LANSING ? With less than three weeks before the start of Michigan’s fiscal year, state officials are scrambling on a number of fronts to both resolve the budget and prevent a shutdown of the government on October 1.
Sources indicate there is a chance that a move to put a sales tax increase before the voters may be less likely now because of the breakdown in discussions and process between top leaders last week. If so, sources said discussions have picked up again on an at least a temporary increase in the income tax as a way of closing the state’s revenue gap.
The Senate Appropriations Committee on Tuesday heard a report on how much can be practicably cut from the state budget, but the committee did not act to move any spending cuts to the Senate floor.
The House is anticipated to move on some revenue measure this week, but most likely Wednesday. The chamber is only in session for Tuesday and Wednesday in observance of Rosh Hashanah.
Senate officials plan to introduce legislation that would allow for a continuation budget to block the need for a shutdown of most government services.
There has been no order issued from the administration of Gov. Jennifer Granholm to state departments to begin the process of shutting functions down. However, all departments have plans in place – plans that were ordered last spring – on how to proceed with a shutdown, and sources indicated that for a shutdown to occur most departments would need roughly two weeks to complete the process. That could mean the potential for a shutdown order being issued next week.
Administration officials say their focus is completely on solving the state’s budget problems and not on shutting down government operations. However, sources said there have been discussions within the administration on how to proceed with a shutdown order and when to issue the order.
One source indicated if there is a sense that real progress has been made to resolve the budget then a shutdown will be held off in favor of some sort of continuation budget if needed when the October 1 start to FY arrives.
Senate Republicans are preparing to introduce blank bills this week that would allow for a continuation budget if no agreement is finalized by the end of the current fiscal year.
Matt Marsden, spokesperson for Senate Majority Leader Mike Bishop (R-Rochester), said the continuation budget bills are necessary to ensure that the administration does not try to shut down state government. Senate Republicans are committed to ensuring no shutdown takes place, he said.
Bishop and House Speaker Andy Dillon (D-Redford Twp.) spoke with Granholm over the weekend and she spoke with other legislators as well on trying to reach a resolution on the budget.
Greg Bird, spokesperson for Dillon, said that while both legislative bodies are going down two different tracks in solving the state’s fiscal crisis before a shutdown, he did not believe that had any effect on how well the leaders were progressing in getting an agreement.
There had been hopes last week of an agreement to run a sales tax increase before the voters. While that remains the more politically feasible solution, there is some indication that at least on Monday some leaders are less inclined to run the proposal after feeling burned over last week’s standoff.
The sales tax increase also would now be delayed until well into the fiscal year, as the first opportunity to put in on the ballot would be the January 15, 2008 presidential primary.
Indications are that Granholm is ratcheting up the pressure on House members to consider at least a temporary income tax increase. While doing so, however, Senate Republicans who may grudgingly vote for an income tax increase are being warned to be careful how much of an increase to enact.
Even an increase of the current income tax from 3.9 percent to 4.2 percent, on a temporary basis, could be a stretch for the Senate GOP, sources said.
Meanwhile, the Senate Appropriations Committee will hear a report from Senate Fiscal Agency Director Gary Olson on Tuesday on what and how much the Legislature could cut from the budget.
Marsden said the report will also outline what it would look like if the state has to cut $1.7 billion to $1.8 billion – the entire anticipated FY revenue shortfall. The public has to know what that would entail in terms of cutbacks in services, he said.
Bishop had called for the Senate to enact $1 billion in cuts and reforms (although the proposal also calls for using a one-time jump of more than $200 million in anticipated Michigan Business Tax revenue) with the House to make up the remainder.
Once Olson makes his report, Senate Appropriation members plan to caucus to discuss how to proceed with cuts. It is unclear at this point when the committee would actually vote the proposed cuts out to the full Senate.
House Democrats are expected to make some sort of announcement this week on what their solution to the budget will be, but when or where that might happen was not nailed down as of Monday.
WENKE SOLUTIONS: Rep. Lorence Wenke (R-Richland) urged his House members Monday to take up 22 of his bills that he said would resolve the state’s budget woes. <./p>
“We are hearing over and over again that Michigan residents need to pay more taxes, but that is simply not true. The truth is, we can balance the state’s budget without raising taxes by making state government as cost-efficient as the private sector while ensuring public employees still have access to high-quality and necessary benefits,” he said. “My bills address common-sense reforms that will save taxpayers’ money and ensure our priorities such as education and public safety are adequately funded.”
However, one of the reforms Wenke lays out calls for increasing the income tax to cover the transitional cost of changing the defined benefit retirement system for public school employees, firefighters, police officers and municipal employees to a defined contribution system (401k).
The legislation he asked to be taken up would:
? Mandate current and retired public employees to pay 25 percent of their health care benefit costs.
? Limit pay increases for state employees.
? Prohibit state and public school employees from double dipping the pension system upon retirement.
? Change vesting requirements for some state employees.
? Cap the cost of health benefits.
? Reduce legislators’ benefits and salaries by 10 percent and put legislators under the same retirement system as state employees.
? Switch the defined benefit retirement system with a defined contribution system for public school employees, firefighters, police officers and municipal employees and fund the change over with an increase to the income tax.
? Create a position of CEO for the state of Michigan for business-like management of the state’s 53,000 employees.
? Require funding and Government Accounting Standards Board (GASB) accounting changes for the unfunded health care benefits promised to public sector employees, which will require new tax dollars of $1-2 billion per year.
Eliminate lifetime health care benefits for legislators at the age of 55 after six years of employment.
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