fundcaps.Asdiscussedabove, the lastdecadehaschangedwhat isseenasasufficientbalance;modernbestpracticeswouldputanythingbelow10percentasalikelyinsufficientlevelofoverallsavings.So,whileMichiganhasoneofthehigherrevenuecapsnation-ally,evidencefromthelastrecessionshowthatanincreasedlimitwouldimproveoutcomes.
ConclusionThe current economic expansion has allowed thestatetostabilizeaftertheone-twopunchofMichi-gan’sSingleStateRecessionandtheGreatReces-sion,buttheeffectsofsuchaprolongedeconomicstagnation andagrowing list of demandson thestatebudgetdemonstratetheimportanceofusingthisexpansiontoprepareforthenextdownturn.
While$890millionhasbeensavedforthenextdown-turn,moresavingscouldbenecessary;MichiganhassavedlessmoneythanithadpriortotheSingleStateRecession,andlessthantheamountprojectedtobeneededtopreventcutsduringanaveragerecession.Whilethe$2.2billionrevenuelimitunderthecurrentcapmight be sufficient for an average recession,manyorganizationsbest practices recommendupto twomonths-worth of savings; and projectionsbasedonMichigan’sGeneralFundaloneplacestateneedsatmorethan$1.5billiontoavoidcutsandrevenueincreases.Whileincreasingthesavingcapmightbenecessaryforthefundtofunctionatpeakcapacityinthelongrun,themostpressingissueforthestate’sreservesisaneedtoputmoreawayforthenexteconomicdownturn.
Preparing the State of Michigan’s Budget for the Next Recession
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ultrices mi velit, sit amet malesuada elit venenatis et.
Sed condimentum sodales justo, a molestie tortor mattis ut. Cras ornare rutrum lorem, a auctor sem hendrerit ac.
Quisque auctor eros eu dui pretium condimentum in in leo. Phasellus interdum tellus in elementum maximus. Quisque
ut condimentum nulla. Nunc lorem ligula, vehicula id pretium ut, gravida sit amet nunc.
Nam gravida turpis a nulla vehicula fringilla. Nam a luctus augue, nec ultrices est. Proin a feugiat massa, id vulputate
metus. Mauris id lacinia elit, et lobortis sem. Sed quis diam pulvinar, egestas urna at, mattis odio. Phasellus bibendum
nulla vitae maximus imperdiet. Vestibulum ac quam volutpat, commodo enim id, molestie tortor. Morbi dapibus dapibus
ornare. Pellentesque quis massa tellus. In interdum in lacus nec fermentum. Nullam ullamcorper euismod justo at
dictum. Phasellus aliquet ultrices dolor, vel tempor diam convallis quis. Vestibulum hendrerit dignissim enim nec
dapibus. Integer volutpat congue tincidunt. Vestibulum sed nunc leo.
Morbi sed sapien vitae urna pretium dignissim eu at sapien. Aliquam eu nisl volutpat, commodo mauris sed, pharetra
ante. Nulla lobortis lectus ac sem imperdiet, at fringilla ante commodo. Aliquam sed ullamcorper nisl. Nullam sollicitudin
dolor purus, nec cursus mauris mattis quis. Pellentesque consectetur tellus vel nisi elementum volutpat. Suspendisse
sed dolor sit amet libero tincidunt congue. In egestas libero neque, vel cursus dui blandit vel.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Aliquam erat volutpat. Sed imperdiet augue sit amet eros rhoncus egestas. Mauris mauris nunc, scelerisque eu dapibus
nec, hendrerit a dolor. Duis vel nisl porttitor, dictum nulla id, molestie lacus. Nulla vehicula placerat justo, vel semper
metus luctus sed. Cras blandit ultrices ipsum sed facilisis. Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam
ut quam ut lorem rutrum cursus non sed massa. Nunc sed sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare
vehicula ante.
Quisque sit amet venenatis eros. Nulla vulputate pulvinar mauris. Vestibulum pulvinar erat varius sem vestibulum, at
tristique nisl dapibus. Morbi hendrerit nisi malesuada, feugiat justo vitae, sagittis orci. Nam quis laoreet quam, a
faucibus risus. Morbi egestas molestie odio quis elementum. Suspendisse iaculis nisi id risus vehicula convallis. Donec
tincidunt congue fringilla.
Maecenas varius eros orci, sed mollis arcu finibus eu. Nullam ut quam ut lorem rutrum cursus non sed massa. Nunc sed