Michigan lawmakers let out a collective sign of relief Tuesday, as President Obama signed new federal stimulus legislation into law. The 787 billion dollar legislation constitutes a huge increase in federal discretionary spending, and a portion of the spending money will help ease the huge budget deficits many states are facing. Michigan, with the eighth largest population in the nation, is receiving the eighth most stimulus dollars, with the total tax cuts and federal aid totaling 18.4 billion dollars. About seven billion dollars of that money is direct grants or aid to state and local government to help the state maintain essential services. The following is a quick breakdown of the biggest portions of the bill affecting Michigan’s upcoming budget debate:
- The biggest chunk of the 7 billion in direct aid, 2.27 billion dollars total, is an increase in the state’s available Medicaid funds. This chunk of aid will not affect the 2009 budget, as it is not subject to revision.
- Governor Granholm’s budget gamble appears to have paid off, as the federal bill allocates 1.3 billion dollars in “fiscal stabilization” for education. Granholm used the availability of federal stimulus money to justify her proposed education cuts. However, with the increased federal involvement in education funding, there could be additional pressure on districts, especially the Detroit Public System, to use the money wisely and show some progress in fixing their financial problems and low achievement levels.
- The bill allocated 293 million dollars for the “general state government.” This money will probably be the most contested in the bill, as each party attempt to use this money to fund their favored economic positions. However, whether this money goes towards tax cuts or minimizing spending cuts, the general aid falls over 1 billion short of the 1.4 billion dollars needed, and drastic action will still be necessary to balance Michigan’s budget.
Overall, the federal stimulus legislation injects much needed cash into Michigan’s budget, and eases the pain caused by the inevitable cuts in state spending. However, the stimulus money could ultimately harm the state if lawmakers use the money to put off needed long-term structural reform in the name of political expediency. If federal dollars are used to avoid necessary government streamlining or corrections reforms, the state could be facing an even larger budget deficit in two or three years, and this time the federal government might not come riding to the rescue.