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CRC Memorandum
CITIZENS RESEARCH COUNCILOF MICHIGAN
 
MAIN OFFICE
 
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CRCMICH.ORG
CRC Board of Directors
EUGENE A. GARGARO, Jr., ChairJEFFREY D. BERGERON, Vice ChairNICK A. KHOURI, TreasurerJOSEPH R. ANGILERIBETH CHAPPELLRICK DIBARTOLOMEOTERENCE M. DONNELLYRANDALL W. EBERTSDAVID O. EGNERW. FRANK FOUNTAININGRID A. GREGGMARYBETH S. HOWEDANIEL T. LISALEKSANDRA A. MIZIOLEKPAUL OBERMEYERBRYAN ROOSALYNDA ROSSIJERRY E. RUSHMICHAEL A. SEMANCOTERENCE A. THOMAS, Sr.AMANDA VAN DUSENKENT J. VANAEARL M. RYAN, President
No. 1092No. 1092No. 1092No. 1092No. 1092 A public A public A public A public A publication of the Citizens R ation of the Citizens R ation of the Citizens R ation of the Citizens R ation of the Citizens R esearcesearcesearcesearcesearch Ch Ch Ch Ch Council of Micouncil of Micouncil of Micouncil of Micouncil of Michig hig hig hig hig ananananan A A A A August 2009ugust 2009ugust 2009ugust 2009ugust 2009
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In Brief 
The State of Michigan’s next fiscal year begins in amatter of weeks, on October 1, 2009, and a final bud-get is not in place. The State’s two major funds, Gen-eral Fund and School Aid Fund, face a combined esti-mated deficit totaling $2.7 billion before theapplication of the one-time federal recovery fundingdesigned to help with balancing the budget. Factor-ing in the use of these non-recurring resources, boththe General and School Aid Fund budgets are esti-mated to be in deficit, requiring reductions in plannedspending or increases in revenues.Historically, Michigan budget writers completed theirwork sometime in July, a full two months before thestart of the next fiscal year. For three of the last five years, however, adoption of the State’s final spendingplan has not occurred until late September, just daysbefore the beginning of the fiscal year. There is verylittle question that the fiscal challenges facing Michi-gan budget writers over the past several years arechiefly to blame for the tardiness in adopting final bud-get agreements in these years. Although policymakershave established a September 1 deadline for passageof the final fiscal year 2010 budget, any holdup in thefinal negotiations will push budget adoption to lateSeptember again this year.Michigan’s rigid constitutional balanced budget re-quirements and its constitutional prohibition againstState spending without an appropriation will require agovernment shutdown in the absence of final budgetagreement by October 1, 2009. Michigan experiencedsuch a scenario in 2007, when a stalemate over the Fis-cal Year (FY) 2008 budget pushed negotiations into theearly hours of new fiscal year before a spending planwas passed, directly causing disruption to State gov-ernment services and programs.In addition, a great number of organizations outsideof State government, including local governments,school districts, and hospitals were impacted by thelateness of State budget finality in 2007. The abandon-ment of the traditional July deadline for budgetcompletion causes these organizations, many of whichhave a July – June fiscal year, to postpone critical fi-nancial decisions until they are more certain of theupcoming support they can expect from the State ofMichigan.Some observers of the Fiscal Year 2008 budget sug-gest that a new “deadline” is needed to ensure timelybudget passage, a date sometime before the end ofthe current fiscal year. Experiences from other stateswith similar deadlines, however, suggest that the ulti-mate deadline will always remain the start of the nextfiscal year. This would be the case if Michigan adoptedsuch a deadline because of the State’s constitutionalprohibition regarding any State spending in the absenceof an appropriation. Michigan’s struggles with adopt-ing a timely budget are more the result of the politicalrealities in which the budget process operates, ratherthan the process itself.
 
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CRC Memorandum
After the State of Michiganswitched its fiscal year to corre-spond to that of the Federal Gov-ernment in 1976, the month of Julybecame the unofficial target forthe Michigan Legislature to com-plete its work on the budget andforward the various appropriationsbills to the Governor for reviewand signature. However, in recent years the traditional July deadlinefor legislative budget delibera-tions has been abandoned and fi-nal legislative action and guberna-torial approval of the budget hasoccurred much closer to the be-ginning of the fiscal year, October1. The reasons for delays vary year-to-year; however, there islittle doubt that a major cause inrecent years has been the extremefiscal challenges facing policymakers charged with crafting theannual State spending plan.A number of states with July 1 fis-cal years recently began their 2010fiscal years without final budgetsin place, in large measure due tothe havoc caused to state financesby the national recession. Prior tothe recent business cycle down-turn in late 2007, Michigan lawmak-ers failed to enact a timely FiscalYear (FY) 2008 budget in the earlyfall of 2007. In fact, the FY2008budget was not passed until hoursafter the start of the fiscal year.The Michigan Legislature has set aSeptember 1 deadline forcompletion of its work on theFY2010 budget. Many of the samefiscal conditions facing Michiganlawmakers in 2007 are present to-day, most notably an estimated$2.8 billion difference betweenestimated available revenue andprojected spending in the State’stwo major funds, without the useof one-time federal assistance.Budget negotiations betweenlegislative leaders and the execu-tive branch are on-going, but anymajor hold-up in the discussionsover a final solution will causethem to miss their self-imposedSeptember 1 deadline with thepossibility of pushing budget en-actment to late-September, onceagain.Over the years, fiscal challenges,more than any other reason, aregenerally responsible for late bud-get passage. While, the reason(s)for missing the traditional Julydeadline can change, the effectsand implications of tardy budgetpassage from one year to the nextare the same.The lateness of the FY2008 Statebudget and the resultant negativeconsequences, both real and per-ceived, have given rise to calls forchanges to Michigan’s budget de-velopment processes. The work-ing assumption is that modifyingthe process in some way will re-sult in a budget that is consis-tently and predictably deliveredto the governor in a timely fash-ion. Proponents of such changefurther emphasize the impor-tance of providing organizationsoutside of State government withnotice of what funding levels canbe expected from the State closerto the beginning of their next fis-cal year (July 1), as opposed toOctober 1.
IntroductionConstitutional Provisions Regarding Budget Adoption
The Michigan Legislature’s failureto come to an agreement on thefinal FY2008 appropriations in atimely fashion and the resultantfour-hour government shutdownshed light on the significance ofthe constitutional provisions re-garding the legislature’s “power ofthe purse” and the State’s bal-anced budget requirement. Spe-cifically, Article IX, Section 17 ofthe 1963 Michigan Constitutionprohibits the State from spendingmoney unless there is an appro-priation made by the Legislature,a provision common in otherstates. This “power to appropriate”is the foundation upon which theState’s annual budget rests. With-out enacted appropriations, thethree branches of Michigan Stategovernment lack the requisitespending authority to pay for ex-penses incurred, a position thatexisted at the beginning ofFY2008.
1
For four hours on Octo-ber 1, 2007, government services
1While the Michigan Legislature, from time to time, authorizes multi-year appropriations, the authority for nearly all plannedspending for a given fiscal year is encompassed in one of the many budget bills passed by the Legislature and signed by theGovernor each year. A further distinction is that this provision does not prevent State government from incurring costs,only making payments for such costs in the absence of an appropriation. Costs for goods and services can be incurred untilcontracts are cancelled.
 
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CRC Memorandum
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GovernorWeeks forLegislatureSubmitsLegislature2007Must PassFiscalType ofBudget toto ConsiderSessionBalancedYearStateLegislatureLegislatureBudgetEndedBudgetBegins
AlaskaFDecemberVariesMay 16XJulyCaliforniaFJanuary 1020
1
Sep 12XJulyFloridaFJanuary13 or 17May 4XJulyIllinoisFFebruary16 – 182XJulyIndianaPJanuary16April 29JulyMassachusettsFJanuary26
2
XJulyMinnesotaH4 Tues of Jan15 – 16May 21XJulyNew JerseyFJanuary202XJulyNew YorkFJanuary10
2
XAprilOhioFFebruary
3
8 – 10
2
XJulyPennsylvaniaFFebruary
3
18
2
JulyWisconsinFJanuary22
2
XJuly
MichiganFFebruary
3
33
2
XOctober
Legend
F – full timeP – part timeH – hybrid
1
must pass budget by June 15
2
meets throughout year
3
delayed when new governor inauguratedSource: National Conference of State Legislatures; National Association of State Budget Officers
were effectively “shut down” inorder to comply with this consti-tutional provision.
2
According to the National Con-ference of State Legislatures(NCSL), 23 other states also mustshut down in the absence of anenacted budget.
3
To avoid thedisruptions that accompany acomplete government shutdown, several states have “con-tingency” plans in the event abudget is not enacted on time. Ofthese, 11 use continuing resolu-tions or temporary appropriationbills to finance government ser-vices. In at least 12 states, theNCSL reports, authorization isprovided to maintain governmentoperations in the absence of abudget. Other states do not havea provision one way or the otherand it is unknown what wouldhappen because budgets in thosestates have been passed in atimely manner in the past.2 
Michigan’s FY2008 budget impasse and government shutdown was initially resolved via a “continuation budget”, whichprovided sufficient spending authority for State programs and services for the month of October based, in most cases, on afraction (1/12th) of the FY2007 appropriation levels. Enactment of full-year appropriation bills followed later in Octoberand early November.3National Conference of State Legislatures, August 2004.
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