DALLAS – Michigan Gov. Rick Snyder Wednesday presented a fiscal 2018 budget plan to tackle the state's unfunded retiree obligations and bolster education funding while maintaining growth in the rainy day fund.
The overall budget plan for the year that begins Oct. 1 includes $10.1 billion in general fund spending, an increase of 1.75% compared to fiscal year 2017, and totals $56.3 billion, an increase of 2.5%.
"This budget is a reflection on everything we've been able to accomplish over the past six years, and we should be proud of those achievements," Snyder said. "Our economy is growing, our labor force is expanding, and our state's fiscal house is in good shape. In the same spirit that has brought us this far, we need to continue making smart, responsible investments in critical areas like education, infrastructure, and the professional trades."
Lt. Gov. Brian Calley and recently appointed State Budget Director Al Pscholka joined Snyder in outlining the budget recommendation to a joint session of House and Senate appropriations committees.
Snyder's budget proposes reducing the assumed rate of investment return for the state's retirement systems to 7.5% from 8%.
Snyder said that the more conservative assumption will require additional state payments into the retirement systems.
The change will cost the state an extra $10 million this year in retirement contributions, though costs will climb to an estimated $350 million annually for all state retirement systems beginning in the 2019 fiscal year, according to the state budget office.
The estimate would be effective immediately to all state employee retirement systems except for school employees, for whom the rate would be lowered over two years.
"The state will reduce risk, remain on track to eliminate the liability entirely by the year 2038, and protect the retirement systems that many older Michiganders will be relying on in their senior years," said Snyder.
Michigan local governments are currently facing $14 billion in unfunded liabilities in municipal pension and retiree health care plans. Snyder has formed a task force charged with recommending how to tackle local governments' unfunded retirement obligations.
For schools, Snyder proposed an increase in per-pupil spending of $128 million, providing an additional $50 to $100 per pupil for schools, with an additional $50 per high school pupil to support the higher cost of educating high school students.
Snyder also wants an increase of $36.6 million for university operations and an $18 million increase in financial aid and scholarships.
Sen. Curtis Hertel, Jr., D-East Lansing, said that the increase in higher education funding is less than the rate of inflation and a billion dollars less than what the state was spending a decade ago.
"The state's disinvestment in higher ed funding is unacceptable and the reason why our students have crippling debt," said Hertel.
Snyder is proposing a $20 million deposit into the state's infrastructure fund as the start of a down payment on future investments. A recent report Snyder commissioned called for Michigan to spend $4 billion annually over the next 20 years to fund its infrastructure investment gap.
The governor proposed an additional $48 million for Flint to pay for health and public safety problems associated with the city's water contamination crisis. The funds would come from state reserves. Michigan has allocated nearly $250 million toward the Flint water contamination crisis.
Snyder also proposed to set aside a more than $260 million deposit into the state's rainy day fund, which he said is on track reach $1 billion in fiscal 2018.
When Snyder took office, the Budget Stabilization Fund balance was just $2 million. Absent in the proposal where any significant tax cuts. Republican lawmakers have introduced a bill that would phase out the state's 4.25% income tax over the next five years.
"I would like to ease the burden on the hard-working taxpayers of our state in the form of an income tax rollback," said State Rep. Laura Cox, R- Livonia. "I believe that this is something that we can achieve as a state in order to give citizens back more of their own money."
Snyder also said the state would take a wait and see approach when it came to possible changes to the Affordable Care Act and what the economic impact would be to the state.
