CHICAGO - Michigan Gov. Jennifer Granholm yesterday unveiled a $44.2 billion 2010 budget that includes more than 1,500 layoffs, spending cuts to prisons and education, and reliance on $500 million in federal stimulus dollars.

The various measures were proposed in an effort to bring down the state's $1.6 billion deficit - a shortfall that had caught fiscal officials by surprise, coming only a year after significant tax increases. Michigan is currently operating under a $44.4 billion 2009 budget.

Lawmakers will begin considering the spending plan amid uncertainty over how the state's fiscal position will be affected by possible federal stimulus money as well as shifting revenue collections.

Granholm's budget addresses both Michigan's ongoing structural deficit as well as revenue declines stemming from the state and national recessions, said state budget director Robert Emerson, who presented the budget to lawmakers yesterday.

"When we began the process of putting the budget together last fall, we assumed it would be a typical year. Overnight, the picture changed," he said. "This is certainly far worse than anything I've looked at or I've seen before. When adjusted for inflation, this budget is less than [the budget in] 1971."

The all-funds budget assumes the state's general fund will total $8.7 billion in 2010 and the state aid fund will total $12.9 billion. Total revenue estimates, including federal aid to schools, total $21.6 billion, according to budget documents. Revenue estimates have declined by nearly $1 billion since last year, Emerson said.

The budget includes $670 million in cuts, most of which come in the Department of Corrections, K-12 funding, and community health. It also includes $230 million in new revenue from increasing fees and closing tax loopholes. The cuts and revenue increases are aimed at reducing the state's structural deficit, estimated at around $900 million, Emerson said.

Despite the cuts, many lawmakers in early reaction yesterday warned that revenues could shrink below current budget estimates. The state holds revenue-estimating conferences in January and May, using those figures to craft the budget.

Noting that revenue forecasts typically decline between January and May, Sen. John Pappageorge said the budget could be based on unrealistic revenue expectations.

"We have a definite trend between the January and May estimates, and it goes the wrong way," he said. "I would hope in future budget presentations we add the moving average percentage decrease between forecasts so we know we're not delaying things that we ought to have addressed in January."

Admitting that Michigan already has seen $130 million less revenue than expected from last month's revenue collections, budget officials, including Treasurer Robert Kleine, maintained that the spending plan was conservative.

"Those economists [in January] believed that the revenues would continue," Emerson said. "We're comfortable with the numbers today, but this is really a fluid situation. We're seeing things most of us haven't seen in our lifetimes happening out there."

The budget does not cut revenue-sharing aid to cities and counties, and includes a 5% increase in Medicaid spending. It also includes a 3% cut to universities and a 3% cut in school aid.

In a separate executive directive, Granholm ordered an expansion of the state parole board to speed up review of 12,000 prisoners' eligibility for release.

The Medicaid funding increase is based on an anticipated $500 million in increased federal matching money as part of the stimulus package - the only federal stimulus funds built into the budget. State officials felt safe anticipating the money, as it was included in both the U.S. House and Senate packages now being reconciled in Congress, according to Emerson.

Additional federal funds could change the budget outlook. "The ongoing debate over the federal package creates tremendous uncertainty over additional revenues that may impact the budget," Emerson said.

Michigan lawmakers are expected to approve a final budget by July 1, though the state's fiscal year does not officially end until Sept. 30.

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