Tuesday, March 15, 2011


Mar-2011-Michigan-TMA-Newsletter.pdf (application/pdf Object)

TMA Michigan Newsletter Pages 5-8

Perspectives on Governmental Financial Crises and

Governor Snyder’s Budget Proposal for Fiscal Year 2012

By Fred P. Leeb
Fred Leeb & Associates and the Nonprofit Management Group

Forty-five states and the District of Columbia are projecting budget shortfalls (revenues less than the costs of services) totaling $125 billion for fiscal year 2012 (the year beginning July 1, 2011, FY12”). Michigan’s shortfall was estimated to be $1.8 billion of this total. On February 17, 2011, Governor Rick Snyder proposed a budget for FY12 incorporating what seems like many draconian measures to deal with this financial crisis. The purpose of this article is to provide perspective on the depth of the problem as compared to other states and to understand why a turnaround plan for Michigan is necessary now.

1. Michigan’s projected budget shortfall is large but less than that of many other states. Michigan, however, can no longer rely on Federal Recovery Act Funds to fill the gap and mask the underlying structural problems that it is facing.
2. The budget will continue to be squeezed by falling revenues and increasing needs for governmental services. It will get more difficult each year to develop additional solutions.
3. There is no rainy day fund to fall back upon.
4. Job losses have been severe and regaining lost ground will be very slow.
5. Unfunded pension and retiree health care benefits will be the “elephants in the room” for a long time to come.
6. Both state and local governments are in financial crises and the local governmental units will have tremendous difficulties in dealing with any additional fiscal burdens passed on to them by the state.
7. The Treasury Department’s measures of financial stress must be improved and made much more timely to provide a meaningful early warning system.
8. A new sense of urgency on the part of governmental officials is developing and new legislation to provide more authority to the Emergency Financial Manager should help significantly.

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