EMERGENCY GROUPS MEETS AS OFFICIALS SAY CURRENT DEFICIT AT LEAST $800M
With House, Senate and administration officials effectively agreeing
that the current year's budget deficit will be at least $800 million,
the emergency financial advisory group that Governor Jennifer Granholm
appointed held its first meeting on Friday.
Meanwhile administration officials are working on proposed budget cuts
for the current 2006-07 fiscal year, though whether those will be in the
form of an executive order budget cut or as supplemental appropriation
bills was uncertain.
And while the question of whether Ms. Granholm will ask the Legislature
to approve some form of a tax increase or tax shift (not including any
proposal to replace the Single Business Tax which expires at the end of
the year) looms as the largest pressing issue, lawmakers should expect
that she will also ask the Legislature to enact some of the revenue
changes she had proposed in the past, such as "loophole closings" for
business taxes. But it was also still uncertain specifically which of
the previous tax changes she had requested the administration would ask
for.
Ms. Granholm named the emergency financial 12-member group, chaired by
former Governor William Milliken and former Governor James Blanchard, on
Wednesday to provide some proposals by the end of January on dealing
with the state's situation. The move was attacked by critics as a
stalking horse for a proposed tax increase and the Detroit News
editorially called Ms. Granholm "spineless" for naming the board.
That editorial did not come up in the discussion at the first meeting
of the group, except at the very end as individuals were leaving,
according to sources who would not be identified.
Mr. Milliken participated in the meeting by speakerphone from his home
in Traverse City and the other 11 members were present at the meeting in
downtown Lansing.
Most of the meeting was spent going over the historical perspective of
the state's finances, and a source said the members did more listening
than talking.
At the next meeting, members expected to begin drafting proposals,
sources said.
The news the group would have heard about the state's finances would
have been grim. According to a variety of sources, the state budget
office, the Senate Fiscal Agency and the House Fiscal Agency all expect
the budget deficit for the current fiscal year to be at least $800
million, and that is just from reduced revenues.
The state is also facing new spending pressures from a number of
departments, including Corrections, Human Services and Community Health,
sources said.
In addition, some of the bonds for the 21st Century Jobs Fund will come
due this year adding to spending pressures, officials said.
SFA Director Gary Olson gave an overview of the state's current fiscal
situation on Wednesday to Senate Democratic Appropriations Committee
members. As one member said, coming after the glow of the swearing in
ceremony, the overview was a hard slap to Senate members.
Overall, Mr. Olson told the group that for the current year the state
faces a general fund revenue reduction of an estimated $550 million.
The School Aid Fund would likely see a drop of $300 million.
That $300 million would necessitate a $218 per pupil pro rata cut to
keep that budget in balance (See Gongwer Michigan Report, January 11,
2007).
However, administration sources said they view the $218 as a worst-case
scenario. While it may be impossible to avoid some sort of pro-rata
cut in the K-12 School Aid budget, a top priority is to make any
pro-rata cut as small as possible, sources said.
Earlier, House Fiscal Agency Director Mitch Bean had indicated the
current deficit would be at the $800 million level.
On Friday, administration sources said they would probably concur with
those numbers with a current year deficit between $800 million and $900
million.
On Thursday, Mr. Olson, Mr. Bean and Treasurer Robert Kleine will meet
for the state's revenue estimating conference.
The fiscal situation does not improve for the next fiscal year as the
state will face negotiated wage increases for state workers, officials
said.
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