Budget, economy discussed at Michigan conference TIM MARTIN Associated Press January 14,

State government budget problems Michigan's economy may slightly improve over the next 2 years but the state government budget will still face problems, economists said Friday. Fiscal analysts were meeting for a revenue estimating conference at the state Capitol. They'll come up with a consensus estimate later Friday of how much money the state should expect to bring in through the next fiscal year that begins in October. Preliminary estimates peg the budget shortfall for the year at about $1.8 billion. The biggest budget problem is the scheduled expiration of more than $1 billion in temporary federal aid and other one-time assistance that is helping Michigan pay its bills this fiscal year. "The catch here is these stimulus provisions - many of them are winding down," said Joan Crary, a University of Michigan economist.

$46 billion budget Michigan's current overall budget is more than $46 billion, including federal funds and all other sources. Most of the spending debate in Lansing focuses on the state's $13 billion school aid fund and its roughly $8 billion general fund, which helps pay for a variety of state departments and services including prisons, health care, welfare and universities. The school aid fund does not appear in danger of falling short on revenue this year or next year. No further general fund deficits are expected for the state's current fiscal year, meaning Gov. Rick Snyder and lawmakers may not have to immediately cut spending to balance the budget. $46 billion is a little misleading. Programs like Medicaid are “pass- throughs.” What does that mean? $46 billion is a little misleading. Programs like Medicaid are “pass- throughs.” What does that mean?

Holes expected in the budget The school aid fund does not appear in danger of falling short on revenue this year or next year. No further general fund deficits are expected for the state's current fiscal year, meaning Gov. Rick Snyder and lawmakers may not have to immediately cut spending to balance the budget. But holes are expected in the budget that starts Oct. 1. More than $1 billion in temporary help from the federal government and other one-time sources is expected to expire. The state's income tax rate is scheduled to drop from 4.35% to 4.25%, which could lower state revenue by more than $160 million. The rate drop was included in the legislation that increased the state's income tax rate in 2007.

What to do? The pressure to increase spending in some areas of state government - including for Medicaid, human services caseloads and possibly prisons - is expected to continue into the next fiscal year. Lawmakers already are planning to repeal a 22% surcharge on Michigan's main business tax. That move would come as part of a general business tax overhaul that is not yet agreed upon. House Republicans want to eliminate the earned income tax credit that helps lower-income workers, a proposal that upsets Democrats. House Republicans also plan to review tax credits that go to businesses, and some of them could be eliminated or capped - including incentives that go to movie companies, brownfield redevelopment projects and other Michigan businesses in specific industries. Republicans say they want a simpler, lower and perhaps broader business tax structure.

Economics – 1 Expenditures, Revenues We’ve seen this before Tax Base Exp, Rev in $ Rev Exp Rev + Temp If Temporary help stops, then we go into deficit. If tax rate falls, things get even worse.

Economics – 2 Are programs too big or too small? Look at prisons # of prisoners MB, MC What are marginal costs? What are marginal benefits? MC MB A We’re almost certainly at a point like A. What should we do?