1. John Roberts State Budget Director State Association of Accountants, Auditors and Business Administrators April 21, 2015 Michigan Growing Stronger

2. Michigan Economy Coming Back Strong Nearly 400,000 new private sector jobs since December 2010 Unemployment lowest since 2002; lowest unemployed since 2001 Home sales and values on the rise 2

3. Creating More and Better Jobs 3 Change in Michigan Wage and Salary Employment from Previous Year (thousands of jobs) Note: U.S. Bureau of Labor Statistics. 2014-2017 estimates are 1/16/15 Consensus Forecast. 1/20/15. Avg. Consensus Forecast

4. Dropping Unemployment Rate 4 5.5% March 15 5.6% March 15 Source: MI Bureau of Labor Market Information and U.S. Bureau of Labor Statistics. (4/17/2015) 14.9% June 09 10.0% Oct 09 Michigan U.S.

5. 5 Rising Personal Incomes Michigan Personal Income Year-Over-Year % Change Note: U.S. Bureau of Economic Analysis. 2014-2017 estimates are 1/16/15 Consensus Forecast. 1/20/15. Consensus Forecast

6. 6 Huge awards made in last decade; impact thru 2032 Clear lack of transparency on benefits and timing Replaced with transparent program in 2011 Action steps: o Better visibility o Understanding long-term impact Legacy Tax Credits

7. GF & SAF Revenue Estimate Error Rates ($ in millions) Negative = Actual < Estimate When Budget Enacted (FY15 & FY16: Jan ‘15 Est. < May ‘14 Est.) Positive = Actual > Estimate When Budget Enacted (FY15 & FY16: Jan ‘15 Est. > May ‘14 Est.) % of Error Due to MBT 7

8. Paying Our Debts 2011 Reforms o MPSERS o SERS Payment plans in place Better for: o Our kids o Our retirees o All of us 8

9. Long-term Debt – Pre and Post Reform Pre-Reform: Unsustainable path with long- term unfunded liabilities of $45B and growing Post-Reform: Sustainable path by reducing liability by $15.6B and capping the growth Pre-Reform: Unsustainable path with long- term unfunded liabilities of $14.7B Post-Reform: Sustainable path by reducing liability by $5.7B and increased employee contributions School Employees Retirement (MPSERS) State Employees Retirement (SERS) Total: Long Term Debt Reduced by more than $20B 9

10. Savings from reforms equals $644M or $475 per K-12 student in FY 16 FY 16 funding recommendation is $815M or $600 per K-12 student These two actions translate into $1.46B or $1,075 per K-12 student in MPSERS districts in FY 16 Reforms Result in Savings 10

11. 11 Paying for Our Legacy Costs – Schools

12. 12 Paying for Our Legacy Costs – Corrections

13. Saving for a Rainy Day 13

14. 14 FY16 Budget Recommendations

15. 15 2016 Strategic Investments Education o Pre to 3 o Skilled trades o Higher education: o Community colleges Public safety o Recruit school o Drug policy initiative Health and human services o Healthy Kids Dental o Adult dental o Mental health

16. Continuing Education as a Priority 16 $10.7B + $1.2B $11.9B * Does not include federal funding, adult education funding or preschool funding

17. Education: Focus on Student Growth Foundation allowance: $108M ($75 per-pupil) At risk funding increase: $100M Distressed district rehabilitation: $75M Technology infrastructure grants: $25M Third grade reading initiative: $25M 17 Strengthening Higher Education Community colleges o Operations: $4.3M, 1.4 percent increase o MPSERS: $17.2M increase o Adult P/T student grants: $6M Universities/student financial aid o Operations: $28M, 2 percent increase o MPSERS: $2.7M increase o Tuition restraint at 2.8 percent

18. Prioritizing Skilled Trades FY16 Investments: $35.6M, including: o Career and Technical Education Early/Middle College programs: $17.8M o Skilled Trades: $10M increase; $20M total o Student outreach, career planning and dual enrollment enhancements: $4.3M Existing related programs: $47.6M Total investment: $83M 18

19. Prioritizing Public Safety 19 $ 7.7M to train 75 MSP troopers $1M to train 10 motor carrier officers $3.4M to resolve sexual assault cases o $1.7M to process DNA o $1.7M for prosecution $500,000 to help prevent sexual assaults on campuses $1.5M related to drug policy initiative

20. 20 Other Topics of Interest …

21. Comprehensive Annual Financial Report For the last two years, Michigan has issued its CAFR faster than any state in the nation —FY13: 82 days —FY14: 90 days Michigan expects to issue in 90 days or less for FY15 The FY15 book closing is currently in the planning stage, with particular emphasis on implementing GASB 68 (Accounting and Financial Reporting for Pensions) and various process and reporting improvements 21

22. SIGMA Update Project SIGMA continues to move forward at an aggressive pace Phase 1 system testing is almost complete and we will soon be moving into user acceptance testing Phase 2 design is on track for completion in the upcoming months Phase 2 technical designs and planning for the associated agency work is also underway 22

23. 23 Transportation – the Problem Michigan investment in roads per capita: $154 —Annual repair cost average: $539 Ohio invests $214 per capita; Wisconsin spends $302 per capita; Pennsylvania invests $530 per capita 28 percent of Michigan’s bridges are in need of repair, improvement or replacement 48 percent of major roads in Michigan’s largest cities are in poor or mediocre condition Roadway conditions are a significant factor in approximately 1/3 of traffic fatalities

24. 24 Solution – Proposal 1 Would: —Increase sales tax from 6 percent to 7 percent —Have all fuel taxes go to roads —Level off registration fees —Increase fees on heavy trucks —Improve standards for road construction Provides: —$1.2B for roads and $112M for public transit —$300M for School Aid Fund —$100M for local government

25. 25 Risks Venture Michigan Fund Tax credits – Job retention/growth Transportation King vs. Burwell Obamacare challenge/Healthy Michigan Demographics

26. 26 Detroit Tough decisions made Four-year balanced budget – first time in the city’s history New investment opportunities Detroit’s future is looking brighter

27. Accelerating the Comeback 27 Ongoing o Transportation: Comprehensive funding solution o Healthy Kids Dental o Education  K-12: School retirement system  Universities/Community Colleges/Skilled Trades o Public safety o Local government funding One-time o Grow reserves Ballot proposal Expanding to three remaining counties Funding retirement obligations Increased investment Added funding for new counties Growing to more than $600M Running another recruit school

28. Questions? Thank you. 28