CHICAGO — Michigan Gov. Rick Snyder presented a $54 billion 2016 budget Wednesday that features only modest spending and borrowing increases.
Snyder also urged lawmakers to review business tax credits that have led to a surprise drop in general fund revenue.
Snyder outlined $31 million in capital upgrades but otherwise included no borrowing in the spending plan. In his budget presentation to lawmakers, the governor did not mention Detroit's recent bankruptcy, except to thank them for approving a plan last year to give the city $195 million of state funds.
Among other spending increases, Snyder proposed a new $75 million program for school districts that are facing financial distress, a growing problem in the state.
Snyder, in a separate executive order, called for $103 million in spending cuts to help close a $325 million shortfall in the current fiscal year.
Michigan's fiscal year begins Oct. 1. Lawmakers hope to craft a final spending plan by June 30.
Snyder, who took office in 2010, touted the state's recovery from its "lost decade" and said that recent policy changes, such as reforms to retirement obligations, have set the state on a stronger course.
"Michigan continues to be a stronger and stronger state and we should be extremely proud of that," the Republican governor said. "If you look at our economy today, it's exciting."
Michigan faces two budget challenges as it heads into 2016, the governor said: an unpredictable business tax credit program that makes revenue estimating difficult and the uncertain fate of a road funding proposal that will go to the voters in May.
Hearings are set to begin next week on the business tax credits, part of a program enacted in 1996 to encourage business growth. Snyder axed the program in 2011, but the credits remain refundable through 2032.
State fiscal officials in January blamed the tax credits for much of a $325 million 2015 shortfall and $525 million in less revenue than originally expected in fiscal 2016. Snyder said the unpredictable and confidential nature of the tax program makes budgeting difficult.
"We need better visibility in the near term," the governor told lawmakers. "And in the long term we need a better understanding of the size, magnitude and impact of these credits on the state and the economic development of the state."
Snyder continued his long push for new transportation funding, naming it one of the state's top challenges.
After years of debate, lawmakers in December passed a package asking voters to approve a sales tax increase and new funding formula.
The measure would generate up to $1.2 billion in new annual revenue, some of which would go to schools and local governments.
That new revenue would mean a "very significant reduction in borrowing activity" for Michigan, said Lt. Gov. Brian Calley.
The executive budget does not include the new money the state would receive under the road funding proposal.
It does include $113 million to help the state secure federal matching grants.
Snyder also asked lawmakers to consider appropriating $75 million for struggling school districts. With a growing number of districts in the red, the state has spent two years trying to address the problem with various measures, including the ability to dissolve districts.
"We are still evolving in terms of the best way to implement the entire program, but there are districts that need substantial readjustments in terms of their finances," Snyder said. "I'd like to start establishing a reserve fund for financial resources to do the restructurings. I don't view this is a bailout but only where we're truly solving problems in the long term."
Snyder's budget totals $54 billion for all funds. The general fund totals roughly $10 billion and the school aid fund just under $12 billion, together marking a 2% spending increase from current-year spending.
The governor wants to make a one-time contribution of $95 million into the rainy-day fund, which the state dipped into last year to pay for the $195 million so-called Grand Bargain in Detroit. He also proposed making another $17.5 million in annual contributions to the rainy-day fund from the state's tobacco settlement funds. The contributions would boost the savings account to $611 million from roughly $500 million now.
For local governments, Snyder proposed a $24 million increase in constitutional revenue sharing to bring spending up to $788 million and no increase for a $243 million statutory revenue sharing program.
Snyder also touted legislation enacted in 2011 and 2012 that reformed the state's pension and retiree health care benefits system. The changes, which included capping contribution rates and ending retiree health benefits for new public school employees, chopped the state's retirement debt by one-third, or $20 billion, Snyder said.
Current projections call for a major drop off in state retirement contributions starting in 2038.
"Being governor will be a pretty sweet job in 2038," Snyder said. "The outlook for the state will be tremendously exciting then."