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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
recession.2) Currentdepositsareinsufficientforanythingbeyondaverymildeconomicdownturn.Michigan
shouldcontinueeffortstobuildupreservesinthatfund.3) Michigan’srainydayfundisdesignedverywelltoconservemoneythathasbeensavedfora
recession,butthesavingscapmightlimittheeffectivenessofthefund.Oncesavingsreachthefundcap,lawmakersshouldconsiderraisingtheamountthatcanbesavedintherainydayfund.
IntroductionNearlyadecadeaftertheGreatRecession,thenationisinthemidstofoneofthelongestnationalrecov-eriesinhistory.1However,somestategovernmentsarebeginningtofacethenextwaveofbudgetpres-sures. Thirtystatesareexperiencingorexpectedtoexperiencebudgetshortfallsbytheendof2018.2 WhileMichiganisnotfacingimmediatebudgetaryproblems,aseriesofpastpolicydecisionswillputincreasingpressuresonthestate’sbudgetoverthenextseveralyears.
Eventhoughanewrecessiondoesnotseemimmi-nent,itisaquestionofwhen,notif,thenationandthestatewillexperienceanothereconomicdown-turn.Inthefaceofbudgetproblemsandtheinevi-tabilityofthenexteconomicdownturn,policymakersshouldkeepacloseeyeonthemechanismsdesignedtostabilizethestatebudgetduringroughperiods.
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
2
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:
• ThestatewaswindingdownthelevyoftheSingleBusinessTax;
• Theeconomyenteredarecession;• Untaxedservicesweregrowingatafaster
raterelativetotaxedgoods,suppressingthegrowthofsalestaxrevenue;
• Medicaidandhighereducationspendingwereincreasing;
• DemandforaidprogramslikeMedicaidbegantoincreaseasunemploymentrose.4
Astheeconomyimproved,staterevenuestabilizedandMichiganwasabletoresolveitsstructuraldeficitissues.Chart 1showsstaterevenuesreboundedafterFY2010,butgrowthhasbeennowherenearasstrongasitwasinthe1990s.InFY2016,General
FundandSchoolAidFundrevenuewas$22.1billion,a20percent increase fromFY2010 levels. Whenadjustedforinflation,combinedGeneralFundandSchoolAidFundrevenuehasincreased8.7percentsinceFY2010,butremainmorethan20percentlowerthanthepeakinFY2000.
Chart 1 General Fund and School Aid Fund Revenue
$0
$5,000
$10,000
$15,000
$20,000
$25,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
(mill
ions
)
Fiscal Year
General Fund and School Aid Fund Inflation Adjusted
Source: House Fiscal Agency
Note: Consensus Revenue Estimating Conference projections are used for FY2017 data.
Alongwithimprovementsintheeconomy,budgetproblemsthatplaguedthestatewereresolvedandMichiganwasabletopassmorestablebudgets,andevenstartstashingmoneyaway.SincetheendofFY2010,Michigan’sbudgethasnothadastructuraldeficit.
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
3
Preparing the State of Michigan’s Budget for the Next Recession
Balancing Competing InterestsAsthestatemovestowardsthenextwaveofbudgetchallenges,it isimportanttoknowtherisksofaneconomicdownturnandmonitortheoptionsthatthestatehastomanagethebudgetwhenit isoutofbalance.Staterevenuesaresusceptibletotheef-fectsofrecessionsbecauseofthenatureofeconomicactivityuponwhichthestate’slargestsourcesoftaxrevenuesarelevied–consumptionandincome.AsChart 1 shows,thedeclineinrevenuecausedbytheGreatRecessionwassubstantial,andwhenadjustingforinflation,thedeclineinfundinglevelsthroughoutthe2000swasevenmoresevere.However,thispic-turemissestheideathatsomespendingdemands,likeMedicaid,typicallyseeanincreaseindemandduringeconomicdownturnsasmorepeoplelosetheirjobandneedtemporaryrelief.6Thismeansthatasrevenuesaredeclining,costsassociatedwithsomeprograms can increase, putting pressure on bothsidesofthebudgetequation.
Anothercomplicatingfactoristhestate’sbalancedbudget requirement. Article V, Section 18 of the1963MichiganConstitutionrequiresthelegislaturetoadoptandthegovernortosignabalancedbud-get.Whilethestatemayborrowtocoverexpenseswithinafiscalyear,thestateisnotallowedtoborrowtocovergeneralexpendituresfromoneyeartothenext.c Thisalsomeans thatprograms function inazero-sumnature inthebudget, i.e.everydollarspentonMedicaidisadollarthatcannotbespentfundingprisons.
Tomaintainabalancedbudgetduringadownturn,Michiganhasthreeprimarymechanisms:
1) theabilitytoincreaserevenues (i.e.taxincreases),
2) thelatitudetoreducespending,and3) thecapacitytorelyonexistingreserves.
c Capitalexpendituresandinfrastructureprojectsareexceptionstothisrule,buthavespecificprocedures.
control could increase the pressure on the statebudget.5SowhileMichiganisgrowinginthemidstofoneofthelongesteconomicexpansionsinthena-tion’shistory,thecombinationofincreasedrevenuediversionsandspending,slowrevenuegrowth,and
aneconomicdownturncouldcreatemoreproblemsforMichigan.Furthermore,naturaleconomiccyclesmakethenextdownturnaquestionofwhen,notif.
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
4
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
moneyisleftonthesideline.Reducingtaxesandincreasingspendingtendtohavestrongerpoliticalandconstituentsupport.
Further,duringperiodsofeconomicgrowth,savingmoneymightnotbethebestthingfortheecono-my.Advocatesoftaxcutswouldsaythatputtingmoneyintherainydayfundcouldlowereconomicproductivitybytakingmoneyoutoftheeconomytokeepinthestate’sbankaccount,whilethosewhosupportincreasedspendingwouldarguethatsavingsleavefewerresourcesforprogramsthatcoulduseincreasedfundingtosetthestateupforlong-termsuccess.
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
5
Preparing the State of Michigan’s Budget for the Next Recession
fundwereondisplayinSeptemberwhenStandardandPoor’supgradedMichigan’seconomicoutlookfrom“stable”to“positive”,citing improvements inboththestate’scashpositionandreservesaspartofthereasonforimprovement.9Whilecreditratingsdonothaveadirectimpactonstatefinances,they
canhaveasignificantimpactonlong-termspendingdecisions.Stateswithbettercreditratingsareabletoborrowmoneyatlowerinterestrates,whichcansavemillionsofdollarsoverthelifetimeofcapitalexpenditureprojects.10
Table 1 Guidelines for Rainy Day Fund Deposits and Withdrawals
Deposits WithdrawalsCondition Amount Condition Amount
Adjusted Personal Income
Ifinflation-adjustedpersonalincomeisgreaterthan2percent
1percentofGeneralFundrevenuesperpercentagepointgrowthabove2percent
Ifinflation-adjustedpersonalincomeisnegative
1percentofGeneralFundrevenuesperpercentdecline
Economic Factors
Staterevenueexceedsconstitutionalrevenuelimitsby1percentorless
Theamountinexcessoftherevenuelimit
Stateunemploymentrateishigherthan8percent
Ifunemploymentisbetween8and12percent,withdrawalupto2.5percentofthefund;ifunemploymentisgreaterthan12percent,upto5percentofthefund
Legislative Appropriation
Budgetedbythelegislature
Determinedbythelegislature,uptotherainydayfundlimit
Needforanemergencyappropriation
Supermajorityvoteinbothchambers
Source:PA431of1984(M.C.L.18.1351)
Michigan’s Rainy Day Fund
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
intoandwithdrawalsfromtherainydayfund(seeTable 1):
1) changesinpersonalincomeinthestate;2) revenueandemploymentfactors;and3) legislativediscretion.
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.
BasedonprojectedFY2017revenues,athreepercentincreaseinadjustedpersonalincomewouldrequirea
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
6
$101.1millionrainydayfunddeposit(oronepercentofprojectedGeneralFundrevenue).Withdrawalsfunctionsimilarly,witheachpercentagepointdeclineinadjustedpersonalincomeresultinginawithdraw-alofonepercentofGeneralFundrevenue.BasedontheConsensusRevenueEstimatingConference(CREC)projections,adjustedpersonalincomeinthestateisexpectedtoremainonanupwardtrajectory.CRECprojectsrainydayfunddepositsof$52millioninbothFY2018andFY2019,duetoaprojected2.5percentincreaseinadjustedpersonalincomeeachyear.13
Thesecondsetofrulesthatallowmovingfundsinandoutoftherainydayfundisbasedoneconom-ic factors. Article IX, Section 26 of theMichiganConstitutioncapsstaterevenuesat9.49percentofpersonalincome;ifrevenueexceedsthislimitbyonepercentormore, theexcess revenue is supposedtobedepositedintotherainydayfund,thoughthelegislatureinpracticemustappropriateit.Inprac-tice,thestateisunlikelytoseerevenuesurpassthelimitationintheforeseeablefuture.FY2000wasthelasttimerevenuesexceededthelimit,andFY2016revenuewas$8.13billionbelowthelimitation.
Economic-basedwithdrawalsaretiedtoincreasesintheunemploymentrate.Whentheunemploymentrateexceedseightpercent,thelegislatureisabletoappropriatemoneyfromtherainydayfundtosup-plementGeneralFundandSchoolAidFundspending;however,thatspendingislimitedtoprojectsintendedtoimprovethestate’semploymentclimate.Whenunemploymentisinexcessofeightpercentbutlowerthan12percent,thelegislaturecanappropriateupto2.5percentoftherainydayfundbalance.Ifun-employmentis12percentorgreater,thewithdrawallimitincreasestofivepercentofthebalance.
Finally, the legislature is able tomake appropria-tions toandwithdrawals from the rainyday fundatitsdiscretion.Appropriationsinexcessofthoseoutlinedabovehaverelativelyfewrestrictions;gen-erally the legislaturemay appropriatemore thanrequiredinthebudgettoincreasethetotalamountinsavings,aslongasthebalancedoesnotexceed10percentofcombinedGeneralFundandSchoolAidFundrevenue(seeRainyDayFundBalancebelow).Withdrawalsbeyondemploymentandincome-based
withdrawals,whicharedeemedtobeanemergencyappropriation,requireasupermajorityvoteapprovalfrombothchambers.
Rainy Day Fund BalanceAttheendofFY2017,thestate’srainydayfundsatat$711million,oraboutthreepercentofcombinedGeneralFundandSchoolAidFundrevenues.Withthe$167.5millionindepositsslatedforFY2018andinterestexpectedtoaccumulateoverthenextyear,thefundisexpectedtoreach$890millionbytheendofFY2018.14
AsChart 2shows,whenthestateusesrainydayfundrevenuesduringdownturnsthebalancehasnotlastedlong.Thestate’sinitialfundbalanceofjustover$200millionevaporated inasingleyearduetothenationalrecessionin1980,leavingthetankonemptyforfiveyearsbeforethestatestartedtorefuelitinthemid-1980s.
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
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
(mill
ioni
s)
Fiscal Year
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
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.
Whilerecoveryfromconsecutivedownturnsledtoaslowrebuildfortherainydayfund,Michiganisfinallybeginningaddtoitsmainsavingsaccount.
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.
Asseen inChart 3, therelationshipbetweenthetwoisquitestrong;inperiodsofgrowthinincometaxcollections,Michiganhasexperiencedmoderatetosignificantgrowthintherainydayfund;whenin-cometaxcollectionsdecline,Michiganisquicktouseexistingfundbalancestostabilizethestatebudget.
Chart 3 Rainy Day Fund Balance Compared to Inflation-Adjusted Per-Unit Income Tax Collections
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$2,800
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Adju
sted
Per
Uni
t Inc
ome
Tax
Reve
nue
(mill
ions
)
Rain
y Day
Fund
(mill
ions
)
Fiscal Year
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
8
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
0
2
4
6
8
10
12
14
16
18
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Perc
ent U
nem
ploy
ed
Rain
y Day
Fund
(mill
ions
)
Fiscal Year
Rainy Day Fund Balance Unemployment Rate
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.
ItisuncertainifMichigan’scurrent10percentlimitwouldallowforasufficientrainydayfundbalance.AsChart 5shows,Michigan’s rainyday fundhas
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
9
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
fundbalancetoweathertherecessionwithoutrev-enueincreasesorspendingcuts.
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
$0
$500
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$3,00019
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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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
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
fundbalanceranks36thamongthe48stateswitharainydayfund,andmanyofthosebelowiteitherhaverelativelynewrainydayfunds(suchasKansas),orhaveverylittleinthebank(Pennsylvania).
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.
Partofthis isbecauseMichigan’s largerrole infi-nancingK-12publiceducation;Michiganprovidesthe
ninthlargestshareofK-12educationcosts,repre-sentingnearlythreetimesthemedianstateshare.20 Thismeansalargerportionofspendingfallsonthestate budget inMichigan relative tomost states,increasingtherangeofservicestherainydayfundmusthelpcoverduringadownturn.
thissectiontoaccountfortheSAFbecauseRainyDayFundsareusedtooffsetspendinginbothaccounts,andignoringthatdatawouldoverstatetheutilityofRainyDayFundbalances.
Chart 6 Days of Operation Using Rainy Day Fund Balance, FY2000-FY2016
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om R
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e
Michigan 50 State Median 50 State Average
Sources: NationalAssociationofStateBudgetOfficers,thePewCharitableTrusts, andcalculationsbyCRC
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
11
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.
Therainydayfund,ascurrentlyconstituted,hasthepotentialtoprovideasomewhatstrongfoundationforMichiganinadownturn,butcanbeimprovedinsomeclearareas tomitigate thepotential effectsofdownturns.Thestringentrequirementsforuseoffundsandeconomy-basedwithdrawalarestrongstandardsthatcanmakethefundeffective,butthehistoricallylowrateofdepositshavelimiteditsutility,whilethelowcaponfundscouldfurthershrinktheroleitplaysinmoderatetoseveredownturns.
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
sollicitudin orci. Integer libero tellus, iaculis in orci ut, ornare vehicula ante.
Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
12
Endnotes1 Goldmansaysthismaybecomethelongesteconomicexpansioninhistory,CNBC,www.cnbc.com/2017/05/08/goldman-says-u-s-economy-may-be-slowly-growing-into-the-longest-expansion-in-history.html2 StatesFacedRevenueShortfallsin2017DespiteGrowingEconomy,CenteronBudgetandPolicyPriorities,www.cbpp.org/research/state-budget-and-tax/states-faced-revenue-shortfalls-in-2017-despite-growing-economy3 WhyandHowStatesShouldStrengthenTheirRainyDayFunds,CenteronBudgetandPolicyPriorities,www.cbpp.org/research/why-and-how-states-should-strengthen-their-rainy-day-funds4 TheProspectsforaLong-TermSolutiontoMichigan’sGeneralFundStructuralDeficit,CitizensResearchCouncilofMichiganStateBudgetNote2002-04,http://crcmich.org/PUB-LICAT/2000s/2002/sbn0204.pdf
5 ChallengesAheadinBalancingtheStateBudget,CitizensResearchCouncilofMichiganReport397,August2017,http://crcmich.org/challenges-ahead-in-balancing-the-state-budget/
6 Stress-TestingStates,Moody’sAnalytics,https://www.economy.com/getlocal?q=91a42834-85af-4773-b408-5da811028c00&app=eccafile
7 PA431of1984(M.C.L.18.1351)
8 StatesAddtoReserves,EspeciallyRainyDayFunds,ThePewCharitableTrusts,www.pewtrusts.org/en/re-search-and-analysis/analysis/2017/08/04/states-add-to-re-serves-especially-rainy-day-funds
9 CreditagenciesmaintainMichiganbondratings,Crain’sDetroitBusiness,www.crainsdetroit.com/article/20170906/news/638296/credit-agencies-maintain-michigan-bond-ratings
10 RainyDayFundsandStateCreditRatings,ThePewCharitableTrusts,www.brookings.edu/wp-content/up-loads/2017/04/pew_full.pdf
11 PA431of1984(M.C.L.18.1351-1359)12 PA431of1984(M.C.L.18.1351)13 Memorandum:ConsensusRevenueAgreement–May17,2017,HouseFiscalAgency,http://www.house.mi.gov/hfa/PDF/Revenue_Forecast/CREC_Final_Memo_May17.pdf
14 StateofMichiganFiscalYear2017-18AppropriationsSummaryandAnalysis,HouseFiscalAgency,house.michigan.gov/hfa/PDF/Revenue_Forecast/Summ_analy_fy17-18.pdf
15 Rainydayfundsprovednomatchagainstrecession-erabudgetgaps,NationalConferenceofStateLegislatures,www.ncsl.org/research/fiscal-policy/a-drop-in-the-bucket.aspx
16 WhenandHowStatesShouldStrengthenTheirRainyDayFunds,CenteronBudgetandPolicyPriorities,www.cbpp.org/research/state-budget-and-tax/when-and-how-states-should-strengthen-their-rainy-day-funds
17 WhyStatesSave,ThePewCharitableTrusts,www.pewtrusts.org/~/media/assets/2017/02/why_states_save.pdf
18 Stress-TestingStates,Moody’sAnalytics19 WeatheringtheNextRecession:HowPreparedArethe50States?,TheMercatusCenteratGeorgeMasonUniversity,www.mercatus.org/publication/weathering-next-recession-how-prepared-are-50-states
20 NationalPublicEducationFinancialSurveyData,NationalCenterforEducationStatistics,nces.ed.gov/ccd/stfis.asp
21 WhyStatesSave,ThePewCharitableTrusts22 WhentoUseStateRainyDayFunds,ThePewCharitableTrusts,www.pewtrusts.org/~/media/assets/2017/04/when-to-use-state-rainy-day-funds.pdf
23 WhyStatesSave,ThePewCharitableTrusts
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
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Official Research Paper
Lorem Ipsum Research Paper TitleLorem Ipsum Sub-Heading
115 West Allegan Suite 480 | Lansing, MI 48933 | crcmich.org pg. 1
13
Preparing the State of Michigan’s Budget for the Next Recession
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