The State of Michigan is facing a $925 million budget deficit in Fiscal Year 2004 which began in October 2003. This research brief summarizes the findings of an analysis of the potential economic impacts to the state's economy of the following three budgetary policy options:

1. Eliminate the deficit by cutting state spending by $925 million. 2. Raise sufficient revenues to balance the state's budget by increasing the state's personal income tax rate to an estimated 4.7 percent. 3. Delay for one year the scheduled roll back of the state's personal income tax rate from 4.0 percent to 3.9 percent. Such an action would generate an estimated $115 million in additional revenues, which could be used to reduce cuts in state aid to public elementary and secondary schools. The rest of the deficit would be eliminated by cutting state spending by $810 million.

These three options are analyzed with respect to their impact on the number of jobs in Michigan and the size of the state economy, using a regional econometric model of Michigan's economy.