CHICAGO — With two weeks left to craft a 2010 budget, Michigan legislators are facing fresh pressure to enact government and tax reforms that advocates say will help eliminate a $2.8 billion deficit and prevent last-minute budget-crunch scenarios in the future.
The push for reform comes amid tense closed-door budget meetings between Democratic Gov. Jennifer Granholm, Democratic House Speaker Andy Dillon, and Republican Senate Majority Leader Mike Bishop.
The memory of 2007 — when legislators’ budget battles could not be resolved by Oct. 1 and the state briefly shut down — hangs like a cloud over Lansing. This year’s battle, however, is somewhat eased by an influx of $2 billion in federal stimulus funds.
Now, after what some say was a breakthrough last weekend, the House could begin voting as early as today on the 15 bills that make up the budget.
The Republican-controlled Senate and Granholm have already released their own budget plans. The Senate’s plan relies on $1.2 billion in cuts and features no new taxes. The governor’s plan relies on a mix of new taxes, cuts, and federal stimulus money.
Suffering from one of the weakest economies in the nation, Michigan is facing a $2.8 billion deficit that stems largely from declining revenue. Tax revenues are expected to decline by at least 11.5% between fiscal 2008 and fiscal 2010, according to a recent report.
The deficit comes despite a pair of tax increases implemented in 2007 as part of that year’s budget battle. The elimination of one of those tax increases, a 23% surcharge on the Michigan Business Tax, or MBT, is a chief goal of business groups pushing for reform.
An expansion of the 6% sales tax to include services — a measure that was briefly passed by the Legislature in 2007 then rescinded two months later — is now being pushed by both business and public groups.
The most detailed and prominent push for structural changes comes from a group of 75 chief executive officers of the state’s top businesses, dubbed Business Leaders of Michigan. The group last week released a 45-page turnaround plan it called “a five-step plan to transform Michigan’s economy and create good jobs.”
The group recommends eliminating the unpopular MBT surcharge, expanding and increasing the state’s sales tax, and adopting a two-year budget. The state must also improve its revenue-estimating process and stop relying on a number of one-time revenue measures to balance the budget, the business leaders said.
A separate set of 20 reforms is being pushed by a group headed by the Michigan Chamber of Commerce, which held a series of press conferences last week. The reforms include pooling state health care plans, reducing the size of state government and the number of school districts, and cutting back government contributions to employee pension and health care plans.
Another coalition made up of social service, education, and labor groups recently released a report titled “A Better Michigan Future” that also calls for expanding the sales tax, as well as closing a number of tax exemptions for businesses and changing the state’s flat income tax to a graduated one that depends on income. All together, the proposals would raise $2.1 billion in new money.
The groups all agree that the state government must be changed in order to avoid a repeat of 2007 and to eliminate the structural imbalance.
“We cannot continue to go down the road where we get to 30 days before Oct. 1 before we start addressing [budget] concerns,” said Kristin Beltzer, a lobbyist and senior vice president of government relations for the Lansing Regional Chamber of Commerce. “That was the problem in 2007; it was all crafted at the last minute. If two years ago we put these reforms in place we might be in a better financial predicament right now.”
State legislators are expected to consider some of the proposals. Dillon has crafted a bill that would pool all state employees’ health care plans. Granholm’s budget proposals would phase out the MBT surcharge over three years. And the push to adopt a two-year budget is in the works, said Abby Rubley, spokesman for Dillon and the House Democratic Caucus.
“There’s an agreement they want to do a two-year budget,” Rubley said. “Next year is an election year, and also there’s stimulus dollars now that can be used to balance the  budget.”
Next year’s elections are expected to be fierce as the seats of Granholm, Dillon, and Bishop will all be vacated under the state’s term limits. “It’s going to be a very tough year,” Rubley said.
The Business Leaders of Michigan is pushing for a two-year budget to allow the state to more accurately project program costs. The proposal is one of several ways the state needs to overhaul its fiscal management, said the group.
Part of Michigan’s budget problems stem from a flawed revenue-estimating process, the group said.
Currently the House and Senate fiscal agencies release separate estimates three times a year, and optimistic estimates have contributed to the state’s budget woes, the group said.
“For the past three fiscal years, Michigan has over-projected revenues, in part due to the lack of sufficient input from a broad spectrum of economic advisers, resulting in chronic budget crises,” the report said.
It recommending instead that the state form an independent council of private and public economists to estimate revenues on a quarterly basis.
Other proposals include punishing local governments if they do not attempt to share services with one another, and shrinking the size of the state’s prison system.
Both the chamber coalition and the business leaders advocate shrinking the size of the state government through a series of measures such as reducing the number of school districts and cutting up to 10% of the state workforce.
Meanwhile, this week in Lansing the House is expected to begin voting on some budget measures while leaders continue to debate some of the more contentious issues, including whether to end a popular scholarship program and dramatically reduce revenue aid to local municipalities. Republicans favor both measures, while Granholm has called the cuts “dangerous.”
Under one scenario, the Legislature would pass a budget that closely follows the Republican version, relying on massive budget cuts, and then later pass a supplemental spending bill after Oct. 1 to restore some of the programs, according to reports.
After the House votes on the bills, they will head to conference committee, which will try to hammer out final agreements within the next 15 days.
“Here we are,  days out, and we need to address the budget problems but also take a look at structural reforms to put long-term changes into place,” Beltzer said.
“Both the Senate majority leader and the speaker understand that they’re at a critical juncture in terms of taking an overall look at this state budget process. They realize that the citizens of Michigan don’t want to see the government shut down again.”