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BUDGET: FORMULA FOR SMALLER U.'S/INCREASED BED TAX Governor Jennifer Granholm will propose using a formula for allocating part of the spending increases for the state's 12 smaller four-year universities in her 2006-07 budget, sources have confirmed, and will propose boosting the so-called bed tax on hospitals and Health Maintenance Organizations to maximize the return on federal Medicaid funds. A formula would not apply to the three research universities which all have medical schools. State Budget Director Mary Lannoye will present the budget to a joint meeting of the House and Senate Appropriations committees on Thursday, and several sources characterized the budget as a "status quo" document as the state goes into an election year. "The theme is education clearly, long-term investments, which is appropriate," one source said. Few new dramatic proposals or controversial measures will be proposed, sources said. For example, the governor will propose no prison closings or State Police post closings as she did a year ago. She will call again for the Legislature to close approximately $110 million in tax loopholes. She will ask them to pass again many of the loophole closings that were approved in November, but which she vetoed as part of the controversy over a Single Business Tax cut. Ms. Granholm will also ask the state to once again increase the liquor license fee, which could raise more than $20 million. Gongwer News Service has already reported that Ms. Granholm will request an increase of $200 per student in the state's per pupil allowance, which would boost the basic allowance to $7,075. Sources indicated that Ms. Granholm will also ask for increases in early childhood education, in funding for school districts with declining enrollments, and a $4 million increase in adult education. The adult education increase will be one of the largest that item has seen in some years. And the budget will propose restoring vision and hearing screening for children by moving the item from the Department of Community Health to the School Aid Fund, sources said. One of the biggest changes expected in the budget is how a 2 percent increase for the state's public universities will be allocated. According to sources, the three largest schools - Michigan State University, the University of Michigan-Ann Arbor and Wayne State University - will be allocated straight 2 percent increases. The other 12 schools will get a straight 1 percent increase, sources said, with the remaining 1 percent increase allocated on a formula basis. That would mean some schools might see an increase of greater than 2 percent and others less than 2 percent. The details of how the formula would work were not forthcoming, although a source did say some factors would be based on the work of the commission chaired by Lt. Gov. John Cherry. Ms. Granholm will not propose any tuition restraint language in the budget (that would deny the increase if the schools boost tuition higher than a certain level), although one source said she will separately urge universities to show restraint in raising tuition. University officials had already indicated they would oppose any tuition restraint language if it were included. In the DCH budget, Ms. Granholm will not try again to get a Medicaid tax on physicians approved as she did last year, sources said. But the administration has already talked to hospital and HMO officials about agreeing to an increase in the so-called bed tax - the quality adjustment payments - that are used to boost federal Medicaid matching funds. The amount of the specific increase was not revealed, but several sources said the increase should raise some $40 million in federal monies. A portion of that increase would go to help finance the health insurance proposal Ms. Granholm made in her State of the State address, sources said. Neither hospital nor HMO officials have agreed yet to the proposal, but one source said since it will help expand health care coverage, "We might take one for the team."