Economists: state budget to
suffer from auto industry
weakness
BY CHRIS CHRISTOFF
FREE PRESS LANSING BUREAU CHIEF
January 12, 2006
http://www.freep.com/apps/pbcs.dll/article?AID=/20060112/NEWS11/60112009
Job Losses
• LANSING – Continued job losses among Michigan’s
automakers and their suppliers will leave Gov.
Jennifer Granholm and lawmakers struggling again
to balance the state budget this year and probably in
2007, state economists said Thursday.
Stagnant tax revenues and a certain deficit are likely
to ignite tense debate over small business tax cuts
proposed this week by Republican leaders.
Granholm has said the state can’t afford to cut with
reducing state programs.
Details
• The state will have about 1% less to spend than last
fiscal year from an $8.2 billion general fund, the part
of the budget not earmarked for specific items. That
will not keep up with rising demands for health
services, and increased costs for universities,
prisons and employee wages.
However, money for public schools will increase
nearly 3% to $11.2 billion, thanks to relatively healthy
sales and use tax revenues that support schools.
Still, it’s $18 million less than predicted five months
ago.
Michigan’s unemployment is expected to top 7% in
2006, compared to a national rate of 4.8%.
The Auto Industry
• State economists reached agreement on a forecast for
state finances, after hearing yet another bleak forecast
of a state economy that is expected to lose another
30,700 jobs in 2006. Five consecutive years of job
losses are the longest decline since World War II.
• The decline is directly tied to loss of market share by
the Big Three automakers, said George Fulton,
economist for the Research Seminar in Quantitative
Economics in Ann Arbor.
• He said a significant economic recovery in Michigan a
few years away.
“The only conclusion you can come to is that Michigan’s
economy remains heavily dependent on the health of the Big
Three auto manufacturers,” Fulton said.
What will happen to whom?
• One auto industry expert predicted that Toyota will
build a new engine factory in Michigan, a plant
Granholm has tried hard to lure. Sean McAlinden,
chief economist for the Center for Automotive
Research in Ann Arbor, based his prediction on
discussions with Toyota executives Wednesday.
On a dimmer note, McAlinden said the Big Three
automakers will continue to lose market share to
foreign automakers, and many auto suppliers in
Michigan face insolvency, putting at risk many of the
165,000 supplier jobs in the state.
“GM will become the size of Ford, Ford will become
the size of Chrysler, which, thank God, will remain
the size of Chrysler,” McAlinden said.
The Economics
$ Deficit! Revenues
• How are revenues and
expenditures related to
economic activity?
Start with a balanced
budget. Expenditures
• If expenditures rise, and
revenues don’t rise as
much, we’re in deficit.
Can’t stay there!
• Must either increase
revenues, or decrease
Economic Activity
expenditures.