LANSING – With fewer than seven weeks remaining in the current 2009-10 fiscal year and the start of the 2010-11 fiscal year, Gov. Jennifer Granholm outlined a series of cuts, revenue transfers and revenue increases that she hoped would prove not too controversial for lawmakers to adopt to clean up a combined two-year general fund problem of $786 million.
But school officials said they would not drop their opposition to a proposal from Granholm to use $208 million in the School Aid Fund to offset the current year’s deficit.
Legislative leaders are also expressing caution that while they viewed the overall proposal as positive they still needed to see the details.
The net total of the six proposals outlined should leave the state with the ability to contribute $100 million to the Budget Stabilization Fund, Granholm said. She called that operating under the philosophy of leaving the campground cleaner than what one found.
She also said the state would have an additional $50 million in the School Aid Fund available for a competitive program for school districts to show what they can save in terms of consolidating services.
Before she briefed reporters on the basics of her proposals – which also include a tax amnesty program and changes to the liquor distribution program (first reported by Gongwer News Service) – Granholm outlined the proposals to legislative leaders.
And the work of completing the budget began when Budget Director Bob Emerson started holding discussions on setting targets for the final budget goals.
THE 2009-10 PROBLEM: The state still has to close a general fund shortfall of $302 million for the current fiscal year, Granholm said.
To accomplish that she outlined two proposed solutions. The first involves moving taking some $94 million in federal Medicare pharmaceutical clawback funding that was to be applied to the next fiscal year, and applying it instead to the current fiscal year.
Such a move is allowable by the federal government, Granholm said.
But the largest proposal, and potentially the most controversial, would be to move $208 million from the School Aid Fund to provide financing for community colleges.
Doing so would free an equal amount of general fund monies, since on the state side the community college budget is almost exclusively in general funds, while ensuring the state does not have to make any cuts to community colleges at a time when students are using their services to develop new marketable skills.
Making the shift is possible because the School Aid Fund has a “significant surplus” now, Granholm said, “which is a good thing.”
Using SAF monies to help shore up the general fund budget was first proposed in the spring. Since the Constitution states that the fund has to be used for educational purposes, it could be used for community colleges and the state’s four-year universities.
Asked if they did not expect a major fight from school groups against the shift of money, Emerson said in fact the administration did not expect a major battle on the issue.
Senate Republicans have already proposed using some of the SAF monies to help relieve the need for cuts in the general fund budget.
And Emerson said this would be a one-time action. “We are setting the precedent and we are breaking the precedent,” he said to get the state through its current budget situation.
THE 2010-11 PROBLEM: Because Congress did not appropriate the full Federal Medicaid Assistance Percentage monies the administration had anticipated (which originally was $560 million, in fact the state will receive some $370 million) and with a revenue problem forecast at the May revenue estimating conference, Granholm said the state now has a general fund gap of $484 million to close before October 1 (the start of the new fiscal year).
The largest single part of solving that issue will be another $220 million in cuts, Granholm said.
That will include requiring all agencies of the state to cut another 3 percent from their budgets, she said. Officials are confident those cuts can be made without having to lay workers off, she added. The departments of Community Health, Human Services and Corrections would take a $50 million hit.
With those additional cuts, coming on top of what she had proposed back when she outlined her budget in February, the state would have enacted a total of $600 million in cuts for the 2010-11 budget.
But the governor also outlined four revenue-raising proposals, none of which would involve raising taxes or fees.
The largest source of money, some $168 million, would come from changing the state’s current escheats program – which deals with abandoned personal property, including such things as inactive bank accounts – so that property escheats to the state after three years instead of the current five years.
Should the Legislature approve the proposal, that could bring an estimated $168 million to the general fund, Granholm said.
The next largest revenue source would be for the state to refinance its bonds to take advantage of lower interest rates. The state has refinanced often in the past when interest rates are favorable.
Doing so requires no legislative authority, Granholm said.
Once accomplished, the move should save the state $77.3 million in general funds and some $40 million in school money, Granholm said.
The next largest proposal would be to raise some $75 million by making a number of changes to the state’s liquor control system. The largest proposal would come in putting up the state’s distribution system to bid, which it has never done before, and allow the largest one or two bidders to have exclusive operation of liquor distribution in the state.
She also called for updating some “antiquated” proposals such as expanding a bar’s hours of operations and allowing earlier liquor sales on Sunday. But Granholm has made those proposals in the past and so far they have fallen flat in the Legislature.
Then the state would enact a dynamic tax amnesty program that would be modeled largely on a successful program in Pennsylvania. As broadly outlined the program would allow any taxpayer, individual or corporate, to pay any back tax liability and penalties. Interest would not be assessed on the back payments.
If adopted by the Legislature the program would likely begin in May 2011 and deal with tax delinquencies owed up to 2010.
And Granholm said officials anticipated the tax amnesty program could raise $61.8 million to the general fund and $26.1 million to the SAF.
All told, the proposals could save and raise more than $600 million to the state, Granholm said, which will allow the state to allocate $100 million to the rainy day fund to give some assistance to the next governor.
The changes do not forecast anything about the state’s general economy other than what officials agreed to in the May estimating conference, Granholm said. While another possible recession could have a big effect on the state, Granholm said she is “cautiously optimistic” the state is beginning to turn around.
THE REACTION: The loudest reaction at this point came from school interests who were furious that Granholm had proposed using SAF funds to help close the gap on the current year’s budget.
Brad Biladeau, director of government affairs for the Michigan Association of School Administrators, said while it wasn’t surprising the governor would propose raiding the School Aid Fund, it doesn’t make it right.
“MASA is outraged the governor and Legislature are considering stealing money from K-12 students,” he said.
And Don Wortuba of the Michigan Association of School Boards said his group would continue its efforts to convince lawmakers not to tap the schools’ fund to help the general fund.
When the public voted for the school funding changes in 1994 as part of Proposal A they were doin
