Moving Michigan Forward: Continuing Our Comeback

Presented by: John E. Nixon, CPA State Budget Director, Michigan Michigan Association of CPAs May 7, 2013

Where We Started
Perpetual $1.5B deficit Uncapped liabilities Job-killing tax system $2M in savings account depleted rainy day fund Several accounting gimmicks

What Weve Done

Overcame perpetual $1.5B deficit Started accounting for one-time versus ongoing money Implemented multi-year budgeting Addressed long-term liabilities Eliminated job-killing tax system Invested in rainy day fund Linked policy decisions to funding (capital outlay reform) School bond loan fund reforms Retirement reforms Michigan Public School Employees Retirement System Michigan State Employee Retirement System

Accomplishments
Year 3: Looking forward
Maintain structural balance Protect education and stabilize state agency budgets Invest in critical infrastructure, economic development and public safety needs Meet the needs of the most vulnerable among us by investing in important safety net programs Save for the future
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Turning the Corner

Growing more jobs Personal income is increasing Home sales and prices are increasing Our population is growing again

Michigans Economic Turnaround

GDP growth 6th best in nation in 2011; ranked 50th in 2008 and 2009 2012 was second consecutive year of job expansion after 10 straight years of declines Payroll employment growth rate was 5th strongest among the states in 2011; 46th in 2009 Per capita income growth 7th best in nation in 2011; ranked 42nd in 2008 Housing starts increased 22 percent in 2012 and were up 66 percent from the 2009 level State motor vehicle production increased 17 percent in 2012; production was almost double 2009 production The state is much stronger than it was in last decade
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Michigans Employment Expected to Increase in 2013 - 2015

72.3 51.0 53.0 36.0 48.0 -16.9 -9.3 -76.8 -71.1 -112.7 -63.3 -58.7 -105.6 -7.2

-291.6 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Michigan Wage and Salary Employment Year-Over-Year Change Consensus Forecast (In Thousands)
Note: U.S. Bureau of Labor Statistics. 2012-2015 estimates are 1/11/13 Consensus Forecast. 1/25/13.

Michigans Unemployment Rate Improving Faster than the U.S. Rate

15% 12% 9% 6% 3% 0%
2001 2005 2009 2013
Consensus Forecast
Source: U.S. Bureau of Labor Statistics. 2013-2015, 1/11/13 Consensus Forecast. 1/25/13.

2015 Michigan 7.6%

2015 United States 7.1%

Michigan Personal Income Continuing Growth in 2013 - 2015

5.6% 3.7% 2.5% 1.0% 1.6% 2.0% 2.8% 2.8% 2.0% 3.1% 3.4% 4.3% 4.4% 2.6%

-6.3% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Michigan Personal Income Year-Over-Year Change

Consensus Forecast
Note: U.S. Bureau of Economic Analysis. 2012-2015 estimates are 1/11/13 Consensus Forecast. 1/25/13.

Michigan Housing Starts Are Rebounding

60,000 50,000 40,000 30,000 20,000 10,000 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Sources: U.S. Bureau of the Census & Treasury Forecast. 1/11/13.

Treasury Forecast

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People Are Taking Note

April 2, 2013:
Fitch Ratings upgraded Michigans general obligation credit rating to AA Standard and Poors upgraded Michigans credit outlook to positive Moodys upgraded Michigans bond rating from stable to positive
Fitch said the upgrade reflects the states solid economic and fiscal recovery over the last two years.
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Total FY 2014 Budget Recommendation

Public Safety $3.1 Billion Environment $922 Million Government Services $2.7 Billion

Health and Human Services $22.6 Billion

Budget Stabilization/ Health Savings Fund $178 Million Jobs $6.1 Billion

Education $15.3 Billion

Total Gross: $50.9 Billion

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Total New GF/SAF Investments in FY 2014 Budget

Budget Stabilization/ Health Savings Fund $178M 30%

Jobs $84.5M 14%

Health and Human Services $27M 5%

Public Safety $52.6M 9% Environment $14.9M 2% Government Services $51.4M 9% Education $187.7M 31%

Total: $596.1 Million

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Budgeting Responsibly
Invest and save wisely Live within our means Prioritize to make a difference Ask for, measure and reward real results Invest and save Short term and urgent Long term and important Paying and lowering our bills Retirement Michigan Public School Employees Retirement System Michigan State Employee Retirement System Updating old, outdated and worn assets

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Investing in the Future

Infrastructure Education Medicaid expansion Health improvements Jobs People Public safety Quality of life
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Driving the Economy Forward

Invest $1.2B more per year in our road infrastructure Four layers to a common-sense outcome Make regular payments to avoid huge bill Save on vehicle repair costs Grow the economy by creating jobs Save nearly 100 lives per year Roads, bridges, public transit, rail, harbors

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Investing in Our Roads

$25B Gap

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Source: OEI, RMF 07/27/12

Creating a P-20 Educational System

More seamless system Student growth Careers or self-enrichment Three tiers Early childhood K-12 Higher education Total $15B investment ($13.1B from state)
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Early Childhood Major New Investment

$130M investment over the next two years More than double the 2011 investment 2014 investment - $65M total Creating 16,000 new placements Increased funding per slot from $3,400 to $3,625 2015 investment adding $65M more Creating an additional 18,000 placements Value added to all
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Investing in Our Children Early

Preschool Funding Will Double by FY 2015 with $130M Investment over Two Years
$250,000

66,000 Placements

$200,000

48,100 Placements

$239.3 M

Appropriations (in thousands)

$150,000

$100,000

28,100 Placements

28,900 Placements

30,700 Placements

32,100 Placements

$174.3 M

$50,000 $95.7 M

$98.3 M

$104.3 M

$109.3 M

$0

FY10

FY11

FY12

FY13

FY14 Rec

FY15 Rec

Reflects State Appropriations and Number of Half-Day Preschool Placements

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K-12: Continuing Focus on Student Growth

$13.2B for K-12, including $11.5B of state funds, an increase of $227M Includes an equity payment to further close the foundation allowance funding gap ($24M to raise the lowest funded districts to $7,000 per pupil) Continues performance and best practices funding, as well as technology grants Supports online courses
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K-12 Per-pupil School Aid Appropriations - FY 2010 to FY 2014

$8,000 $7,000

$6,622

$6,818

$6,971

$7,208

$7,357

$6,000

Michigan Public School Employees' Retirement System Best Practices/ Performance Funding All Other Categorical Funding Special Education Basic Operations NOTE: Does not include federal funding, adult education funding, preschool funding, or deposits made into the MPSERS reserve fund

$5,000

$4,000

$3,000

$2,000

$1,000

$0 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014

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Retirement Reforms
Long-term results: savings of $2,200 per resident and more than $10,000 per student
Total Estimated Liabilities for MPSERS
Both Pension and Healthcare

Total Estimated Liabilities for SERS

Both Pension and Healthcare

$50 $40
$ in Billions

$50 $40 $30

$ in Billions

$30 $20 $10 $-

$46.7 B $31.1 B

$20 $10 $-

$18.8 B
Before Reform

$13.1 B
After Reform

Before Reform

After Reform

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 Savings from reforms equal $482M or $315 per K-12 student in FY14 FY14 funding recommendation is an increase of $436M or $250 per K-12 student These two actions translate into $918M or $565 per student in FY14
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Higher Education
Total funding of $1.4B for universities, a $31.4M increase An increase of $24.9M for performance formula funding $1.1M increase for MSUs Ag Bio Research and Extension Total funding of nearly $336M for community colleges $5.8M increase for performance formula funding $31.4M for retirement costs $1.1M for the Virtual Learning Collaborative Capital investment challenges for FY 2015

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Expanding Medicaid
Work toward better care at lower cost to society Critical issue is having patient-centered medical home vs. more ER visits Simpler and better for families, providers and small business Reserve one-half of short-term savings to cover future costs and reduce federal risks

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Cumulative Deposits into the Health Savings Fund Will Finance Medicaid Expansion for the Next 21 Years
$700 $600 $500 $400 $300 $200 $100 $0 -$100 FY 2014
*in millions

FY 2016

FY 2018

FY 2020

FY 2022

FY 2024

FY 2026

FY 2028

FY 2030

FY 2032

FY 2034

Cumulative Deposit into HSF

General fund cost

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Making Dental Health a Priority

$11.6M to expand Healthy Kids Dental to reach 70,500 more children Additional 100,000 children in FY 2015
Healthy Kids Dental Program Has Increased Access to Dental Care for Michigan Children
$140.0
610,000 kids

$120.0 $100.0

510,000 kids 440,000 kids 336,000 kids 285,000 kids

80 counties

* In millions

$80.0 $60.0 $40.0

117,000 kids 186,000 kids

78 counties

75 counties 65 counties

$20.0

$FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Exec Exec 59 counties 61 counties 37 counties Rec Rec

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Improved Services to People

Paving the path to independence $6.2M to continue and expand Pathways to Potential Currently in 124 public schools Detroit Flint Pontiac Saginaw
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Honoring Our Veterans

$8.6M for a new innovative Veterans Service Delivery Initiative Create a new agency to focus directly on veterans services 600,000 to add an additional five qualified service officers to connect veterans with services

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Making Michigan Safer

Increase strength of Michigan State Police ranks Trained 78 troopers in FY 2012 Anticipate training 152 troopers during FY 2013 $15.2M to train 107 troopers in FY 2014 $2M for mental health courts $3M for treatment courts $9.5M for blight elimination and $4M for Good Neighbor property maintenance

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Long-term Savings
One-time surplus funds Important for Michigans ratings Rainy Day Fund Michigan Health Savings Fund Disaster and Emergency Contingency Fund

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History of the BSF

The Budget Stabilization Fund (BSF) peaked at $1.3 billion in FY 2000 but was quickly depleted. Michigan has started to rebuild the BSF balance in FY 2012 and projects that the balance will be approximately $580 million by the end of FY 2014.
$1,400 $1,264.4 $1,200 $994.2

$1,000 Millions

$800 $580.1 $505.1 $365.1

$600

$400

$200

$145.2 $81.3 $0.0 $2.0 2004 2005 $2.0 2006 $2.1 2007 Fiscal Year $2.2 2008 $2.2 2009 $2.2 2010 $2.2 2011 2012 2013 2014 Projected Projected

$0 2000 2001 2002 2003

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Thank you. Questions?

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John E. Nixon, CPA

State Budget Director Director, Michigan Department of Technology, Management and Budget

John Nixon serves as the State Budget Director and Director of the Michigan Department of Technology, Management and Budget (DTMB). Reporting directly to Governor Snyder, he is responsible for overseeing the state budget, government technology, and the administrative functions of state government. Nixon heads an agency of 2,700 employees, leading the departments mission of providing vital administrative and technology services to enable Michigans reinvention, with the vision of making the State of Michigan one of the most innovative and responsive governments in the world. Nixon is a Certified Public Accountant, having previously served as Utahs budget director for Governors Jon Huntsman and Gary Herbert. He was named Public Official of the Year by Governing Magazine in 2012. He was also one of Government Technology Magazines Top 25 Doers, Dreamers and Drivers in 2012. He served as President of the National Association of State Budget Officers (NASBO) in 2010. Nixon holds a BS degree in Corporate Finance from Brigham Young University and an MBA with an emphasis in Information Technology from the University of Utah, where he graduated as a member of the Phi Kappa Phi and Beta Sigma Honors Societies. Nixon and his wife DeAnn have six children, three boys and three girls.