John RobertsState Budget Director

State Association of Accountants, Auditors and Business AdministratorsApril 21, 2015

Michigan Growing Stronger

Michigan Economy Coming Back Strong• Nearly 400,000 new private sector jobs since December 2010• Unemployment lowest since 2002; lowest unemployed since 2001• Home sales and values on the rise

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Creating More and Better Jobs

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Change in Michigan Wage and Salary Employment from Previous Year (thousands of jobs)

Note: U.S. Bureau of Labor Statistics. 2014-2017 estimates are 1/16/15 Consensus Forecast. 1/20/15.

Avg.

Consensus Forecast

-112.7-76.8 -71.0

-16.9 -9.3

-63.2 -58.7-105.7

-291.6

-7.2

88.5 81.5 71.228.0

54.0 54.0 51.0

Dropping Unemployment Rate

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0%

4%

8%

12%

16%

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

5.5% March 15

5.6% March 15

Source: MI Bureau of Labor Market Information and U.S. Bureau of Labor Statistics. (4/17/2015)

14.9%June 09

10.0%Oct 09

Michigan

U.S.

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Rising Personal Incomes

Michigan Personal Income Year-Over-Year % Change

Note: U.S. Bureau of Economic Analysis. 2014-2017 estimates are 1/16/15 Consensus Forecast. 1/20/15. Consensus Forecast

1.1% 0.6%

2.8%3.4%

2.6% 2.6% 2.6%1.6%

-4.4%

2.3%

5.9%

3.9%

1.4%

4.2% 4.3% 4.4% 4.3%

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• Huge awards made in last decade; impact thru 2032• Clear lack of transparency on benefits and timing• Replaced with transparent program in 2011• Action steps:

o Better visibilityo Understanding long-term impact

Legacy Tax Credits

FY11 FY12 FY13 FY14 FY15 FY16----- 25.1% 50.9% 57.4% 98.1% 80.8%

($171.0) ($476.6) (-$173.3) (-$251.8) (-$350.9)

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

6.7%($591.7)

4.4%($407.6)

8.5%($813.6)

-4.3%(-$384.8)

-3.1%(-$297.8)

-4.8%(-$465.2)

3.8%($431.1)

2.5%($274.2)

1.1%($122.0) 0.7%

($82.7) 0.3%($41.1)

0.3%($30.7)

General FundSchool Aid Fund

GF & SAF Revenue Estimate Error Rates($ in millions)

Negative = Actual < Estimate When Budget Enacted (FY15 & FY16: Jan ‘15 Est. < May ‘14 Est.)Positive = Actual > Estimate When Budget Enacted (FY15 & FY16: Jan ‘15 Est. > May ‘14 Est.)

% of Error Due to MBT

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Paying Our Debts• 2011 Reforms

o MPSERSo SERS

• Payment plans in place• Better for:

o Our kidso Our retireeso All of us

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Long-term Debt – Pre and Post Reform

Pre-Reform: Unsustainable path with long-term unfunded liabilities of $45B and growing

Post-Reform: Sustainable path by reducing liability by $15.6B and capping the growth

Pre-Reform: Unsustainable path with long-term unfunded liabilities of $14.7B

Post-Reform: Sustainable path by reducing liability by $5.7B and increased employee contributions

School Employees Retirement(MPSERS)

State Employees Retirement(SERS)

Total: Long Term Debt Reduced by more than $20B

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• Savings from reforms equals $644M or $475 per K-12 student in FY 16

• FY 16 funding recommendation is $815M or $600 per K-12 student

• These two actions translate into $1.46B or $1,075 per K-12 student in MPSERS districts in FY 16

Reforms Result in Savings

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Paying for Our Legacy Costs – Schools

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Paying for Our Legacy Costs – Corrections

Saving for a Rainy Day

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20002001

20022003

20042005

20062007

20082009

20102011

20122013

2014

2015 Projec

ted

2016 Projec

ted$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000$1,264,400,000

$994,200,000

$145,200,000

$0$81,300,000

$2,000,000$2,000,000$2,100,000$2,200,000$2,200,000$2,200,000$2,200,000

$365,100,000

$505,600,000

$386,200,000$498,200,000

$610,800,000

The Budget Stabilization Fund (BSF) Peaked at $1.3 Billion in FY 2000, but Had to be Rebuilt.

FY16 Deposit of $95M One-time and $17.5 Million Ongoing.

Fiscal Year

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FY16 Budget Recommendations

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2016 Strategic Investments• Education

o Pre to 3o Skilled tradeso Higher education:o Community colleges

• Public safetyo Recruit schoolo Drug policy initiative

• Health and human serviceso Healthy Kids Dentalo Adult dentalo Mental health

Continuing Education as a Priority

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$10.7B+ $1.2B $11.9B

* Does not include federal funding, adult education funding or preschool funding

Education: Focus on Student Growth• Foundation allowance: $108M ($75 per-pupil)• At risk funding increase: $100M• Distressed district rehabilitation: $75M• Technology infrastructure grants: $25M• Third grade reading initiative: $25M

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Strengthening Higher Education• Community colleges

o Operations: $4.3M, 1.4 percent increase

o MPSERS: $17.2M increaseo Adult P/T student grants: $6M

• Universities/student financial aido Operations: $28M, 2 percent

increaseo MPSERS: $2.7M increaseo Tuition restraint at 2.8 percent

Prioritizing Skilled Trades• FY16 Investments: $35.6M, including:

o Career and Technical Education Early/Middle College programs: $17.8M

o Skilled Trades: $10M increase; $20M totalo Student outreach, career planning and dual enrollment

enhancements: $4.3M• Existing related programs: $47.6M

Total investment: $83M

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Prioritizing Public Safety

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• $7.7M to train 75 MSP troopers• $1M to train 10 motor carrier officers• $3.4M to resolve sexual assault cases

o $1.7M to process DNAo $1.7M for prosecution

• $500,000 to help prevent sexual assaults on campuses

• $1.5M related to drug policy initiative

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Other Topics of Interest …

Comprehensive Annual Financial Report• For the last two years, Michigan has issued its CAFR

faster than any state in the nation— FY13: 82 days— FY14: 90 days

• Michigan expects to issue in 90 days or less for FY15• The FY15 book closing is currently in the planning stage,

with particular emphasis on implementing GASB 68 (Accounting and Financial Reporting for Pensions) and various process and reporting improvements

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SIGMA Update• Project SIGMA continues to move forward at an

aggressive pace• Phase 1 system testing is almost complete and we

will soon be moving into user acceptance testing• Phase 2 design is on track for completion in the

upcoming months• Phase 2 technical designs and planning for the

associated agency work is also underway

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Transportation – the Problem• Michigan investment in roads per capita: $154

— Annual repair cost average: $539

• Ohio invests $214 per capita; Wisconsin spends $302 per capita; Pennsylvania invests $530 per capita

• 28 percent of Michigan’s bridges are in need of repair, improvement or replacement

• 48 percent of major roads in Michigan’s largest cities are in poor or mediocre condition

• Roadway conditions are a significant factor in approximately 1/3 of traffic fatalities

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Solution – Proposal 1• Would:

— Increase sales tax from 6 percent to 7 percent— Have all fuel taxes go to roads— Level off registration fees— Increase fees on heavy trucks— Improve standards for road construction

• Provides:— $1.2B for roads and $112M for public transit— $300M for School Aid Fund — $100M for local government

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Risks• Venture Michigan Fund• Tax credits

– Job retention/growth• Transportation• King vs. Burwell Obamacare

challenge/Healthy Michigan• Demographics

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Detroit• Tough decisions made• Four-year balanced budget – first time in the city’s history• New investment opportunities• Detroit’s future is looking brighter

Accelerating the Comeback

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• Ongoingo Transportation: Comprehensive funding solutiono Healthy Kids Dental o Education K-12: School retirement system Universities/Community Colleges/Skilled Tradeso Public safety o Local government funding

• One-timeo Grow reserves

Ballot proposal Expanding to three remaining counties

Funding retirement obligations Increased

investment

Added funding for new counties

Growing to more than $600M

Running another recruit school

Questions?

Thank you.

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