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THE BIG PICTURE
The Fiscal Year 2014 state budget has been moving quickly through the Legislature, with both the governor and the Legislature expressing a desire to complete work by the beginning of June.
The House of Representatives has passed all of its budgets for Fiscal Year 2014 through two omnibus budgets, including: (1) the Education Omnibus Budget ($15 billion), which funds School Aid ($13.2 billion), community colleges ($334.9 million), and higher education ($1.4 billion); and (2) the General Omnibus Budget ($33.9 billion), that funds all other state departments and services, including community health ($15.3 billion), human services ($5.9 billion), and transportation ($3.4 billion).
The Senate has also approved most of its budget bills in preparation for the joint House/Senate conference committees that will iron out differences between the two versions–utilizing the budget targets adopted based on projected revenues from the May Revenue Estimating Conference.
This aggressive timetable is being challenged by a number of major budget issues driving the debate, including:
Medicaid Expansion: The governor’s budget included 100% federal funds—available through the Affordable Care Act–to support the expansion of Medicaid coverage to very low-income parents and childless adults up to 133% of the federal poverty level. This expansion would increase the number of Michigan residents covered by Medicaid from approximately 1.8 million to 2.2 million, reducing the number of uninsured adults by 46%.
Medicaid expansion would result in savings in the state’s General Fund of $206 million in Fiscal Year 2014 alone by allowing the state to use federal funds to provide comprehensive services to a population that is currently eligible for very limited state-funded health benefits. Savings to the state’s General Fund would grow to $1.2 billion through 2020.
The governor recommended that half of the savings in state funding be deposited in a newly created healthcare savings fund to offset any future costs related to Medicaid expansion. The remaining funds were to be used to fund vital services, or expansions, including the Healthy Kids Dental program.
To date, the Legislature has not endorsed the expansion of Medicaid, resulting in pressures throughout the state budget, and threatening the opportunity for healthcare coverage for hundreds of thousands of very low-income Michigan residents. House Republicans recently released HB 4714, a bill to expand Medicaid to 133% of poverty, but under onerous conditions, most notably a 48-month limit on Medicaid benefits for nondisabled adults (ages 21-65), as well as a requirement that recipients contribute up to 5% of annual income on copays, premiums and deductibles. The bill could not be implemented without a federal waiver that provides 100% federal funding for current and newly eligible nondisabled adults, as well as administrative costs. The bill also ends the Medicaid expansion when it is no longer 100% covered by federal dollars, which under the Affordable Care Act is scheduled to occur in 2017.
Transportation Funding: The Fiscal Year 2014 budget debates are also being shaped by the governor’s proposal to increase funding for Michigan roads and transportation infrastructure by $1.2 billion. The governor proposed to fund the road improvements by taxing gasoline at the wholesale level, increasing vehicle registration fees, and local taxing options.
While there is general agreement that Michigan’s roads and bridges are in serious disrepair and new investments are needed, consensus on how to pay the bill has yet to be achieved. Legislative options have included increases in the general sales tax—an option that could affect other vital state services, including human services and schools.
Michigan Tax Changes and Expected Revenues: In 2011, the Michigan Legislature adopted a major “tax shift” that reduced taxes on businesses by 83%, while increasing taxes on individuals by 23%. As part of that shift, Michigan’s Earned Income Tax Credit, an effective anti-poverty tool that helps hardworking families whose incomes put them and their children below or moderately above the federal poverty line, was cut by 70%. EITC payments in 2011 statewide were $353.5 million; for the 2012 tax year, they are expected to fall to $106 million.
The new revenue consensus by state fiscal experts is that Michigan will have an additional $702 million in combined revenues above earlier estimates for fiscal years 2013 and 2014—including a total of $579 million in state General Funds, and $123 million in the School Aid Fund. While encouraging, these increases follow years of steep revenue declines and related budget cuts, many of which disproportionately hurt low- and moderate-income working families, children and seniors.
In Fiscal Year 2014, the Legislature has an opportunity to use the potential infusion of federal Medicaid funds and unexpected state revenues to begin to reverse some of the policy decisions made to balance the budget and provide business tax cuts, as well as to invest in the educational and human services that have been shown to improve economic competitiveness.
FISCAL YEAR 2014 BUDGET ISSUES AFFECTING LOW-INCOME RESIDENTS
Among the major issues affecting low-income Michigan residents in the proposed Fiscal Year 2014 budgets being considered by the Legislature are the following:
Access to health and mental health care: As a result of the failure to date to expand Medicaid, both the House and Senate budgets restrict access to vital health and mental health services.
Hundreds of thousands of currently uninsured Michigan residents will not have access to medical and mental healthcare that is fully federally funded. In addition to the budget hole of more than $200 million created by the Legislature’s failure to accept federal funds to expand Medicaid, the decision affects the state’s residents and communities in a number of ways:
- At least 320,000 currently uninsured Michigan residents would be unable to receive coverage for both Medicaid healthcare and mental health services. More than 1.8 million Michigan residents (19.4%) now rely on Medicaid for their basic health services. Further, the share of Michigan births covered by Medicaid has been growing—from 35% in 2003 to 51% in 2010.
- By giving more women access to healthcare before and between pregnancies, Medicaid expansion would improve the preconception health of mothers and birth outcomes, including a reduction in infant deaths.
- Expanded access to Medicaid family planning services could also mean significant cost savings for the state. Approximately 60% of women eligible for Medicaid deliveries report that their pregnancies are unintended, compared with 27% of privately insured women.
- Medicaid expansion could reduce employer healthcare costs, increase economic activity, and decrease the state’s long-term healthcare liabilities—with federal funds covering 100% of the costs through 2016, phasing down to 90% in 2020 and beyond.
- The Department of Community Health estimates that Medicaid expansion would cut Michigan’s uncompensated care costs–caused by those who must turn to emergency rooms for their care—by a total of $320 million through 2022.
More than 70,500 children will not have access to dental care. The governor proposed to add $11.6 million in state General Funds to expand the Healthy Kids Dental program to cover an additional 70,500 children in three Michigan counties—part of a multi-year plan to cover all children in the state. The House rejected the governor’s plan. The Senate agreed with the governor, but did not specify which counties would become part of the program in the upcoming fiscal year. A failure to move forward with the governor’s plan to expand the Healthy Kids Dental program statewide could have the following consequences:
- Approximately 70,500 children in Ingham, Ottawa and Washtenaw counties would not have access to preventive oral health care.
- The governor’s plan to expand the Healthy Kids Dental program to the estimated 720,000 children not currently covered would be derailed. Currently, more than 440,000 children are covered by the program in 75 of Michigan’s 83 counties. Many of the state’s most urban areas are not yet covered, including Oakland, Macomb, Washtenaw and Wayne counties—with a disproportionate impact on children of color.
- Continued dental emergencies and related costs are likely. Children enrolled in Healthy Kids Dental are 60% more likely to receive preventive dental care by age 3, and 25% less likely to have dental emergencies.
Michigan infants, and particularly infants of color, will continue to die unnecessarily. For Fiscal Year 2014, the governor recommended $2.5 million to begin to implement Michigan’s infant mortality reduction plan. The House rejected the governor’s proposal, while the Senate included a placeholder for further discussion in conference committee. Without additional funding:
- Michigan will be less able to move ahead with its plan to reduce infant mortality, particularly for African American infants who are much more likely to die in the first year of life, including regional perinatal care, initiatives to reduce medically unnecessary deliveries before 39 weeks, the promotion of safe sleep practices for infants, and expanded home visiting programs.
- Michigan’s infant mortality rates will continue to be higher than most states. Michigan ranks 37th among the states in infant mortality, with rates for African American infants that are more than two-and-one-half times higher than white babies.
Many children will continue to be exposed to toxic lead poisoning. Last year, the Michigan Legislature approved an additional $2 million for Michigan’s lead abatement program, known as Healthy Homes, for total funding of $4.9 million. The governor vetoed the expansion, and the program is funded at $2.9 million this year. For Fiscal Year 2014, the governor maintains funding at $2.9 million. The House added $1 million for total funding of $3.9 million next year, while the Senate included a placeholder to ensure discussion at the joint House/Senate Conference Committee.
- Lead has a particularly devastating effect on young children when it can compromise the developing central nervous system and cause irreversible damage to cognitive capacity and behavior.
- Of the nearly 69,000 children targeted for lead poisoning testing (who are insured by Medicaid or live in one of 14 targeted communities), 57% were tested in 2012. Testing for lead poisoning peaked in 2010, and has decreased slightly since. Nearly 150,000 children under the age of six were tested in 2012.
- Prevention works. While, the number of children with confirmed elevated lead blood levels has declined dramatically, some areas of the state still have very high rates of lead poisoning. The city of Detroit had over half the state’s lead poisoning cases in 2012. The second highest total was in Grand Rapids.
Public assistance for low-income families, children and adults: The governor, House and Senate have recommended cuts in funding for the Department of Social Services of approximately 10-11% in Fiscal Year 2014, with most of the decline coming from continued steep drops in caseloads for basic assistance programs such as the Family Independence Program, FIP, and the Food Assistance Program , known as FAP. These caseload declines reflect policy changes over the last several years that have restricted eligibility for basic assistance programs.
More very poor children will be denied access to basic income assistance. The governor reduced funding for FIP by $15.8 million to a total of $239.4 million to reflect continued reduction in caseloads—projecting caseloads will fall from 53,298 in the current year to 49,226 in Fiscal Year 2014—a 7.6% reduction. Both the House and the Senate agreed with the governor’s caseload projections.
- FIP caseloads have been declining dramatically in recent years, in large part the result of policy decisions, including the adoption in 2011 of changes in lifetime limits for assistance. Between 2010 and the projections for 2014, caseloads will have fallen from 79,233 to 49,226—a drop of 38% in just five fiscal years.
- Approximately seven of every 10 FIP recipients are children, and 60% of those children are under the age of 9.
- To be eligible for FIP, the average family of three must have an annual income of less than $9,800, and the maximum benefit is $492 per month.
The number of Michigan residents with access to basic food assistance will continue to decline. The governor reduced funding for the Food Assistance program (formerly called the Food Stamp program) by $683.7 million in recognition of the loss of temporary federal funds, as well as caseload reductions—largely based on changes in FAP eligibility, including the adoption of an asset test. The governor assumes that caseloads will fall from 1.1 million cases appropriated this year, to 876,650 in 2014—a 19.4% reduction. The actual average monthly FAP caseload through March of this year was much lower than appropriated at 912,755. The House and Senate agreed with the governor’s caseload recommendations.
- Between 2004 and 2011, FAP caseloads grew by 135%. In 2011, Michigan adopted an asset limit for families receiving assistance, limiting access to food assistance for families, and turning away federal funds available to assist low-income families. Since that time, FAP caseloads have declined slightly.
- Over 70% of FAP recipients receive no other state cash assistance, and the average monthly benefit for a two-person household is $267.
Low-income working families will continue to struggle after losing significant income with the 70% cut in the state’s Earned Income Tax Credit. In 2011, the Michigan Legislature slashed the state Earned Income Tax Credit from 20% of the federal EITC to just 6%. The state EITC is a refundable tax credit for working families, designed to promote and reward work and offset other taxes paid by low wage workers that consume a higher percentage of their total income. The governor, House and Senate have not recommended EITC restorations.
- The EITC is a proven tool in the fight against poverty. Last year, at 20% of the federal credit, the state EITC kept 14,000 children from falling into poverty. This year, at just 6%, only 5,000 children will escape poverty, leaving another 9,000 behind.
- The EITC serves as a temporary income supplement for most families—three out of five use the credit for just 1 or 2 years while they get back on their feet.
- The credit has been shown to increase employment, reduce the need for public assistance, boost local economies, and benefit businesses by helping low-wage workers cover work-related costs such as transportation and child care.
Adequate funding for a top-notch cradle to career educational system:
More low-income 4-year-olds will benefit from early childhood education. The governor increased funding for the Great Start Readiness Program by $65 million, from $109.3 million in the current year to $174.3 million in Fiscal Year 2014, while indicating his intention to expand the program by another $65 million in Fiscal Year 2015. The governor’s proposal would open up approximately 16,000 new half-day slots for 4-year-olds, requiring that at least 90% of the children live in families with incomes below 300% of poverty (up from 75% this year). The governor also increased the preschool slot payment from $3,400 to $3,624.
The House provided only $38 million for the GSRP, increasing the per-slot amount to $3,500. The House requires that at least 80% of children served by GSRP live in families with incomes at 200% of poverty or less. The Senate agreed with the governor on the funding increase ($65 million), but maintained the per-slot amount at $3,400. The Senate would require that all children served live in families with incomes at or below 300% of poverty, with the poorest children being enrolled first.
- Evaluations of the GSRP show that participants are more likely to be ready when they enter kindergarten and pass 4th grade MEAP tests. In addition, fewer GSRP participants are retained in grade and more graduate on time from high school.
- A growing number of economists and business leaders, including heads of Fortune 500 companies, the Federal Reserve Bank, and Nobel Prize-winning economists agree that early childhood programs can generate government savings and produce returns that exceed public investments, with savings accruing from lower costs related to such public services as special and remedial education, high school graduation rates, lower unemployment, higher earnings and reductions in the need for public assistance.
- An increase in the per-slot payment for GSRP is a priority. The GSRP per-slot payment has not been increased since 2007, when it was raised by only $100. As a result, districts have been forced to subsidize their preschool programs even as overall district funds become increasingly tight. GSRP per-student funding has steadily lost ground to inflation over the past 10 years, and even the governor’s proposed increase to $3,625 per half-day slot only makes up for a small part of this decline in real funding. The result is less access to services and challenges in maintaining program quality, which is the key to school readiness.
Michigan public schools will continue to struggle to balance their budgets. The governor’s budget did not include an across-the-board increase in the per-pupil allowance received by public schools. The governor instead recommended $24 million for equity payments of up to $34 per pupil to further close the foundation funding gap between districts by raising the per-pupil payments for the lowest funded districts receiving the minimum grant from $6,966 to $7,000 per-pupil. However, the governor reduced funding for “best practices” grants by 70% (from $80 million to $25 million), and kept performance funding for districts at the current year level of $30 million.
The House also did not fund an across-the-board increase in the per-pupil allotment for schools, but provided total funding of $36 million to bring the equity payment up to $50 per pupil for districts with foundation allowances below $7,016. The House did not fund best practices grants, but included a placeholder to further discuss them in conference committee.
The Senate included $24 million for a $9 increase in the basic foundation allowance for schools, as well as an $18 per pupil in the minimum foundation allowance. The Senate did not include the equity payments, and eliminated funding ($80 million) for `best practices payments.
- In school year 2012-13, Michigan public schools suffered a cut of $470 per pupil in their foundation allowances, and this budget fails to offset those cuts.
- School districts not eligible for the equity payments could actually suffer additional cuts in their overall per-pupil allotments if they are affected by cuts in best practices grants.
As tuition skyrockets at public four-year universities, fewer people will be able to afford a college education. The governor’s budget provided $1.24 billion for university operations, including $24.9 million in new funding (a 2% increase) that would be allocated based on six performance metrics: undergraduate completions in critical skills (science, technology, engineering, mathematics and health); research expenditures; six-year graduation rates; total completions; administrative costs as a percentage of core expenditures; and tuition restraint.
The House and Senate appropriated the same level of overall funding as the governor, but the House made tuition restraint a prerequisite for receiving performance funding, lowering the tuition threshold from 4% to 3%. The Senate also made tuition restraint a prerequisite for receiving performance funding, but retained the governor’s 4% tuition restraint threshold.
- At most Michigan public universities, tuition for four years of college has more than doubled in the past 10 years; students graduating in 2013 will pay more than twice the amount paid by students who graduated in 2003.
- The 2% increase for performance funding is below the current year increase of 3%.
Low-income adults will struggle most, as needs-based financial aid becomes more scarce. In 2009, the Michigan Legislature eliminated five needs-based grants for students, and the governor, House and Senate again failed to restore those grants in their Fiscal Year 2014 budgets. The governor provided continuation funding for two of the remaining grant programs, including: (1) $31.7 million in federal TANF funding for the Michigan Tuition Grant, a needs-based grant; and (2) $18.4 million in TANF for the Michigan Competitive Scholarship, a merit-based scholarship with eligibility based on ACT scores. Under the governor’s budget, private colleges with students receiving Michigan Tuition grants would be required to participate in the state’s P-20 longitudinal data system, and report on the number of Tuition and Pell Grant students graduating, as well as the number taking remedial education classes.
In his Fiscal Year 2014 budget proposal, the governor increased funding for the Tuition Incentive Program by $3.2 million (7%) in state General Funds, adding to current spending of $43.8 million in federal TANF to bring total funding to $47 million. The TIP is available to students who are eligible for Medicaid, and the governor’s budget limits reimbursements to universities under the TIP to 300% of the average community college tuition rate.
The House agreed with the governor on funding levels, as well as the governor’s TIP policy changes, but did not require private colleges to participate in the P-20 data system.
The Senate also agreed with the governor on funding levels, but did not include the governor’s TIP policy changes or the Michigan Tuition Grant language requiring P-20 data system participation for private colleges.
- Student loans often make up a large part of a student’s financial aid package, but the rising costs of tuition and high interest rates make it imperative that grant aid be available as well. Federal aid programs such as Pell Grants do not cover a large enough portion of costs by themselves to keep postsecondary education a?ordable for low-income students, so all states have state-funded programs that allocate some grants on the basis of income as opposed to merit or other factors.
- Over the last 10 years, states across the country increased investments in need-based grants by an average of 84%. Michigan, running counter to the national trend, decreased state funding by 20%–one of only two Midwest states to cut needs-based grant funding during that period.
- In 2010-11, Michigan invested the least in grant dollars per student of all Midwestern states. Michigan spent 4.6% of its higher education budget on state grants in that year, while Pennsylvania, Indiana and Illinois all spent higher than the national average of 12.5%.
- In 2010-2011, only 14% of Michigan’s full-time students received some kind of grant aid, ranking the state second to lowest in the Midwest, and 40th in the nation.