Michigan Set to Pass Budget in Near Record Time

CHICAGO — The Michigan Legislature late Thursday was poised to approve a final $46.5 billion 2012 spending plan, marking the earliest finish to the state’s fiscal budget process in three decades.

The budget largely follows Republican Gov. Rick Snyder’s proposed fiscal plan and adheres to his push to complete the process by May 31. Michigan’s fiscal year begins Oct. 1, though most of the state’s local governments have fiscal years that begin July 1.

It represents the latest victory for the freshman governor. On Wednesday, Snyder signed into law a package of budget-related bills that features nearly $1.7 billion in tax relief for businesses and is considered the largest overhaul of tax policy in Michigan’s history.

Earlier this year, legislators approved Sndyer’s plan to broaden the state’s power over fiscally stressed local governments, a high-profile and controversial new law that attracted national attention.

The Republican-led House passed two omnibus budget bills early Thursday afternoon by a largely party-line vote of 62 to 47 and 59 to 50. The Senate, also controlled by the GOP, was expected to pass a final budget by early Thursday evening.

Legislative aides said it was the earliest budget completion since at least 1981. The past four years have been marked by 11th-hour budget squabbles and two brief government shutdowns.

“This is a historic occasion, though it’s not a pleasant one,”  House Appropriations Committee chairman Chuck Moss, R-Birmingham, said on the House floor yesterday as the chamber prepared to vote on one of the two budget bills. “We are in tough times and take no pleasure in making these cuts. But there’s a certain satisfaction in knowing that we are finally addressing our fiscal problems.”

The spending plan eliminates a $1.4 billion deficit with cuts — mostly to education — and shifts money from the K-12 school aid fund to the general fund. The budget also sets aside $641 million in the rainy-day fund.

The K-12 budget totaled $12.2 billion, down nearly $1 billion due to cuts and a $400 million shift to the general fund, and the higher education budget was cut nearly 15%.

The transportation budget totaled $3.3 billion, up $92 million from last year’s allocation.

Democrats largely voted against the budget bills, criticizing Republicans for decreasing K-12 resources and cutting state programs for domestic violence, nursing, and aid to disabled and poor children.

Separate from the budget, the new tax law eliminates the Michigan Business Tax, which is expected to result in the loss of $1.7 billion annually, and imposes a new 6% corporate income tax — mostly on large companies — as well as a new income tax on retirement income.

“It’s going to make us competitive, it will create jobs, it will keep our young people in this state,” Snyder said Wednesday as he signed the measure.

The new tax on retirement income is expected to generate $1.4 billion in 2013 and $1.6 billion in 2014.

Other changes include a financial institutions tax, the elimination of most individual and business tax exemptions, as well as the delay of a scheduled income-tax rate decrease and the elimination of any future decreases.

Fiscal analysts predict the tax changes will reduce total revenue by $500 million in fiscal 2012, $200 million in 2013, and $80 million in 2014. The school aid fund will suffer most of the losses, some of which will be offset by the general fund.

With the budget completed, Snyder has said his next top priority is passage of a bill that will allow the state to begin work on a $4 billion, publicly funded bridge spanning the busy trade route between Michigan and Canada.

The Legislature has debated the project for years, with critics noting the proposed bridge is just two miles downriver from an existing private bridge, whose owner is in the midst of building his own replacement span. Supporters argue that the area is the nation’s busiest trade route, and two bridges will be needed to accommodate the projected increase in future traffic.

In the past, Democrats have generally supported the project and Republicans have opposed it. The dynamic could change, however, with Snyder’s support.

Michigan is rated Aa2 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-minus by Fitch Ratings.

At the end of fiscal 2010, the state had $1.7 billion of outstanding GO debt. Outstanding transportation and lease-backed bonds — Michigan’s two main revenue bond programs — totaled $5.2 billion in 2010.

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