É«É«À²

Dear colleagues,

Today Gov. Gretchen Whitmer signed the state budget for fiscal year 2020-21, which begins Oct. 1. The state appropriation for higher education, including É«É«À², was maintained at the same level as 2019-20. I'm pleased to also announce that two line-item allocations specifically for É«É«À² were approved in the budget. They include $1.5 million to support the creation of Unified Clinics' Resiliency Center, an initiative of the Children's Trauma Assessment Center, and a $500,000 allotment for the Michigan Geological Survey. We are grateful to our Southwest Michigan legislative delegation for championing these important endeavors. I want to thank all of our state-elected officials for their work on this budget during this difficult economic climate.

While this state budget certainly brings welcomed short-term news, it’s important to remember that the state is still projecting structural, multi-billion-dollar revenue shortfalls for the next two fiscal years. The budget actions taken today are good news, but I must caution we are still in the midst of a recession more severe than in 2008, and unemployment in Michigan is more than double what it was last year. 

Given this, our budget situation still demands a course of careful stewardship of our resources. Unfortunately, we know from past experience at this University, when economic realities change, funds the state appropriates at the beginning of the year are not necessarily what we end up with at the close of the fiscal year. That's part of the reason why a budget is a living document; it is a planning tool that we use to guide our decisions over a one-year period. This is always the case, but this fact carries added significance in 2020. Here’s why:

This year’s Michigan budget coffers were buoyed in large part because of one-time relief provided by the federal government. State sales tax and income tax revenue increased, in large measure due to spending from stimulus checks and taxes on unemployment benefits. More than 18% of income tax revenue collected by the state in May was derived from taxes on unemployment checks. Further, the CARES Act provided funds for expenses related to COVID-19. Small businesses used federal dollars to keep their doors open, enabling them to pay their state taxes. At É«É«À², we are using CARES Act funds to support our students and for cleaning equipment and enhanced COVID-19 testing capabilities at Sindecuse Health Center, among other pandemic-induced costs. The state used its CARES Act funding to help balance its budget in 2019-20, when it cut its appropriation to É«É«À² by $12.5 million before offsetting it with a similar amount of CARES Act funds.  At some point, the state will face difficult decisions to address a projected structural revenue shortfall that the use of one-time funding does not erase. It would be imprudent for us to make long-term budget plans that rely on the continual renewal of these one-time funding sources. 

We can look to our past experience for signs of what our future may hold. Historically, when the state faced budgetary shortfalls, they have resulted in cuts to the higher education appropriations, and the funding is only slowly restored over a period of time. Most recently, the cut we endured in 2011, three years after the start of the Great Recession, took nine years to be offset. According to the state budget director, the state is facing an estimated $4.2 billion revenue loss over fiscal years 2021 and 2022.

We cannot say for certain right now whether we will return to our historic pattern or if this year’s budget signals a new, stronger commitment to state investment in higher education. The prudent course is to expect a similar result—to plan for the worst and hope for the best—which is why our current general fund budget is structured to withstand reduced funding from the state, including a mid-year recession, should one occur. This course is particularly prudent given the extra pain we know that mid-year budget adjustments have caused in the recent past. If the state does not make any mid- or late-year adjustments, we could begin the next fiscal year (which, as noted above, is still expected to be rocky) in a stronger position to overcome further enrollment or financial challenges. 

The pandemic continues to generate uncertainty and negatively impact our global, national and state economies. Most experts expect that it may take our economy several years to recover. This will mean challenges to state and federal budgets. What impact will the upcoming elections have? How will the COVID-19 pandemic continue to affect our state, Kalamazoo or our campus? While we are optimistic about the promise of a vaccine and improved treatment methods, it will likely take a while before either of them broadly touches our daily lives and we return to normal. Until that happens, we will have to deal with enhanced uncertainty, and pressures will continue to be exerted on our general fund and auxiliary revenues alike. 

I am committed to making sure that regardless of external forces, we will do everything we can to maintain a stable economic footing at É«É«À². It was in this vein that I restored $9 million to the division leaders who had made difficult decisions to reduce their respective budgets for the coming year. The return, while not completely ameliorating the reductions that had been taken, will contribute to ongoing unit-level stability.  

My thanks go out to our campus community. The effort you contribute every day is what propels É«É«À² Michigan University forward, even in the midst of this challenging era. Through our collective hard work and prudent financial steerage, we are prepared to weather any storm.

Sincerely,

Edward Montgomery
President