LANSING – The political stakes over the current-year budget deficit were stepped up Tuesday as Gov. Jennifer Granholm gave the Legislature two weeks to complete action on her proposed increases in cigarette and liquor taxes and sent a warning to schools that they will be hit with a $50.1 million cut in state aid in July if the tax plan fails. Republicans legislative leaders said the governor’s options are too narrow and unfairly dump the deficit burden on schools.
Granholm, in a letter to Senate Majority Leader Ken Sikkema (R-Wyoming) and House Speaker Rick Johnson (R-LeRoy), acknowledged the $28 per pupil cut would be “particularly devastating” to schools, which end their fiscal years June 30.
“I encourage the Legislature in the strongest possible terms to resolve the ’05 budget deficit by June 15,” Granholm told reporters. That would allow collection of increased taxes to start as she proposed July 1 and officials said each day of delay would cost the state $966,000.
“We are near the end,” the governor said of the timeframe to resolve a deficit of $250 million-$300 million. Otherwise, she said education and health care will bear the brunt of the budget problem. “We are left with very few alternatives.”
Sikkema and Johnson said last week after the House grudgingly approved a modified cigarette tax bill (HB 5632) that its ultimate fate was tied to an agreement with the governor on the GOP’s economic development package referred to as JOBS II.
The cigarette tax measure – which removed a proposed tax increase on other forms of tobacco and allowed wholesalers/retailers to pay taxes on two weeks of inventory at the current tax rate – would raise about $67 million this year rather than the $97 million the Granholm administration sought. House leaders have given little hope for the liquor tax increase (HB 4865) – worth about $10 million this year – after it went down to a crushing House defeat in April.
Aside from schools, Granholm said the revenues are needed to avoid cuts in the Medicaid program, where she said options are limited in dealing with higher than expected caseloads. That could mean cuts in reimbursement rates to providers such as hospitals and physicians, officials said.
A budget target-setting meeting with legislative leaders and Budget Director Mary Lannoye is scheduled for 3 p.m. Wednesday and Granholm said it is her “fervent belief” that legislators would like to see the situation resolved without cutting education and health.
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