The state will face relatively few pre-conditions in using federal stimulus funds, which opens a wide array of options in terms of balancing the budget, holding some sort of reserve or paying off debt, members of the Senate Appropriations Committee were told Wednesday.

But the committee's chair, Sen. Ron Jelinek (R-Three Oaks), charged the committee with creating a "legacy" of not leaving debt to future legislators.   In other words, he said, the committee should not move to expand the budget, leaving future legislators with a hole it could not fill.   The stimulus money should be focused on promoting jobs and the economy, he said.

In his review of Governor Jennifer Granholm's proposed 2009-10 budget and the potential impact of the federal stimulus package, Senate Fiscal Agency Executive Director Gary Olson essentially repeated comments he had made three weeks before (See Gongwer Michigan Report, January 28, 2009) that the state would have wide ranging discretion on how to use the stimulus money.

To several questions, Mr. Olson said that one of the few requirements will be to ensure that K-12 school aid and higher education funding is not cut.   So in her supplemental budget for 2008-09 that will go soon to the Legislature, Mr. Olson said the governor will include funding that the schools will be able to use to offset the cuts she proposed in the 2009-10 budget.

(Some of the money, such as the funding for transportation and road construction, will be allocated according to existing federal/state funding formulas).

And the proposed budget does include the most significant cuts that Ms. Granholm had ever suggested, Mr. Olson said.   In outlining different sections of the budget, especially in the departments of Corrections, Community Health and Human Services, he repeated that the cuts proposed and changes indicated were "very difficult."

The budget also has a number of conflicting issues that will make it more complicated, Mr. Olson said.

For example, DHS will have to add a total of $113.4 million, $30.7 million in general funds, to meet the legal settlement with the organization Children's Rights.   That provision also calls for hiring another 850 workers, which comes on top of Ms. Granholm calling for a net cut of 1,500 state workers in the budget.

The state may also face additional revenue pressures because of a major increase the federal government made on cigarette and tobacco taxes.   Just in terms of cigarette sales, that could mean a loss of more than $40 million in tobacco taxes, Mr. Olson said.

And the Legislature is in the middle of a 60-day period where it could turn back the scheduled 1 percent pay increase for state workers, Mr. Olson said.   Ms. Granholm is looking for $27.5 million in worker concessions in the budget and eliminating the

Most of the stimulus money will come to the state during the current 2008-09 fiscal year, Mr. Olson said.   But some funds will be included in the 2009-10 budget and some will even be included in the 2010-11 budget, he said.