CHICAGO — New Michigan Gov. Rick Snyder presented a $45.9 billion all-funds fiscal 2012 budget that features $1.8 billion in cuts and what the governor dubbed a sweeping overhaul of the state’s tax structure.
The budget recommends replacing the long-reviled Michigan business tax with a flat 6% corporate tax and increasing income taxes for many residents, most notably on retirees.
“This is more than just a budget or a tax proposal. This is our opportunity to say let’s stop living in the past and start looking towards the future,” Snyder told lawmakers Thursday morning as he unveiled his spending plan with budget director John Nixon. “We are going to take responsibility for a legacy of debt that has built up for decades.”
The budget overcomes a $1.4 billion general fund deficit with $1.2 billion in permanent cuts, $324 million in structural reforms, and the shift of $896 million from the school aid fund to the general fund.
Snyder’s plan to replace the business tax with a 6% corporate tax would mean the loss of $1.8 billion in annual revenue. The Republican governor has proposed a series of personal income-tax increases that would raise about $1.7 billion annually by 2013 to offset the business tax loss.
Chief among the tax hikes would be a new tax on private and public pensions. Michigan is one of only three states that currently exempts most pension income from state income tax, according to the governor’s office.
“Given our state’s declining population and growing senior demographic, Gov. Snyder believes Michigan can no longer afford to exempt any segment of the population from supporting an equitable share of public services,” the budget document said.
The spending proposal is a two-year plan, including recommendations for 2012 and a blueprint for 2013 spending. Michigan operates on a one-year budget cycle, but Snyder opted to craft a two-year plan to begin to implement long-term planning.
He asked lawmakers to pass a final budget by May 31, months ahead of the Legislature’s typical schedule. Michigan’s fiscal year begins Oct. 1.
Snyder’s recommendations include cutting local government aid by about a third. The move comes as municipalities across the state are facing rising fiscal distress. Officials from Flint, for example, said this week that the city could be forced into bankruptcy if the state does not approve a request for a $20 million deficit bond issue. Snyder’s budget would reduce Flint’s local aid by $8.1 million, the mayor said Thursday.
The spending plan would increase the constitutional revenue sharing payments to cities by 4% or $25.5 million, but eliminate the so-called statutory revenue sharing. Currently one-third of local municipalities receive statutory aid. Eliminating it would save $92.1 million.
Municipalities would also compete for a piece of a $200 million fund for local units that meet specific standards, such as service sharing.
Local government advocates said the move could devastate communities.
“Under this budget proposal, revenue sharing becomes revenue stealing,” Dan Gilmartin, executive director of the Michigan Municipal League said in a statement. “The term revenue sharing was a misnomer from the beginning — state government doesn’t share revenue, they give communities money collected on behalf of those communities. If we want to create a prosperous state, we can’t cripple our communities this way.”
Detroit Mayor Dave Bing released a statement saying the budget “threatens the concrete but fragile fiscal progress made by the city of Detroit over the last 20 months.” The proposed revenue sharing cuts is aimed directly at cities like Detroit, he said.
Michigan faces a $1.4 billion general fund deficit heading into fiscal 2012. Much of that is due to the loss of federal stimulus dollars used to balance the current 2011 budget. About 14% of the current general-fund budget is comprised of one-time measures, mostly federal stimulus money.
Snyder’s budget cuts higher education by 15% and relies on $180 million of employee concessions that still need to be negotiated.
It tackles the state’s $14.5 billion other-post employment benefits liability by setting aside $200 million of general fund dollars on an ongoing basis.
The budget also would eliminate Michigan’s tax credits for the film industry — which are among the highest in the U.S. and were a key part of former Gov. Jennifer Granholm’s vision for making the state a top destination for film companies. It also eliminates credits for brownfield redevelopment, renaissance zones and the Michigan Economic Growth Authority.