State - Capitol Focus Budget solutions wide-ranging, but agreement tough

By Kathy Barks Hoffman

Associated Press Writer

LANSING, Mich. (AP) -- If you thought last year's budget fight was bad, it may look like a lovefest compared to what's ahead.

The deficit in the budget year that starts Oct. 1 is nearly as large as the one Democratic Gov. Jennifer Granholm and lawmakers were grappling with last year -- $1.7 billion versus $1.8 billion.

And while Michigan was able to put $1.5 billion in federal recovery dollars into the current general and school aid funds, the amount next year could be as little as $395 million unless Congress votes to send additional Medicaid money to the states -- $514 million for Michigan, by Granholm's estimates.

So Michigan, along with many other states, is faced with a choice. It can cut $1.3 billion out of the general fund and more than $400 million out of the school aid fund, it can raise more revenue through taxes and fees or it can do a combination of both.

Granholm doesn't want an all-cuts budget, saying the negative effect would be too great on public education and other services. She has asked lawmakers to pass the budget by July 1 to avoid another possible government shutdown.

The governor wants to save about $450 million by requiring teachers and state employees to pay 3 percent toward their pensions and new employees to pay 20 percent of their health care premiums. She has offered incentives for 7,000 state workers and 39,000 senior teachers to retire so lower-paid employees can be hired. She also is pushing for more consolidation of school and local government services.

She would raise more revenue by extending the sales tax to a variety of services while dropping the tax rate half a percentage point. She'd couple this with a reduction in business taxes over the next three years. For next year, that combination would bring in $554.3 million in additional revenue, enough to cover the deficit in funding for school districts.

The proposal has brought roars of disapproval, largely from Republican lawmakers and some business groups.

"We are very disappointed that, with Michigan leading the nation in unemployment, the governor refuses to bring the cost of state government in line with taxpayer ability to pay," Michigan Chamber of Commerce general counsel Jim Holcomb said after Granholm delivered her budget proposal on Feb. 4.

Granholm is not alone in arguing that the state needs to modernize its tax structure so it's taxing services, which people now spend more on than goods. A coalition of groups argue her proposal actually doesn't go far enough because it won't raise enough to restore or keep in place programs for children, the elderly or other vulnerable residents.

"There's no way around it: More cuts continue to erode the foundation of our future economy," Michigan's Children CEO Jack Kresnak said in a recent release. "Revenues must be part of the solution."

Yet many lawmakers continue to say they don't want to vote for tax increases, even if it would mean business taxes could be reduced. Democratic House Speaker Andy Dillon has asked the appropriations subcommittees to put together budgets that assume no tax increases to see what would have to be cut.

"To me, tax increases are the last resort," he told reporters Wednesday. "We're not going to start there. We're going to start moving the budgets with the cuts that we can stomach, working on the reforms to get some savings. ... If there's (still) a gap, we're going to deal with the gap at that time."

Granholm said seeing how deep the cuts would have to be if tax revenues don't increase is probably a good exercise. But in the end, lawmakers may finally have to raise more money even if expenses are cut by reducing personnel and other costs.

"Honestly, I don't believe they'll have the votes for a cuts-only budget, because it would be so devastating to public education as they are in the middle of grappling with cuts that were hitting them midstream this year," the governor said Thursday.

School districts lost at least $165 per student this academic year and could lose $255 per student next school year if the budget shortfall isn't filled. The state also would lose around half a billion dollars in federal highway funds if it doesn't come up with more state road money to match the federal grants.

Republican Senate Majority Leader Mike Bishop has suggested saving $1.8 billion by cutting the pay of all public workers -- university professors, firefighters, teachers and state workers -- by 5 percent, freezing it at that level for three years and requiring most to pay 20 percent of their health care premiums.

He also wants to cut Medicaid, which might be difficult if the state is to avoid losing federal funds. And he would shrink businesses' tax burden.

Most of Bishop's plan would have to go to the voters for approval before it could take effect. To get on the ballot, at least two-thirds of the House and Senate would have to vote to put it there, or signatures would have to be collected to put it on by petition. Neither looks very likely at this point.

At the moment, much of the action at the Capitol consists of finger-pointing and angry utterances of "absolutely not!"

"Everybody is yelling at pieces of this budget," Granholm said, adding, "You just can't say 'no' to everything."

So state leaders have to decide: After cutting university appropriations over the past 10 years by nearly a quarter of a billion dollars -- 14 percent -- taking away a third of revenue-sharing money sent to local governments and sending less money to public schools, do they want to raise taxes or make more deep cuts?

Michigan State University economist Charles Ballard said Thursday that political rhetoric on the budget isn't adequately explaining to the public how deep the structural deficit goes or that a combination of spending cuts and revenue increases looks necessary to get out of the hole.

"There is a tremendous disconnect between the political discussion, public perception and the budget reality," he told a public policy forum sponsored by the university.

Published: Tue, Feb 23, 2010

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