COVID and the Impact on FY21 State Budget
Three months after Michigan began shutting down due to the COVID-19 pandemic, the State continues on its path to reopening under the Governor’s MI Safe Start Plan; a six-phase regional economic plan to reopen the state. The plan separated the State into eight regions, allowing each region to progress at its own pace. Starting June 10, regions 6 and 8 (northern Michigan and the Upper Peninsula) graduated to Phase 5, “Containing,” which amongst other things allows the reopening of salons, movie theaters, and gyms subject to safety protocols and social distancing. Although the remainder of the state is currently in phase 4 “Improving,” the Governor has publicly discussed her desire to move the remainder of the State into phase 5 before the 4th of July.
As previously discussed, COVID-19 has devastated the State’s current year budget and the pending FY21 budget. In May, the Consensus Revenue Estimating Conference (CREC) reported an estimated loss of $6.28 billion; a $3.2 billion deficit for the current fiscal year and a $3 billion deficit for FY21. The State’s revenue has plummeted as a result of reduced state sales and income tax revenue, and mass business closures in response to the COVID-19 pandemic.
With Michigan dealing with its first budget deficit since the Great Recession, the state’s FY21 budget process has stalled following COVID-19. Two-thirds of $3B in coronavirus relief funds allocated to Michigan through the CARES Act has not been spent. The Governor continues to lobby Congress to allow all states flexibility when allocating CARES Act money. Currently these monies are restricted and state’s cannot use any of the relief funds as revenue replacement. In addition to hoping flexibility’s are soon provided for CARES Act spending, Michigan is also patiently waiting to see if Congress provides additional relief money to states and local governments.
After the FY20 budget process was completed in Fall 2019, the legislature and Governor agreed to a July 1 deadline for the state budget going forward. However, due to the unprecedented impact on the state due to COVID-19, the legislature has begun the process of amending the newly implemented statute to delay the July 1 self-imposed deadline until 2021. This delay will provide the legislature and Governor time throughout the Summer and early Fall to negotiate a FY21 budget, with the State’s fiscal year starting on October 1, 2020.
Recently the Legislature passed SB 690, a supplemental budget bill aimed at addressing COVID-19 impacts to the state. The bill allocates a portion of the federal relief funding from the CARES Act Michigan received from the Federal Government. The bill includes, but is not limited to: $115M for a small business restart grant program; $100M to cover the reimbursement of hazard pay for first responders; $25M for PPE grants; $120M to cover a $2 raise to direct care workers from July 1 to September 30; $29.1M to the State’s unemployment insurance agency; $5.1M for a $100 per diem increase in inpatient psychiatric hospital rate for Medicaid patients and $4M for grants to organizations that provide services for victims of domestic violence, sexual assault, stalking, and other crimes that cause physical injury or fear for physical safety.
On the election front, the August primary will be here before we know. In last month’s Insights article on Lansing, we discussed the record March 2020 Presidential Primary turn out and the large increase in absentee voting. In 2018, voters passed a ballot proposal that now allows all voters to cast absentee ballots. In a move that was highly criticized by some Republicans, Michigan’s Secretary of State Jocelyn Benson proactively mailed 5.7 million absentee ballot applications to most Michigan registered voters. Record turn-out is expected for both the August 4 primary and November 3 general elections.
Legislatively, only the House of Representatives is up for election this year. Twenty-one incumbent Representatives who are running for reelection (12 Democrats & 9 Republicans) have a primary challenger. It is likely all incumbents will win their primary races, however, there are a few districts where the incumbents could be in trouble. Mitchell Research & Communication survey data shows that as we further re-open Michigan’s economy people are also feeling more comfortable with candidates visiting via “door to door” campaigning. Social media, direct mail, and other media outlets are going to be much stronger components of campaigns this year than in previous years.
The Legislature continues to meet for committees and session days while adhering to social distancing safety guidelines. Thus far the House has limited session to 1-2 days each week, while the Senate continues to meet 2-3 times each week. Session is expected to continue throughout June with a tentative summer break recess scheduled for July.
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