CHICAGO — Michigan Gov. Rick Snyder this week unveiled $145 million of proposed cuts, mostly tied to the correctional system, to balance the budget as the state embarks on a fresh fiscal year starting Saturday.
The cuts will close one of Detroit’s two prisons and lay off 2,000 correctional employees, privatize the prison health care system, and require 37,000 state employees to take four furlough days in 2012.
The state will also ask 20,000 employees — those who currently contribute nothing to their retirement because they were hired before 1997 — to contribute 4% to their pension plans. That move is expected to save $19 million in 2012, officials said.
The cuts come after the administration was unable to reach an agreement with state unions to trim the budget, Snyder’s office said.
“This is not our first choice,” said budget spokesman Kurt Weiss. “The budget had a general fund assumed savings of $145 million that we were going to negotiate at the bargaining table, and that did not occur for 2012.”
Weiss added that negotiations over the 2013 spending plan were ongoing. “They are at the table this afternoon in a very intense meeting talking about 2013.”
The 2012 corrections budget totals $2 billion, and the proposed cuts would save about $50 million, as well as an additional $15 million that the unions have indicated they will agree to, Weiss said.
Another $20 million of the $145 million comes from savings achieved during a Michigan State Building Authority debt refinancing in June. Snyder ordered that 367 vacant positions be eliminated, which will save $33 million.
The state’s fiscal year begins Oct. 1, though the Legislature approved a final budget in late May, marking the earliest finish to the fiscal budget process in three decades.
The $46.5 billion spending plan eliminated a $1.4 billion shortfall mostly with cuts, many to education, and by shifting money from the K-12 school aid fund to the general fund.
The closure of Detroit’s Mound Correctional Facility was debated during the budget process but ultimately left off the chopping block until earlier this week.
The prison is slated for closure Jan. 15, and correctional officials have said most of the prison’s 300 employees will likely be transferred to other posts within the system.
The bulk of the estimated 2,000 correctional layoffs will come from Snyder’s move to privatize the correctional system’s health care system, including its mental health services and facilities. The governor said outsourcing the services would save $30 million next year.
Meanwhile, the administration is waiting to hear from the Michigan Supreme Court on its ruling on the constitutionality of taxing retirement income. A new law eliminating the state’s long-standing income-tax exemption on retirement income, including pensions, was a key part of the 2012 budget. The tax is scheduled to take effect next year, three months into the new fiscal year.
In May, Snyder asked the state’s highest court to issue a peremptory opinion on the law, which was the target of several court challenges. The court heard oral arguments Sept. 7 and is expected to issue an opinion in October.
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 debt. Outstanding transportation and lease-backed bonds — Michigan’s two main revenue bond programs — totaled $5.2 billion in 2010.
