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EVEN WITH STIMULUS FUNDS, GRANHOLM SAYS BUDGET FACES BIG CUTS A battle looms over how much of the federal stimulus funds to use to plug holes in the budget, but even if all of it were to be tapped, Governor Jennifer Granholm <http://www.gongwer.com/index.cfm?link=bio.cfm&nameid=6701&locid=1> said Monday deep spending cuts would still be needed to bring the budget into balance. The governor did not say she wanted to use the entire available stimulus money and would not put a number to how deep she sees the budget problem, but revenues have fallen by $100 million a month below estimates in the first quarter of this year. Some estimates are that the unresolved problems could be around $1 billion. Michigan is getting $290 million in fiscal stabilization funds this year plus $868 million in unrestricted Medicaid reimbursement funds, and will get another $950 million in Medicaid funds for 2009-10. The money does come with several restrictions mandating the state maintain its effort in areas such as education and health care. Ms. Granholm has already proposed using $312 million of the stimulus money to balance the upcoming budget. She and the four leaders of the Senate and House caucuses plan to meet Thursday at which time they will be given the latest estimates on the size of the problem by the Senate and House Fiscal Agencies. Those estimates will not yet have the key data from income tax returns filed by Wednesday's deadline. "We know 2009 will be a rough year. We could use every dime of the recovery money we will have to fill holes and we still would have to cut more," Ms. Granholm said. "We would still have to cut a significant amount." The governor noted revenues from income, sales, property and business taxes are all down. She said the state will have to continue to push as hard as it can to diversify the economy and protect what industries can be preserved to get through the recession and begin growth again. In that regard, the Michigan Economic Growth Authority is set to approve a number of new projects on Tuesday, including $100 million in tax incentives to each of three firms that will be involved in manufacturing new generation battery technology for vehicles. Senate Fiscal Agency Director Gary Olson said the stimulus funds could enable the state to patch together budgets for the current year and 2009-10, but then leaves officials with a budget "cliff" in 2011 when the federal funds run out and the recovery is not yet taken hold. He said a worst-case scenario would be that the state continues to see a $100 million a month drop in revenue below estimates, which could produce a $900 million hole in the current budget, but that is not the outlook he sees. Another factor to address is the $200 million the governor has proposed in revenue increases from fees and taxes, which have not yet been adopted by the Legislature. "It's not a pretty sight," Mr. Olson said. "From my perspective and I'm sure from Mitch (Bean, director of the House Fiscal Agency) and (Budget Director Bob) Emerson, we've got to look to 2011 as well. I hope there will be a substantial rebound, but it won't be enough if we just blow through all of this federal money." Senate Majority Leader Mike Bishop <http://www.gongwer.com/index.cfm?link=bio.cfm&nameid=17501&locid=1> (R-Rochester) has in the past resisted calls to use the stimulus funds, insisting that structural cuts in the budget must be done first though he has not ruled out using some mix of stimulus funds. A spokesperson for House Minority Leader Kevin Elsenheimer <http://www.gongwer.com/index.cfm?link=bio.cfm&nameid=87101&locid=1> (R-Bellaire) said he does not think any stimulus funds should be used to fill the budget holes because it just pushes the problem down the road without dealing with it.