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Gretchen Whitmer, Republicans strike deal to plug $2.2B Michigan budget hole

LANSING — Michigan will spend federal coronavirus relief money, tap its own "rainy day" savings fund and make "modest" cuts to the state government under a budget deal announced Monday by Democratic Gov. Gretchen Whitmer and Republican legislative leaders. 

Officials say the plan will plug a $2.2 billion budget hole for the current fiscal year, but it does not resolve what could be an even larger budget gap for the state's next fiscal year that begins Oct. 1. 

The deal will use most of the remaining federal assistance provided through the federal Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act, which included $3.1 billion for Michigan.

The global pandemic and forced business shutdowns have wreaked havoc on the state and national economies, depressing tax collections used to pay for government operations. 

"In this time of crisis, it is our responsibility to come together and build a budget that reflects a bipartisan commitment to the things we value most as Michiganders," Whitmer, House Speaker Lee Chatfield and Senate Majority Leader Mike Shirkey said in a joint statement. 

The agreement "provides crucial funding for Michigan families, schools, and communities grappling with costs incurred as a result of the virus," they said.  

"Our collective priority is a healthy state and a healthy economy. We are committed to working together to address the remaining shortfalls in next year’s budget and we are looking to our partners in Congress for support to help maintain the essential services relied upon by our families and small businesses.” 

While they have not yet detailed any specific spending cuts, Whitmer and GOP leaders say Michigan will save $490 million through hiring and discretionary spending freezes, layoffs and "other identified savings" in state government.  

Michigan will send $512 million in federal funding to K-12 schools, $200 million to universities and community colleges and $150 million to local governments. Another $53 million will be used to provide hazard pay for teachers willing to return to work despite public health risks from the virus.

That will offset a $256 million cut in state aid to schools, a $200 million reduction to universities and colleges and a $97 million cut to local governments.

To avoid further cuts, officials will spend $350 million from the state's $1.2 billion budget Stabilization Fund, otherwise known as the rainy day fund, which had grown considerably under former Gov. Rick Snyder.

Whitmer and GOP leaders also expect to avoid $475 million in state spending by using federal funding for various public safety expenses and $340 million because of enhanced Medicaid match dollars from the federal government. 

All told, the deal will leave Michigan with $94 million in unspent federal relief funding. It builds on an $880 million agreement Whtimer and GOP leaders finalized June 17.

"But there is remaining need," the Whitmer administration said in a budget agreement outline. 

The governor has urged the federal government to provide additional assistance to states and local governments facing budget problems because of the pandemic. 

The $2.2 billion budget hole she and GOP leaders say they need to fill is smaller than the $3.2 billion deficit officials had projected in mid-May. While state revenues are down dramatically this year, they have not fallen as sharply as once anticipated. 

As of last month, budget officials were also projecting a $3 billion gap for 2021, which will complicate efforts to balance next year's state budget by Oct. 1, as required by the Michigan Constitution. 

After last fall's combative budget cycle, which was marked by a near-government shutdown and a controversial Whitmer veto spree, the Legislature had agreed to send Whitmer a 2021 budget plan by July 1. 

They are no longer expected to meet that deadline. 

Detroit Regional Chamber Sandy Baruah praised Whitmer, Shirkey and Chatfield for "coming together to proactively and collaboratively resolve the $2.2 billion shortfall in the current fiscal year."

"The business community stands ready to help advocate for Michigan's fair share of Federal support in forthcoming aid to state and local governments," Baruah said in a statement. 

Shirkey, in a statement of his own released separately from the announcement with Chatfield and Whiter, acknowledged the "fiscal needs of our state and our country are great" given the pandemic. 

As Congress considers additional state aid, Senate Republicans are encouraging federal lawmakers "to balance fiscal responsibility with the realities of unprecedented challenges related to this insidious virus," Shirkey said.  

"We must resist the urge to default to debt and call it a plan.  The immediate needs of our country are very real. Restraint on spending will be difficult in the face of these needs, but absolutely necessary."

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