CHICAGO - Michigan lawmakers and Gov. Jennifer Granholm on Friday announced an agreement on a $44.4 billion fiscal 2009 budget that calls for spending about $400 million less than earlier proposed in expectation of a weakening economy through 2009.
Lawmakers were poised Friday to begin voting on a slew of bills making up the budget. One lingering point of contention was Granholm's plan to borrow up to $300 million to fund the creation of 100 small schools across the state.
The early budget approval comes months before the state's fiscal year ends on Sept. 30 in an effort to meet legislators' self-imposed deadline of July 1. This year's budget negotiations - which come during an election year - mark a sharp contrast with last year, when lawmakers barely avoided a government shutdown as they battled over how to wipe out a $1.8 billion deficit.
That deficit was eventually eliminated through two new tax increases, which this year gave lawmakers an additional $1.5 billion to work with as they crafted a 2009 budget. But despite the new tax revenue, natural revenue growth has been flat or declining and is expected to worsen in 2009, prompting lawmakers to cut $400 million out of the $44.8 billion budget that Granholm proposed in February.
No new tax or fee increases are proposed in the relatively lean budget, which represents about a 1.8% increase over the 2008 budget. Legislators achieved the $400 million in cuts in part by scaling back on funding increases and rejecting the governor's plan to put $100 million in the state's rainy-day fund.
State aid to local governments is expected to increase by 2% under the 2009 budget, instead of by 4% as Granholm proposed in February. The budget calls for cutting about $50 million from the Department of Corrections, hiring 100 new state troopers, and spending $15 million to retrain displaced Michigan workers. Public universities were expected to receive a 1% increase, or $15 million, in funding as opposed to the 3% increase proposed by the governor.
Legislators on Friday afternoon had yet to agree on how much to allocate for K-12 public school funding.
Also uncertain Friday was the fate of Granholm's plan to issue $300 million to finance the creation of 100 new small schools of not more than 400 students each. Republican lawmakers and some school officials criticized the plan to take on more debt amid a sagging economy. If passed, the bonds would likely be issued over the next one to three years, according to Terry Stanton of the state's treasury office.
The state has already moved forward with a number of revised borrowing plans suggested by Granholm in her proposed budget. In April the state refinanced $200 million in general obligation bonds - down from the originally $400 proposed by the governor - to achieve savings of around $50 million.
Earlier this month the state restructured nearly $190 million of tobacco bonds in a move that was expected to generate roughly $60 million. While Granholm had suggested using that money to create a tourism-creation fund, officials instead decided to use it to wipe out an estimated $60 million deficit in the existing budget.
Despite the additional $1.5 billion in tax revenue stemming from last year's tax increases, fiscal analysts in May estimated that Michigan faced a $60 million deficit in 2008 and a $472 million deficit in fiscal 2009 amid weak personal income growth and a frail housing market.
Lawmakers use the revenue figures to craft the 2009 budget.
The general operation fund in 2009 is expected to total $8.9 billion in 2009, down $309 million from projections in January, and the school aid fund is expected to total $11.7 billion in 2009, down $163.2 million from January projections.
The state's sales tax is currently projected to increase only 0.3% in 2009. Tobacco tax revenue is expected to decline 2.1% in fiscal 2009 - after dropping nearly 6% in 2008 - and the real estate transfer tax is projected to be flat. One of the state's biggest challenges is its unemployment rate, which reached 8.3% in May, about three percentage points higher than the national average.
