Michigan budget's almost done, but the fight over revenue isn't over

LANSING, MI – Governor Granholm expects the last bills that make up the state budget to arrive on her desk as soon as Tuesday. She will sign the budget to fund K-through-12 schools Monday. The school budget reflects a cut of $165 dollars for every student. But even with a big cut, there's not enough money in the School Aid Fund to cover K-through-12 spending for the balance of the fiscal year. That means the governor and state lawmakers have to come up with more money. Michigan Public Radio's Rick Pluta reports.

Even with the cutbacks, the state school budget is short at least $100 million, maybe twice that if sales tax revenues continue their downward clip. The governor says she will do everything in her power to restore budget cuts that will also chip away at public safety, hurt poor families, or make it harder to position the state for an economic recovery.

"There are four basic priorities that are not funded in these budgets - police and firefighters; Medicaid health care for senior citizens, children, people with disabilities, and pregnant women; the Promise scholarship; and K-through-12 budget," she explains. "The K-through-12 budget was not funded."

Fixing those cuts means coming up with hundreds of millions of dollars in savings elsewhere, or finding new revenue. The governor says she will use her line item veto authority to find savings that were ignored in the budget deal between Republican Senate Majority Leader Mike Bishop and Democratic House Speaker Andy Dillon. But Granholm cannot just move that money where she wants. She'd have to go back in most cases and get the Legislature to agree.

House Speaker Andy Dillon says this is the second stage of the budget negotiations. He says now that cuts have been identified, Democrats want to find a way to restore the rollbacks to scholarships, Medicaid, local governments and libraries, and to put enough money into the school budget.

"We have several major issues to resolve," he says. "We said all along we think these cuts are too deep. We want to identify revenues to address those areas of concern."

Dillon's plan includes a new tax on physicians' earnings would help draw down more federal money for Medicaid. That's been met with fierce opposition from doctors' organizations.

The Democrats' plans also include selling a new liquor license that would allow bars to remain open until 4 AM, and open on Sundays before noon. The plan would also freeze any increase in the state income tax personal exemption, and put a new tax on small cigars and other non-cigarette tobacco products. Dillon says all of that would go into the so-called Michigan Future Fund, dedicated specifically for scholarships and local governments.

"By packaging it up, I think the public understands better that these are priorities, and that we do want to pay for certain things in government, and I think it will help Republicans get on board eventually," he says.

Dillon says that's because GOP lawmakers generally opposed to tax hikes might agree to one if it's narrowly, constructed and committed to a specific purpose, such as college scholarships.

Senate Majority Leader Mike Bishop says Dillon and the Democrats can propose what they want.

"And it's fair for our members to be able to consider their proposal and we'll do that. I also know that our caucus has no appetite spend more than we have."

The discussions on revenue are expected to go on past the expiration of the temporary state budget that expires at the end of October, and drag the debate on balancing the budget into November and maybe December. If they don't come to an agreement before early 2011, that could force a new round of across-the-board school cuts next year.

The talks also include possibly reducing some business tax breaks, maybe reducing the credit for movie companies that bring film work to Michigan. Or placing new limits

Dillon's plan would lock in that money

Dillon did that to try and pick up G-O-P support for restoring a few specific budget cuts. But dedicating money like that can create complications later on because it reduces the government's ability to respond to crises. But politicians must like it -- 80 percent of the entire Michigan budget is committed to specific purposes. That leaves a scant 20 percent in the general fund.
Jeff Williams is with the Lansing think tank Public Sector Consultants.

But Senate Majority Leader Mike Bishop says Republicans won't budge if saving programs means raising taxes.
Bishop and the Senate Republicans have approved a plan to fill the 100 (m) million dollar hole in the school budget. The Republican plan would freeze the earned income tax credit for working poor families. The money saved would go to plug the budget hole, and allow the state to reduce a temporary increase in the Michigan Business Tax. Democrats say they won't agree to reducing the business tax if that means shifting the burden to working poor families.

And the Michigan Promise used to have a committed source of revenue until the Legislature diverted tobacco settlement money into the general fund to help balance the budget.

The governor and other Democratic leaders will go back to work this week trying to recruit enough Republican support for new revenue to restore those cuts. They also have to find an answer for funding schools, or else they risk forcing districts to send out a new round of layoff notices early next year. That challenge is compounded by the likelihood that Michigan's budget picture will continue to grow darker. A memo from the state Treasurer says the hole in the School Aid Fund may be twice as big next year as what's projected right now.