CHICAGO — Michigan Gov. Jennifer Granholm proposed a series of programs to spur job growth that would be funded through refunding and restructuring of existing debt as well as new borrowing and by dipping into the state’s $35 billion pension fund.
Granholm, who made the proposals in her state of the state address this week, will present her full budget next Thursday to the Legislature. She told lawmakers that it would include about $200 million in spending cuts, a $100 million infusion into the rainy-day fund, and no tax increases.
With Michigan experiencing the nation’s highest unemployment rate, the nation’s third-highest foreclosure rate and seven straight years of job losses, Granholm proposed a number of moderately priced, economy-boosting programs as well as a plan to make Michigan the “alternative energy capital” of the U.S.
“We have been elected to serve in a period of unprecedented change for Michigan,” Granholm told lawmakers Tuesday night. “When history is written it will say that this decade of economic turmoil was among the toughest any state had to face in generations.”
To fund a number of the governor’s proposals, the double-A-minus rated state would refinance $400 million in outstanding general obligation debt, a move that officials estimate would save the state $100 million through 2010. Savings would come from a mix of refunding and restructuring, said Tom Saxton, deputy treasurer for bond finance.
“We’re going to see a spike in debt service obligations over the next few years, so we’re going to defer some of that,” he said.
Michigan would also convert $150 million of outstanding taxable tobacco bonds into tax-exempt debt. The conversion is possible because the proceeds would go to projects that qualify for tax-exempt financing under the tax code. Saxton said the state expects to save $60 million from that one-time refinancing. It e has sold a total of roughly $1 billion in two separate tobacco bond issues, including a $490.6 million sale of taxable bonds in 2006 and $527 million in tax-exempt bonds sold in August 2007.
In her address, Granholm proposed a two-year $1 billion road improvement and building construction program. It was unclear how much new money would be part of the program, but the state’s Department of Transportation plans to sell at least $150 million in state trunk line bonds as part of the program, said DOT spokesman Bill Schrek. The bonds would be backed by state gas tax and vehicle registration fees. The program would also be financed in part through refinancing existing debt, said officials.
Under the governor’s budget, the state would also sell $300 million in new-money bonds to finance the creation of 100 new small high schools, which would replace larger schools in troubled districts. Those bonds would be backed with $32 million of the state’s annual payments to the school aid fund, said Granholm’s spokesman Liz Boyd.
To spur job growth across the state, Granholm proposed a three-year Invest Michigan Fund, which would divert $300 million in state pension fund dollars — 1% of the $35 billion fund — for capital for start-up companies. Another program would provide tax breaks for new companies as well as reward the state’s 50 fastest growing companies.
Michigan carries roughly $1.76 billion of outstanding general obligation debt, another $3 billion of bonds backed by an annual appropriation, and $14 billion of debt that carries some form of state backing.
