Official: 'Real' cuts needed due to $289 million shortfall blamed on business tax credits

MarketsAssociated Press

Gov. Rick Snyder's budget director said there will be "real" cuts to government services after economists agreed Friday that revenue is $289 million short of projections in the current state budget and $527 million below what was expected in the next fiscal year.

"The reductions will be real," John Roberts told reporters after the annual January revenue-estimating meeting. He said it was too early to know if layoffs will have to be made.

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The Republican governor will use the new numbers to decide how much to cut from the budget that began 3½ months ago and to finalize his budget plan for the fiscal year starting this October. He expects to outline this year's spending reductions while presenting his 2015-16 budget to the Republican-led Legislature on Feb. 11.

While revenue in the $11.9 billion school aid fund is $36 million above estimates from May, revenue in the $9.5 billion general fund is down $325 million — which may affect a number of state agencies including those handling public assistance, prisons, law enforcement, driver's licenses and environmental regulations.

A big reason for the shortfall is large companies cashed in more old tax credits than expected. Jim Stansell with the House Fiscal Agency said about $5.4 billion in business tax credits were awarded from 2009 through 2011 and they can be claimed until 2032.

"As the economy picks up, since these are based on meeting certain employment or investment goals, taxpayers may be more likely to claim them than they would have been during the recession," he told Snyder administration officials and legislators on House and Senate budget committees.