LANSING – Expressing hope that 2010 will be a better year for Michigan following the historic economic travails of 2009, Gov. Jennifer Granholm said the state had to continue to focus on diversifying its economy or face total collapse. A key to that diversification is building a more knowledgeable workforce and key to that, she said, is creating a stable financing structure for schools.

“I’m hopeful about 2010,” Granholm said in a year-end press conference, pointing to the state’s emphasis on recruiting advanced battery manufacturers. “I’m hopeful, and I believe, that even though our unemployment rate is the highest in the nation, I believe that we are going to see better days ahead.”

Granholm said she hoped to turn over to her successor (2010 is her last year in office) a more stable school funding system.

She also said several times that she is seeking a “grand bargain” on restructuring the state’s tax system to create a system that better reflects the changing nature of the economy while also addressing public employee benefits. She would not say whether the bargain she seeks would raise taxes, but she did say a tax structure that raised revenues on a par with the levels raised during the 2007-08 fiscal year was appropriate.

And she warned again that the budget for 2010-11 that she will release early next year will be extremely difficult given that federal stimulus funds will largely evaporate and that revenues are expected to remain weak. Earlier this year, she called for department heads to develop budgets anticipating cuts of as much as 20 percent in 2010-11, though she later called that a worst-case scenario.

She called the upcoming budget “the elephant in the room” and said more budget cuts will be needed, especially if the federal government does not provide states some additional help.

Granholm also again complained about the current budget, which enacted budget cuts in major areas. She said there was “still time to repair” some of the critical areas in the 2009-10 budget, especially restoring some cuts to K-12 school aid, the Michigan Promise Scholarship to college students, revenue sharing to local governments and Medicaid.

But even with hopes for a better 2010, Granholm said there was no masking the devastating impact the economic blows of 2009 had on the state as both General Motors and Chrysler were forced into bankruptcy and unemployment levels hit heights not seen in almost 30 years.

Nobody who would have served as governor during this time, Granholm said, specifically naming her 2002 opponent Dick Posthumus or her 2006 opponent Dick DeVos, “could have predicted the financial meltdown that occurred in December 2008” that helped precipitate the worst national recession since the Great Depression.

And the lessons learned during this period were dramatic, but also emphasized a point she has pursued for several years.

“The lesson of this year has been so stark,” Granholm said, “and that is diversify or die. We must diversify” away from an economy that is so focused on automotive manufacturing.

“The old economy is gone,” Granholm said. So the state’s focus, especially during her final year in office, has to be on generating new business activity in new areas.

The emphasis for the remaining year, she said, will be to diversify the economy, help create a more educated citizenry to work in the knowledge industry and provide protection for state residents going through the economic transition.

Even with Michigan struggling with the highest unemployment rate in the nation, Granholm said there is reason for hope in 2010 because the efforts to diversify the economy have borne some fruit. Especially promising was advanced manufacturing for new batteries to run future vehicles, since the state had won more grants than any other to promote develop battery manufacturing.

Also the state was having great success in solar conductor manufacturing, and she said the Saginaw Valley “will become the next Silicon Valley” in terms of solar manufacturing.

Overall, the Michigan Economic Development Corporation had helped create or retain as many 163,000 future jobs with the companies it has worked with, Granholm said. And more than 57,000 of those jobs have come through alternative energy development, life sciences companies, advanced manufacturing and homeland security.

K-12 FUNDING, BENEFITS: But to keep momentum toward a diversified economy, Granholm said the state needs a more stable education funding system.

As she has in the past, she said such a system could include extending the sales tax to services, while possibly lowering the current 6 percent rate.

She said she is working with business leaders, specifically mentioning the Business Leaders for Michigan group, and House Speaker Andy Dillon (D-Redford Twp.) on developing a proposal to improve school funding. “Hopefully” that group will include Senate Majority Leader Mike Bishop (R-Rochester) as well, she said.

Granholm said her goal is to strike an agreement on a plan before presenting it to the public.

“I want to make sure that if we put something out that it has some likelihood of success,” she said. “I don’t want to leave office without having education on a stabler foundation, but again I can’t wave a wand and do it myself. There has to be an agreement legislatively that that must happen. I would hope that we can get there in light of what schools across the state are experiencing. … I don’t want to just be putting out proposals that I know have absolutely no chance of getting anywhere.”

She also said several times that she would accept a “grand bargain” to revise the state’s tax structure.

Asked to define what a “grand bargain” would be, Granholm said that would be an agreement where all involved would have to accept some pain in order to see an overall improved tax structure.

“Everybody gives something and everybody gets something,” she said. “If everybody is serious about reform and restructuring, it can get done, but it will require people who are sincere about … putting a package together.”

In fact, the only time Granholm’s demeanor changed was when she was asked about whether a deal could be put together trading tax restructuring for public employee benefit reforms.

“Do you think that if that were part of a grand bargain … that we would see a tax restructuring?” she parried, hinting that such attempts had been made to no avail.

Pressed further, Granholm said, “I question it. But I certainly would be willing to enter into a grand bargain. Let me make that very clear. We have talked about a grand bargain repeatedly, about what that might look like. I have an open invitation, extended open invitation to enter into a grand bargain that would create the reforms and steps that would be needed to move Michigan forward as well as to diversify and educate our citizens.”

She would not say such an agreement would require a tax hike, though asked specifically if it could be a revenue neutral proposal Granholm said that would depend on the size of the overall revenues considered. Something that used the revenues anticipated for 2009-10 would not be acceptable, she said.

But a tax structure that raised revenue levels of two years ago would be more in keeping with her proposal, she said.

Even so, she refused to say if tax proposals would be part of her last State of the State address expected to occur late next month or early in February. She was still developing her proposals for that address.

ROADS AND THE 2009-10 BUDGET: A reluctance to call for taxes in this press conference extended as well to making a specific call on highway funding. Though she has supported a task force recommendation that called for a number of funding changes, Granholm did not specifically endorse any for the upcoming year.

The governor did say she urged the Michigan