REPORT NO. 191, VOLUME 48-- THURSDAY, OCTOBER 1 2009

F.Y. '10 PLUS 1: BUDGET MUST BE FIXED, GRANHOLM SAYS

Saying she will use her veto power to "shape this budget to protect the priorities of Michigan families," Governor Jennifer Granholm said Thursday that a 2009-10 budget may have been completed, but it is still not done.

"I will continue to fight for the right budget" for the state, Ms. Granholm said.

The budget completed by the Legislature, including the continuation budget, after a brief government shutdown occurred at midnight, is a "fiscal house of cards" that relies too heavily on federal stimulus funds and will make the task of completing work on the 2010-11 budget that much more difficult, she said.

"The constitutional deadline may have been met, but the work on this budget is far from over," Ms. Granholm said.

The Legislature actually passed a continuation budget after the midnight deadline and still has yet to pass a continuation budget for school aid.

Additional revenues will have to be part of the final budget, but Ms. Granholm would not single out a specific revenue measure. She said she had already provided a list of proposed tax changes to help bring in as much as $600 million in revenues.

Lt. Governor John Cherry Jr., in a radio interview (see related story), said most of the focus on revenues would be on tax credits and loopholes. And Budget Director Bob Emerson said the focus is less on what the administration might propose as revenue increases, but what lawmakers can pass.

Republicans blasted Ms. Granholm's threatened vetoes. Sen. John Pappageorge (R-Troy) said the state has to do more with less because the public and businesses are suffering in the depths of the economic crisis.

But further action is needed because the budget is too destructive for Michigan families, hurting local governments through its revenue sharing cuts, hurting the state's ability to diversify its economy, and rending its ability to increase the number of college students by cutting the Michigan Promise scholarship, Ms. Granholm said.

In fact, Ms. Granholm's voice grew slightly husky as she recounted taking a call in her constituent services office from a community college student who needed the assistance the Michigan Promise offers. The student did not know who she was, Ms. Granholm said, but he pleaded "tell her" how much the promise scholarship was needed.

And she urged that other students, their parents and all others who would be badly affected by the budget contact the Legislature and tell them that the budget must be changed.

While she said would veto budgets, Ms. Granholm did not single out any bills or sections of bills for excision. She said she would review the budgets carefully before making any decisions.

And she acknowledged vetoing budgets or portions of budgets to add back programs was difficult. "I can't veto in revenue," she said.

But she said several times she would "use every tool at my disposal" to make changes to the budget.

She did not address the idea of using the vetoes as bargaining chips, but Mr. Cherry implied such in his radio interview when he spoke of her vetoing pet projects of lawmakers.

Adding revenues to the budget is not just critical from the standpoint of being able to restore some cuts, Ms. Granholm said, but also to help the state prepare for the 2010-11 budget.

Using too much federal stimulus money now to close gaps, the budget leaves open the possibility of even greater difficulties in dealing with the next year's budget, she said.

That budget will require the state and local governments to look at greater restructuring, she said, including the possibility on consolidating school districts.

In reaction, Senate Majority Leader Mike Bishop (R-Rochester) all but dared Ms. Granholm to issue vetoes.

"She can cut what she wants," he said. "We'd be willing to talk to her about cuts. That's what our plan was from the very beginning. If she wants to cut more out of government, then God bless her. Let her go ahead and do what she has to do. We'll work with her on that."

But Mr. Bishop also criticized the possibility that Ms. Granholm would use her line-item veto power to reject programs popular with Republicans.

"It just seems absurd to me that after going through this whole process that we're now in the phase of being vindictive," he said. "It's not even about programs that aren't good or maybe not functional or maybe not performing. It's about which ones she can identify that are the ones we like the most and the ones that we think function the best and we think perform the best."

House Speaker Andy Dillon (D-Redford Twp.) said negotiations on the budget will continue over the coming days, adding he wants to sit down at the table to see what issues the governor has with the budgets.

"I want to see what she wants corrected," he said.

Mr. Dillon said that the Legislature moved the continuation budget so that Ms. Granholm would have time to look over the spending.

But Ms. Granholm might not get the opportunity sign or veto every budget anytime soon. The Senate continues to hold six of the most controversial budgets with motions to reconsider immediate effect.

Senate Majority Floor Leader Alan Cropsey (R-DeWitt) said the Senate might hold the remaining budgets throughout October until the continuation budget expires at midnight November 1.

"Why should we send (them) to the governor?" he said. "The governor's said those are budgets she doesn't like. ...I don't see us sending them to the governor at this point."

Budgets that remain in the Senate are those for the departments of Energy Labor and Economic Growth (SB 243), Human Services (SB 248), State Police (SB 253) and Community Health (HB 4436) as well as the budgets for general government (SB 245) and higher education (HB 4441).

Mr. Cropsey blasted Ms. Granholm's handling of the budget, tweaking her about a recent trade mission to Japan.

"It really is unbelievable to me that she was so obstructionist," he said. "I wish she would have stayed in Japan another three weeks."

F.Y. '10 PLUS 1: BISHOP, DILLON PONDER NEXT MOVES

Their unexpected bipartisan alliance on the budget spawned nicknames like "Billon" and "Dishop," but Thursday, Senate Majority Leader Mike Bishop and House Speaker Andy Dillon went back to the drawing board after they were unable to get their plan through the Legislature.

Mr. Bishop (R-Rochester) and Mr. Dillon (D-Redford Twp.) must now await Governor Jennifer Granholm's signature, veto or line-item vetoes of the budget bills. They still have to decide on a plan for a K-12 public schools continuation budget (SB 252) and the House will consider the revenues and supplemental spending bill that Mr. Dillon had said it would seek.

They also must confront another system failure for the Legislature and governor as for the second time in three years officials were unable to pass a budget on time, leading to a shutdown of less than two hours and continuation budget.

"I don't think we have to start all over again," Mr. Bishop said. "I just think now that the governor is engaged with the process, we're going to have to figure out exactly what she wants."

Earlier this month, Mr. Bishop and Mr. Dillon agreed to close a $2.8 billion deficit with spending cuts and federal stimulus money, but no new revenues. Mr. Dillon and the House could then pass new revenues to pay for a supplemental budget to restore some of the lost spending.

Under the plan, Mr. Bishop would not commit to acting on new revenues, a fact that triggered strong criticism from Ms. Granholm, a host of groups that would be affected by the cuts, Senate Democrats and even many members of Mr. Dillon's own House Democratic caucus.

Mr. Dillon said Democrats will be readying a tax package for next week, but he was not firm on what day the chamber may act.

And Mr. Bishop, in his clearest words on the subject to date, signaled willingness in the Senate to support some revenues.

Asked if Senate Republicans could support freezing the Earned Income Tax Credit, which is scheduled to rise, Mr. Bishop said, "If you freeze current tax expenditures, if you freeze all those items that are on the table right now, you can definitely get votes to probably do that. That's not a problem. It's the general tax increases on taxpayers that have our members very upset."

Still, Mr. Bishop said Republicans' goal was to use such revenues to reduce the Michigan Business Tax surcharge, not to patch the budget.

Mr. Dillon said freezing some taxes is certainly on the table, such as the increase in the Earned Income Tax Credit. While a physician's tax, also known as the quality assurance assessment program, would trigger significant federal Medicaid dollars, Mr. Dillon said he expects that might be a tax that would be hashed out in committee and not simply discharged to the floor like other bills.

Mr. Bishop expressed some surprise that the House had yet to pass some revenue bills, but Mr. Dillon said Mr. Bishop has not even assured him the Senate will take up a tax vote and that he expected to have to "make my case" to four or five Senate Republicans on the need to restore funding for health care, revenue sharing and education through a tax hike.

But Mr. Dillon also said that while the focus was to just get through the 2009-10 budget, he does believe the actions taken are leading to a crescendo of efforts to reform taxes comprehensively.

While he doubted something massive could pass before the end of the continuation budget, Mr. Dillon said it was important for legislators to seize this moment.

"Hopefully this brings us to the table for real tax reform," he said.

Mr. Bishop was still stung by the events of Wednesday night and early Thursday morning when the House was unable to complete the K-12 and general government budgets and the Senate was stuck on State Police. Only after the Senate Republicans relented to a continuation budget did State Police and general government pass.

"It wasn't until we had almost all of them over the finish line that the governor decided to put the brakes on everything," he said. "I've never seen the system seize up as fast as I did last night when she decided to put the kibosh on the rest of it."

Senate Minority Leader Mike Prusi (D-Ishpeming) said the Legislature and governor must now revisit "sensible revenue alternatives that plug some of these holes."

"We all proved we can be tough. I think it's time we start proving we can be smart, that we can work together, that we can make some compromises here," he said. "The state's facing some very serious issues here and nobody's going to get their way 100 percent of the time. Why don't we just acknowledge that, get in the room, work on some compromises."

House Minority Leader Kevin Elsenheimer (R-Kewadin), besides calling on Ms. Granholm to sign the budget bills, noted that House Republicans wound up providing the bulk of the votes to pass them in the House despite the 67-43 Democratic majority.

"Without our House Republican caucus, the budget crisis could not have been resolved," he said in a statement. "Republicans drove the agenda, and were successful in protecting the taxpayers and essential services. House Republicans controlled the agenda because we took the risk, came out with a plan, and worked hard to provide the true leadership the people of Michigan deserve."

Legislative leaders again faced criticism for the government's inability to complete its most basic task - enactment of a budget before the start of the fiscal year on October 1 - for the second time in three years.

Asked if there was anything differently he could have done, Mr. Bishop said he has second-guessed himself, but probably the only thing he could have done Wednesday night would have been to succumb to a tax increase or use more federal stimulus money to reduce the cut to public schools.

"We thought that by putting our cards back on the table back in June when we passed our balanced budget that we wouldn't have this problem," he said. "It wasn't until August that we got the governor to give a part of her plan to us. The House ... to this day has never passed a plan."