LANSING – The Michigan Legislature completed action on the 2010-11 fiscal year budget with about 30 hours to spare, and while lawmakers and Gov. Jennifer Granholm avoided a repeat of the 2007 and 2009 government shutdowns, they also largely failed to achieve the comprehensive structural budget reforms that they promised at the beginning of the year.

When either Republican Rick Snyder or Democrat Virg Bernero and the 96th Legislature take office January 1, they will confront the task of putting together the 2011-12 fiscal year budget with a $1.6 billion gap between available revenue and existing spending because the 2010-11 budget is propped up with one-time federal money, among other revenues that will not be available next year.

“It’s a huge disappointment,” said Senate Majority Leader Mike Bishop (R-Rochester) of leaving the $1.6 billion deficit to the next governor and Legislature. “The best thing we can do is take steps in the right direction, and I think under the circumstances, this budget did take a step in the right direction. There are no tax increases or fee increases in it. It does cut about $200-plus million out of state government. Yes, there are old solutions involved as well.”

“It’s the best we could do in a tough situation,” said House Speaker Andy Dillon (D-Redford Twp.) “Thank God we had support from the federal government because it would have been difficult, and I think next year it’s going to be a very challenging budget, no doubt.”

Probably the most significant long-term reform of the year came in the passage in the spring of the public school employee retirement legislation that required those employees to put 3 percent of their wages into a health care trust and created a hybrid retirement system to move newly hired employees into a hybrid defined benefit/defined contribution plan. Teachers unions are challenging the law in court.

Otherwise, Granholm and legislative leaders fell short, in many cases way short, of their goals.

“A lot of Band-Aids,” said Bill Rustem, president of Public Sector Consultants. “They certainly didn’t want to face a third partial shutdown of state government in an election year when a whole bunch of people in the House are running for the Senate. They basically just cobbled it together and are leaving it to the next Legislature and the next administration on how to deal with the structural reforms that are necessary.”

Although the state employee retirement legislation (SB 1226 ) requires state employees to pay 3 percent of their wages into a health care trust, that expires after three years and will be a short-term move unless the next governor and a future Legislature repeals the sunset. The Senate on Wednesday, with little fanfare, gave the measure enough votes to grant immediate effect.

Granholm’s proposal to apply the sales tax to services, reduce the sales tax rate to 5.5 percent and use the added revenue to eventually eliminate the Michigan Business Tax surcharge died without so much as even a hint of legislative action. Even Granholm’s fellow Democrats, who control the House, considered it so toxic it go no traction there.

Granholm, Senate Republicans and House Democrats all wanted to find a way to eliminate that hated MBT surcharge, but never really came close, and the surcharge remains in place.

Senate Republicans called for a 5 percent pay cut for every public employee in the state, but it never even came up for a vote in the GOP-run Senate because as a constitutional amendment, it needed four Democratic votes for the two-thirds majority, and that stood no chance of happening.

The Senate GOP also proposed limiting school districts to spending no more than 28 percent of their budgets on administration (SB 1073 ), but that bill is still in a Senate committee. Senate Republicans also suggested curbing optional Medicaid services, but the budget actually restores some optional services.

Meanwhile, in the House, Dillon’s plan to put all public employees into a single pool for health insurance purposes is all but dead, still in a House committee more than a year after he rocked the Capitol with the proposal. Dillon insisted Wednesday that it could yet see action this year.

And remember how House Democrats mounted a major public relations effort to eliminate health insurance coverage for future retired legislators and pilloried Senate Republicans on the issue until Bishop (R-Rochester) agreed to pursue it?

Well, those bills (HB 4194 , SB 132 ) are pending on the House floor, languishing since February 24 without any action after the Senate passed them that day. Mr. Dillon said Wednesday that lawmakers will circle around and complete work on them before the term ends.

The two-year budget everyone said should happen? Nope.

A constitutional amendment to dock officials’ pay for not completing the budget by July 1? Negative.

Completing the budget by July 1 as all top officials promised? Well, they got the K-12 budget done on July 1, and Granholm signed it, with some vetoes, on July 7. But everything else waited until September.

Granholm has blamed Senate Republican stubbornness on anything to do with taxes for blocking structural reform. Bishop basically made the same argument about Ms. Granholm and the House Democrats.

“It’s frustrating,” Bishop said. “It’s my legislative serenity prayer. I learn to accept the things I cannot change. One of the things I cannot change is I cannot get the House to vote the way I’d like at times or get the governor to agree with me.”

Dillon said he still thinks there is time to pass reforms and said he is still working on another draft of his public employee pooling legislation.

What Granholm and the Legislature did produce was a budget that contained far fewer painful cuts than the bloody 2009-10 fiscal year budget that had eye-popping reductions to schools, universities, revenue sharing, Medicaid and human services. But this budget, largely due to increased federal money for Medicaid, one-time federal money for K-12 schools, the savings from the dual retirement bills and a number of one-time sources of revenue, contains much fewer and much softer cuts.

This year, there are no cuts to K-12 schools, community colleges, revenue sharing or Medicaid reimbursements to physicians. Two optional services that were eliminated last year, adult dental and podiatry, will be restored. And there is money to hire hundreds of new child protective services caseworkers in the Department of Human Services. There’s a 10 percent increase to financial aid programs. Six closed state forest campgrounds could be reopened. Unionized state employees got their scheduled 3 percent raise under their contract despite Senate Republican efforts to rescind it.

There are still some cuts, probably most notably the $42 million reduction to the Department of Corrections, which will likely result in the closure of more prisons. There’s also a 2.8 percent whack to universities and nicks to environmental enforcement programs and local public health.

Rep. Chuck Moss (R-Birmingham), the top Republican on Appropriations, said while it was good to get the budget done with no shutdown, the spending plan for next year relies on considerable one-time monies.

He said there were “missed opportunities” to add more reforms to the budget or not set up the next governor for such a cliff in the revenues, as federal stimulus will be running out.

As the chamber adjourned, House Majority Floor Leader Kathy Angerer (D-Dundee) got a round of applause after she said, “We have completed the budget long before the deadline.”

Bishop, speaking to reporters a few minutes earlier in the Senate Republican caucus room, was told by a reporter he must be happy to finish the budget “a day ahead of schedule.”

Said Bishop: “There’s no pleasure in knowing that we waited until the day before.”

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