By Staff
LANSING -- State Budget Director Mary A. Lannoye this week presented Governor Jennifer M. Granholm's 2005 Executive Budget to a joint session of the House and Senate Appropriations Committees.
The budget fulfills the Governor's pledge to maintain a high quality of life for Michigan citizens while creating a business climate that will create jobs and grow our economy.
After reducing spending in the general fund by over $1.4 billion last year, another $490 million in reductions are proposed in this budget. The budget proposal is balanced and closes a $1.3 billion shortfall through a responsible mix of spending cuts, revenue enhancements and fund shifts. The budget totals $39.7 billion and includes $8.7 billion in general fund spending, $12.5 billion from the School Aid Fund, $1.1 billion in revenue sharing payments to local governments, $3.3 billion for transportation needs and recognizes $11 billion in federal revenues.
Since Governor Granholm took office, over $1.4 billion has been cut to make up for the lack of general fund revenue. Many of these cuts have been tough decisions - decisions the Governor has called "painful."
For fiscal year 2005, the total funding gap in the general fund totals $1.3 billion. The federal government has cut nearly $700 million in state funding this year, including $385 million in Medicaid cuts alone, adding significantly to the state's budgetary challenges.
This budget will create new tools for retaining the jobs we have today and bringing new jobs to our state. At the same time, we will strengthen our schools, make health care more available and affordable for our citizens and protect our irreplaceable natural environment."
Highlights of the fiscal year 2005 budget include:
K-12 Education - Governor Granholm's Executive Budget includes a school aid budget for fiscal year 2005 totaling $12.5 billion. The fiscal year 2005 school aid budget fully funds a minimum foundation allowance of $6,700 per pupil -- a level that had been promised in the past, but never achieved. Districts with declining enrollments are assisted by a return to the 50/50 blending of prior-year and current-year pupil counts used when Proposal A was implemented
The Governor's Project Great Start for preschoolers includes an expansion of the Great Parents, Great Start program operated by intermediate school districts for all children from birth to age five. Funding is increased from $3.3 million to $10 million for programs that encourage positive parenting skills, promote early literacy, and mitigate the need for special education services.
Growing Our Economy - The Governor's budget presents a blueprint that will allow Michigan to become an economic powerhouse by attracting and retaining good jobs. In cooperation with the Michigan Economic Development Corporation, three new financial tools are being created to help businesses take root in Michigan and grow new jobs at every stage of development--the Emerging Business Fund, the Venture Michigan Fund, and the Small Business Growth Fund.
Futhermore, the budget maintains funding of $15 million for the Technology Tri-Corridor, which is a catalyst for research, development and commercialization in high-tech areas.
Higher Education - Governor Granholm's budget includes over $1.9 billion for higher education. The Governor believes that if Michigan's public higher education institutions remain accessible and affordable during these difficult economic times, our economy will flourish as a result.
Health Care - The Governor's Executive recommendation protects critical health care programs that serve Michigan's most vulnerable citizens. Michigan will invest $9.8 billion in health care and health-related programs, including over $3 billion in state funds in fiscal year 2005.
These funds support health coverage for low-income families and individuals, provide mental health services throughout the state, and fund a range of prevention and education programs.
In fiscal year 2005, the federal government is increasing mandates and significantly reducing its financial commitment to our state - at a time when we can least afford it. Reductions in federal support require the addition of over $385 million in state funds to the Medicaid program. The state must identify a stable revenue source to replace the lost federal funds.
To this end, the Governor recommends a 75-cent per pack increase in the cigarette tax. Because smoking leads to drastic increases in health care expenditures, the Governor also recommends that this funding source be dedicated to health care. The cigarette tax increase will provide approximately $295 million in stable funding for health care. Of this $295 million, the Governor proposes that the first $30 million be dedicated to smoking cessation and chronic disease programs. When approved, this new revenue will achieve two critical goals: it will help fill the $385 million budget hole created by the federal government and it will help reduce our long-term health care costs by encouraging better health.
Funding for mental health services is recommended at $2.3 billion in 2005, an increase of 4 percent over current year levels. This funding includes a rate increase of $29 million, $13 million general fund, to ensure that payments to mental health providers are actuarially sound in accord with federal requirements.
The Executive Budget also includes various proposals to responsibly reduce costs. The proposals have been crafted to minimize the impact on recipients of health care, while reducing costs by over $100 million gross, $70 million of which is general fund.
Public Safety - Protecting Michigan's families is a top priority of Governor Granholm and her Executive Budget for fiscal year 2005 lives up to that commitment.
New federal homeland security funds in the departments of State Police (MSP) and Military and Veterans Affairs (DMVA) will be used to detect, prepare for, protect and respond to any threats of violence to the residents of the state. In total, the Governor's budget includes over $60 million to support homeland security efforts and $52 million to address bio-terrorism threats.
The Governor's budget for the Michigan State Police includes an additional $1 million to help reduce the DNA analysis backlog so that criminals can be brought to justice as soon as possible. In addition, over $30 million is recommended for improvements to state and local emergency 9-1-1 dispatch centers.
As part of the fiscal year 2005 budget, Governor Granholm recommends modifications in sentencing guidelines to bring probation violators into the guidelines structure, and to make adjustments to sentencing guidelines for certain crime classes. The changes do not affect Michigan's Truth-In-Sentencing statutes. The state will continue to work within the existing Community Corrections framework to reinvest in criminal justice options at the local level.
The Department of Corrections continues its active efforts to control costs with over
Revenue Sharing - The Governor's budget recommends over $1.1 billion in payments to cities, villages, and townships. The constitutional obligation for fiscal year 2005 is $692 million and is dispersed on a per capita basis. The remaining $443 million, which is subject to appropriation, is recommended in this budget.
For fiscal year 2005, Governor Granholm recommends an alternative to county revenue sharing payments. Under this proposal, the county property tax levy will be permanently shifted from December to July each year. Counties will receive additional revenue of $1.4 billion as a result of changing the tax collection schedule and must hold these funds in reserve to be annually expended during years in which state revenue sharing payments are suspended.
Suspending county revenue sharing payments for fiscal year 2005 allows more than $180 million to be redirected to other areas of the state's budget. An equivalent amount would be available in each of the next five years. A county would become eligible for renewed revenue sharing payments when the county's funding reserve is less than the county's suspended revenue sharing payment.
For fiscal year 2005, overall revenue sharing payments for cities, villages, and townships are equivalent to the fiscal year 2004 spending level. Governor Granholm proposes that a portion of these funds be used for payments-in-lieu-of-taxes to local units of government for lands owned by the Department of Natural Resources. Revenue sharing appropriations will pay an estimated $7.5 million for these tax obligations in 2005. The remainder of revenue sharing funds will be distributed as unrestricted financial support.
Transportation - Governor Granholm's recommended transportation budget for fiscal year 2005 totals $3.3 billion, a 6 percent increase over the current year.
Highlighting the Governor's budget is an additional $26 million for local critical bridge repairs resulting from the re-direction of one-half of one-cent of the state gasoline tax currently dedicated to state trunkline bridge repairs. Along with adding resources, the Governor is also firmly committed to critical bridge program reforms that will place an emphasis on preventive maintenance and rehabilitation to ensure dollars are cost-effectively invested and the overall local bridge system is improved.
Employee-Related Economic Cost Increases - Governor Granholm has continually expressed her gratitude and admiration for the employees of our state government. These are stressful times for employees who are doing their work with over 8,000 fewer co-workers than just four years ago, while at the same time accepting significant reductions in their take-home pay. Despite their hard work, frugality, and pay cuts, Michigan is still waiting for our economy to improve.
In order to fully fund employee salary, pension, and insurance costs, the budget needs to increase by over $458 million, $247 million general fund. The state simply cannot afford to fund the entire increase in one fiscal year. Therefore, although the 2005 budget includes full funding for employee-related economic increases, further employee-related savings will be required.
The Governor is determined to preserve the fiscal year 2004 three percent base pay increase and to make possible the scheduled 4 percent pay increase. To achieve this important goal, we must again look to our employees to help us identify and implement budgetary savings. The total value of the necessary savings is $148 million. We will be asking state employees to work with their agencies and with the Office of the State Employer to identify these savings, which may be found again in reducing our dependence on wasteful outside contracts, promoting voluntary work schedule adjustments and, regrettably, to some extent through continuation of a portion of the temporary wage and benefit concessions.
The magnitude of this necessary savings adjustment is significant, but with focused efforts underway to work with state employees to reduce the cost of outside contracting, any wage and benefit adjustments for fiscal year 2005 should be limited to banked leave time, and the 4 percent base pay increase should be protected.
Revenue – In order to fill the void left by the lack of federal funds available in the coming fiscal year, the Executive Recommendation includes a 75-cent increase in the cigarette tax (as mentioned above), decoupling from the federal estate tax, and an increase in the liquor mark up from 65 to 74 percent.
The Governor is proposing that Michigan join 18 other states and the District of Columbia who have already decoupled from the federal estate tax. The Governor's proposal would generate $94 million in fiscal year 2005 and $130 million on a full-year basis. The proposal applies to deaths after July 1, 2004, and includes a filing threshold of $1 million, with exclusions for family-owned farms and businesses. With these changes, the estate tax would impact only 1,600 estates per year, approximately 1 percent of filers in Michigan. The revenue would be deposited into the Medicaid Benefits Trust Fund.
The revenues from the proposed increase in the mark-up applied to liquor sales are deposited into the Liquor Purchase Revolving Fund. The Governor's recommendation is to allow the Liquor Control Commission to increase the mark-up to 74 percent. This increase would apply only to liquor, not beer or wine. The first call on the increase in revenues would be to fully fund local fire protection grants. The remaining revenues would increase general fund revenues by $32 million.