FY 2017 Budget overview

Governor Rick Snyder’s sixth budget recommendation is again focused on how to best serve

Michigan residents and build one Michigan where the generations of today and tomorrow can flourish and thrive. This budget recommendation is presented with the understanding that our state is currently facing critical challenges in Flint and Detroit. While the governor’s traditional priorities of education, job growth, health and wellness, public safety and fiscal responsibility are reflected in this budget recommendation, the lens is centered on these critical challenges facing our state today — the Flint water crisis and the financial and educational crisis in the Detroit Public Schools system.

This is not the first time Michigan has faced tough challenges. Our state has been tested time and again by seemingly insurmountable obstacles. We must again work together to provide Flint residents

with safe, clean drinking water, and Detroit children with a quality education. Addressing the current challenges in Flint and Detroit will take a great deal of Michigan ingenuity and a significant financial investment. For our state to move forward as one Michigan, we must come together to tackle both of these challenges, while remaining focused on making budget decisions that will help all of Michigan move ahead.

With the goal of continuous improvement accompanied by relentless positive action, the governor’s executive budget recommendation for fiscal year 2017 and projected fiscal year 2018 makes strategic investments that reach to all corners of our state and connect us all. We are one Michigan. Together, we will overcome these challenges and continue the work to make our great state even better.

Addressing the Flint Water Crisis

Clean drinking water is a necessity. Flint residents shouldn’t have to rely on bottled water and water filters just to drink a glass of water or safely cook a meal. This is simply unacceptable. Gov. Snyder is dedicated to ensuring the situation is dealt with quickly and thoroughly, so that Flint’s water is safe for residents once again.

Recognizing the magnitude of the crisis in Flint and the immediate need for swift action, the governor has already put forth two supplemental recommendations for fiscal year 2016 totaling $37.3 million to begin addressing the critical demand for safe water in Flint. The funds have been used in a variety of ways, including reconnecting Flint to the Detroit water system; performing water inspections and public health monitoring; laboratory services; providing residents with bottled water, water filters and replacement cartridges; blood screening; plumbing inspections in schools, childcare and health facilities; experts to assess potential linkages to Legionnaire’s disease; and bringing in outside experts to conduct an integrity study of the infrastructure. The supplemental funding provided to address the crisis is a good starting place, but the governor realizes that addressing the full scope of the situation requires additional resources long into the future.

Above and beyond the funds already set aside to tackle the urgent crisis in Flint, the governor recommends more than $195.4 million in fiscal years 2016 and 2017 to provide the long-term health and educational support that will be needed for the children and residents of the city. Spread out across several state agencies, these funds will be used to continue the work to provide Flint residents with immediate needs like bottled water, water filters and replacement cartridges while also investing in longer term needs such as specialists and staff, including nurses and epidemiologists; support for health care access for Flint children; payment for testing and studies; and the ongoing treatment of children.

Additional funds will be needed in the coming years to ensure Flint residents receive the care and services they need for a healthy future.

Turning Around Detroit Public Schools

Schools throughout the Detroit Public Schools (DPS) system are struggling both academically and financially to provide Detroit children with the education they need to succeed. Test scores of all

Detroit high schoolers show that just 6 percent of high school students are proficient in math, 4 percent are proficient in science and two-thirds are not proficient in reading. With declining enrollment, losing nearly 100,000 students in the last decade, and accumulation of about $483 million in debt, Gov. Snyder understands the severity of the challenges the district is facing and how desperately systemic change is needed. The long-term issue facing Detroit has reached a crisis point and the governor is determined to turn the district around. We cannot stand idly by and let Michigan’s largest city and school district falter. As one Michigan, we must acknowledge that our children are our future and we must do whatever we can to help ensure that every child receives a quality education.

The governor’s three-part plan to help turn around the district involves maintaining the current district to pay off the district’s debt; establishing a new district to operate the schools; and creating a commission that would hire an education manager to oversee all traditional and charter public schools in the city.

Facing a debt load that will hit $515 million by this coming summer, under the governor’s plan the Detroit Public Schools would use the existing local millage — about $72 million per year — to pay off the debt. The governor is extremely concerned that the debt requires more than $1,100 per student to pay down what is owed — money that would be better spent in the classroom helping students learn, which is why the governor’s budget recommendation provides $72 million a year for 10 years from Michigan’s tobacco settlement proceeds to offset the loss of locally generated revenues. As part of the governor’s $720 million plan, $200 million provides for startup and transition costs, including space consolidation, academic and instructional support and investment in key academic programs. These funds will help get the school district back on firmer financial footing and, more importantly, help ensure Detroit children are receiving a quality education, setting them on a path toward a brighter future.

Economy Continues to Rebound

Earlier this year we heard economic experts once again forecast a promising future for Michigan.

The unemployment rate is at its lowest mark in 15 years and private payroll jobs are up by more than 440,000 since the governor took office. Since December 2014, jobs have risen in manufacturing by 19,000 or 3.2 percent, at a time when national manufacturing job expansion has been sluggish. A total of 115,000 jobs have been created in the manufacturing sector since 2010. When it comes to job creation, Michigan is ranked sixth in the nation and personal income is increasing again in Michigan, more than doubling from 1.9 percent in 2013 to 3.9 percent in 2014.

Throughout 2015, home prices increased faster in Michigan than in the rest of the nation. In fact, home values have increased 32.1 percent since 2010, compared to the national average of only 22.7 percent. The state’s per capita personal income increased 15.7 percent between 2010 and 2014–14th strongest among the states.

Budget Recommendation in Totality

The total Executive Budget Recommendation for fiscal year 2017, including all state and federal revenue sources, is $54.9 billion. Seventy-five percent of the total budget is dedicated to education and health and human services.

The Consensus Revenue Estimating Conference held in early January projected that revenues will be $10.2 billion in the general fund and $12.5 billion in the School Aid Fund for fiscal year 2017, for a combined total of $22.7 billion. Fiscal year 2018 projected revenues are $10.6 billion in the general fund and $12.8 billion in the School Aid Fund, for a combined total of $23.4 billion.

Preparing Our Children for the Future

The governor knows how vital a good education is to the future success of our children, which is why his executive recommendation once again makes significant investments in education to help Michigan’s children be more successful. Factoring in the proposed investments for fiscal year 2017, the governor has invested an additional $1.4 billion in the state’s K-12 education system since taking office in 2011.

K-12

Despite continued declining enrollment, the governor recommends $12.1 billion in state funds for K-12. The governor’s plan calls for $150 million in funding for the foundation allowance, an investment that translates to $60 to $120 per pupil. In addition, the proposed budget includes a $15 million increase for career and technical education middle college programs and equipment, and a $2.1 million investment in science, technology, engineering and mathematics programs to encourage students toward these fields of study.

With an ongoing investment of $61.2 million, a 4.3 percent increase, the fiscal year 2017 recommendation fully restores aggregate university funding to fiscal year 2011 levels, a key goal of the governor since his first budget proposal in 2011. To help ensure college degrees remain affordable for Michigan students attending one of the state’s 15 public universities, the governor’s plan again relies on tuition restraint, setting restraint at 4.8 percent.

The proposed budget also recommends a 2.4 percent increase of $7.5 million for Michigan’s 28 community colleges, for a total of $319 million.

Protecting the Public

Following impressive results from the Secure Cities program, which has reduced violent crime in four of the state’s larger cities (Detroit, Flint, Pontiac and Saginaw), the governor’s plan calls for an investment of $1.5 million to expand the program to the communities of Benton Harbor, Hamtramck, Harper Woods, Highland Park, Inkster and Muskegon Heights.

The governor’s proposal also includes investments to protect the public of $9.5 million to support an additional trooper recruit school aimed at producing 85 graduates to increase the strength of the Michigan State Police. Residents across the state will benefit from having more troopers trained and sworn to protect and serve the public.

Other public safety investments include $8.5 million to run an academy to train and graduate 350 additional corrections officers; a depositof $6 million into the Disaster and Emergency Contingency Fund; $4 million aimed at providing safe and secure learning environments for students; $2.2 million to enhance capacity to combat the rising tide of digital crime; $500,000 for a higher education sexual assault prevention and education initiative; and $981,300 to purchase new ballistic vests to help keep probation and parole agents safe while on duty.

Putting People First

Gov. Snyder’s executive recommendation includes several investments that put people first. The recently combined Michigan Department of Health and Human Services (DHHS) is designed to serve residents across the state.

Health

This budget recommendation achieves the governor’s goal of fully expanding the Healthy Kids Dental program to cover all eligible children in all of the state’s 83 counties. The $25.6 million investment will bring the number of children with access to dental care to an estimated 826,800, compared to 285,000 who were covered in fiscal year 2011. Good dental hygiene is a vital building block to a lifetime of better health outcomes. According to Humana, research suggests that the inflammation from periodontal, or gum disease, puts individuals at a higher risk for diabetes, Alzheimer’s and heart disease. Beyond dental health, the governor is also concerned with ensuring that residents across the state have access to affordable health care, which is why he signed the Healthy Michigan Plan into law three years ago. Since then, more than 600,000 Michiganders have signed up for health insurance. Per federal regulations, the state is starting to pick up a larger portion of program costs, which will help ensure that people continue to receive the quality coverage they’ve come to rely on for their health care.

The advancement of science and medicine has brought about countless new prescription drugs that can save lives and result in greatly improved health outcomes for individuals who live with a wide variety of medical conditions. While these new medications can significantly change lives, they are also rather costly. The state Pharmacy and Therapeutics Committee has recommended that new specialty medications to treat hepatitis C and cystic fibrosis be approved for Medicaid patients. The assumed cost to treat nearly 7,000 residents with hepatitis C for a full year is $91.5 million general fund, while treating 320 Michigan children with cystic fibrosis would total $43.7 million general fund. The DHHS base budget has been built to accommodate these costs. To prepare for additional medications in the pipeline to treat other conditions, the health and human services budget currently includes a specialty medications prescription reserve. Understanding that the need for funding will only increase as additional medications are recommended for treatment, the governor’s executive recommendation includes a one-time deposit of $30 million into the reserve.

Human Services

Approximately 20,000 Michigan children in the Family Independence Program (FIP) who live with a caregiver who does not qualify currently receive an annual payment of $140 a year for clothing. To provide further assistance to these families and all families who qualify for FIP, the governor recommends a $6.1 million increase to extend the clothing allowance to all children in the program, adding nearly another 25,000 children, and increasing the allowance to $200 annually.

The governor’s plan also includes $22.3 million to improve child safety and welfare through enhanced information technology to better monitor child protective services, foster care, and adoption cases.

Additionally, the governor recommends $7.6 million to expand the Center for Forensic Psychiatry to help ensure persons ruled incompetent to stand trial or not guilty by reason of insanity receive mental health services they need.

Investing in Infrastructure

Michigan’s infrastructure was given a D grade by the American Society of Civil Engineers, which is why the governor’s supplemental request also includes $25 million for infrastructure needs specific to Flint and another $165 million to be set aside for statewide infrastructure needs in a newly created Michigan Infrastructure Fund. The new fund will be used to make strategic improvements and provide local governments with financial assistance in making necessary improvements to known high-risk lead and copper service lines.

With passage of a new comprehensive transportation package in 2015, Michigan has a new level of support and stability for infrastructure funding for the first time in many years. When fully implemented, the package will dedicate $1.2 billion to maintain and repair Michigan roads, bridges and other critical infrastructure across the state. The added funding comes from a 7.3 cents per gallon increase in gasoline taxes, an 11.3 cents per gallon increase in diesel taxes and increased vehicle registration taxes and fees beginning in 2017. The package also redirects existing income tax revenue to transportation starting in fiscal year 2019.

In the meantime, the governor’s plan for fiscal year 2017 features $533.3 million in increased dedicated transportation revenue, which includes $189 million for the State Trunkline Fund, $283 million for local road agencies and $51 million for rail and public transit. The budget proposal also includes $57.5 million in new federal funds from the Fixing America’s Surface Transportation (FAST) Act, which will for the first time in a decade provide stabilized and predictable federal funding for five years, with 2 percent annual increases for highway funding through 2020. The FAST funds will be used for local road agencies ($32 million), state trunklines ($15 million), and local transit ($10 million).

Saving for a Rainy Day

Saving for a rainy day is the cornerstone of any financially sound budget. Individuals and families throughout Michigan have to live according to a budget with three core concepts — set aside savings, pay bills and pay down debt. As a certified public accountant, Gov. Snyder understands that it’s prudent to tackle the state budget with the same approach: fund critical programs and services, make strategic, longterm investments and ensure there are sufficient reserves.

While the fiscal year 2017 budget does not call for a deposit into the state’s Budget Stabilization Fund (commonly referred to as the “Rainy Day Fund”), a fiscal year 2016 deposit will bring the fund to $611 million, for a total Rainy Day Fund increase of $609 million since the governor took office in 2011, when the balance was a mere $2.2 million.

Conclusion

The governor’s sixth budget recommendation is focused on making strategic investments to address our challenges in Flint and Detroit while making statewide investments to educate our children,promote better health outcomes for Michiganders, protect state residents and ensure our infrastructure will last well into the future to support our needs. It’s a budget recommendation focused on one Michigan where we can all live, work and play. Together, we are one Michigan working toward a brighter future.

Adoption of Governor Snyder’s two-year budget recommendation for fiscal year 2017 is both measured and fiscally responsible. The governor and his administration are ready to work together with the members of the Michigan Senate and House of Representatives to enact a budget to build one Michigan that will prosper for generations to come.