Revenue Conference: School aid deficit $150 million larger than predicted

Much as the Hubble Telescope expanded the known universe, the May revenue estimation conference expanded the "known deficit" for Michigan government and schools. Top state economists agreed that revenues earmarked for school aid for the current year (2006-7) will be $153 million lower than estimated in January - or about $560 million less than originally budgeted for school aid last year. After program cuts, accounting changes, and an extra lottery transfer, a deficit of about $213 million remains to be covered either by cuts to schools or new sources of revenue found by the Legislature. Using slightly smaller numbers for the student population, the conference estimated that closing the deficit would require cuts to schools of $116 per pupil for the last payments of the school year. While this news has been expected for some time, Friday's conference put to rest any doubts about the size of the deficit.

The conferees, including the heads of the House and Senate Fiscal Agencies and the State Treasurer, also estimated that the state General Fund deficit is about $600 million, some $43 million more than predicted in January. A little more than half of that total could be covered by cuts agreed so far by House and Senate leaders and the Governor, but that agreement foundered on Senate Republicans' resistance to finding new tax revenue to cover the rest of the deficit.

Predictions for school aid revenue for next year (FY08) show a modest improvement over the (much reduced) estimates for this year, but are less than 2% higher than revenues for FY06 and over $360 million less than was originally budgeted for this year. Since much of the shortfall this year was covered with one-time accounting changes and debt restructuring, these predictions may mean that the per pupil funding schools receive will shrink to 2005-6 levels unless new revenues come on line.

State officials warned that even if new taxes are approved by the Legislature, they will come so late in the year that they may only cover one quarter to one third of the overall deficit remaining for this year. Closing the current year's school aid deficit without cuts may, as a result, be very difficult.