CHICAGO — Gov. Jennifer Granholm said she will consider revamping Michigan’s tax structure next year as the state finishes what she called one of the worst years in its history.
In her annual end-of-the-year comments, Granholm said 2009 was a watershed year and that no leaders could have anticipated or lessened the impact of the bankruptcies of General Motors and Chrysler Corp. on the state.
Granholm also said federal stimulus money was key to helping Michigan weather the bankruptcies.
In total, Michigan is in line to receive $3.8 billion of federal stimulus money, as well as $3.2 billion in restricted funds through 2011, according to a recent economic outlook report issued by the Senate Fiscal Agency, an independent arm of the state Senate.
Granholm said she would campaign next year — her eighth and final year in office — to revise the state’s tax structure if business leaders and the Legislature can agree on a plan.
The governor said she would provide details in her budget proposal next year, and that she favors a new service tax while lowering the current sales tax rate of 6%.
After a year in which budget battles led to steep cuts in education, Granholm also said that the school funding system, which relies largely on sales tax revenue, is “broken.”
“I don’t want to leave office without having education on a more stable foundation,” she said. “But I can’t do it myself.”
Granholm said she was optimistic about 2010 and that the state was in a good position to take the lead in the advanced battery and solar energy industries as part of the new electric car initiative.
“It was a year in which we had some of the toughest challenges we’ve faced, from the General Motors and Chrysler bankruptcies, to state revenues falling to a 45-year low when adjusted for inflation,” Granholm said. “Those challenges were painful, but they underscored that we have the right plan to give citizens new opportunities for a secure way of life.”
The governor is required to submit her budget proposal to the Legislature by Feb. 12.
The Senate Fiscal Agency predicted that once again the major debate of the year will be whittling down the deficit, which its analysts estimate will total $1.8 billion in 2011.
“The major question that will be facing the governor and the Legislature involving the [fiscal 2010-11 general fund and school aid fund] budgets will likely involve the debate between additional significant reductions in appropriations to balance the budget or a lessening of these appropriation reductions to be offset by increases in state tax revenue,” fiscal officials wrote in the report.
“In many respects this was the same debate between the governor and the Legislature regarding the FY 2009-10 state budget. The outcome of this debate almost certainly will be the key policy decision made regarding the FY 2010-11 state budget,” the report said.
Federal stimulus funds, which were key to balancing the 2009 and 2010 budget, will decrease dramatically in 2011, officials noted.
The state used $1.9 billion of federal stimulus funds to help balance the 2009 budget and will use $1.5 billion in 2010. Without another influx, it will have only $394 million in 2011.
On the employment side, the economic outlook estimates that even with “something approximating normal employment growth,” Michigan will not see employment levels of 2000 again until sometime near 2035.
In the near term, fiscal officials said they expect the transportation-equipment manufacturing sector — which includes Chrysler and GM — will continue to shed jobs through 2011 before reaching a “sustainable size” in late 2011.”