Lines drawn over state budget

Feb 21, 2010 — Detroit Free Press

Chris Christoff

Feb. 21, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- LANSING -- Despite torturous tax increases and budget slashing, Michigan's state government budget is still way out of whack.

Now, the Capitol is awash with plans to stabilize taxes and to curb the way the state, schools and cities spend taxpayers' money. Without changes, the state faces a long road of deficits and rising costs.

Leading the proposals: reducing public employee pay and benefits, shortening prison terms to save money, a new sales tax on services, cutting business taxes to stimulate job creation and more cost-sharing by local schools and governments.

Facing a $1.5-billion deficit next year, Gov. Jennifer Granholm has called for a law requiring the Legislature to finish the state budget by July 1 each year, and dock lawmakers' pay for each day they miss the deadline.

But moving from idea to a deal on change has been elusive.

For example, Granholm and a coalition called Business Leaders for Michigan each propose a new sales tax on services and cutting business taxes. But Granholm's plan would cost taxpayers $554 million more, which is difficult to negotiate during an election year in which taxes are a flammable issue.

Granholm told the Free Press on Friday that if lawmakers reject her tax plan, they must find another way to avoid a $225-per-pupil cut to school districts, as well as other spending cuts, to erase the $1.5-billion deficit. She said she'd veto a budget that reduces state money to schools.

Most agree that reining in prison costs is necessary, but there are entrenched disagreements over how to do it.

Lawmakers, meanwhile, agree they should eliminate generous state health insurance for legislators who have served as few as six years, but they disagree whether the ban should apply to them or only future lawmakers.

Competing views

Roseville business owner Mike Lesich wants to see Lansing cut spending before raising taxes.

Trimming pay or benefits for state employees is a good option, he said. "I see a gulf widening between the private sector's reality and the public sector's reality, which is relatively unscathed," he said.

But he doesn't want funding for schools cut. Lesich said he's had to downsize his small company, Excellis Inc., which provides professional services to companies, because business is down 40% from a few years ago.

Lesich doesn't like Granholm's plan for a sales tax on consumer services -- he said the reduced 5.5% rate is still too high -- but added, "I think her ideas should be heard. They should all sit down and talk to each other."

Livonia public school teacher David Russo thinks public employees are unfairly singled out in the debate.

He likes Granholm's service tax plan, but resents proposals by her and others to require teachers to pay more of their pension benefits -- and possibly downgrade benefits for new hires.

Russo, 35, said teachers' pensions are a promise from the state that shouldn't be broken. He said Michigan teachers have forgone larger pay increases that many in the private sector received, especially during the prosperous 1990s.

"It seems like everyone's taking their frustration and anxieties out on public employees. It's just not fair," Russo said. "Teachers are an easy, tangible scapegoat for the overall ills of our state."

He said going after tax evaders is a better idea.

While many teachers may feel singled out, surveys have shown Michigan teachers are among the highest paid in the U.S., and their benefits among the most generous. A study by Standard and Poor's (NYSE:MHP) found that Michigan teachers' benefits in 2006 were 40% more costly than the national average.

The Center for Michigan in Ann Arbor last year found the cost of health insurance for Michigan state employees and retirees also is much more than in most states that pool large numbers of public employees.

Controversial proposals

House Speaker Andy Dillon, D-Redford Township, said Granholm's services tax plan should be considered separately from next year's budget. He has told House Democrats to draft budgets with no new taxes and with spending changes to avoid a $424-million cut in state aid to schools -- reforms he said Democrats have resisted.

"I'm going to have votes (supporting) things that a year ago I wouldn't have had votes for," Dillon said. "There's a reality setting in that the Senate is not going to pass new revenues, so let's deal with reality."

Granholm doesn't think House Democrats will be willing to pass an all-cuts budget.

Dillon's own controversial proposal to lump all public employees into a single, statewide health insurance plan has met fierce resistance by labor groups and others, and has stalled in the House.

For a liberal coalition, tax reform, not spending cuts, is central.

A Better Michigan Future calls for both a sales tax on services and changing Michigan's flat-rate income tax to a graduated tax. The current 4.35% income tax rate gradually would drop to 3.9% between 2011 and 2015.

One plan would levy a higher rate on higher incomes and a lower rate on lower incomes, while raising $600 million more than the current flat tax. A graduated tax requires a constitutional amendment, and it is strongly opposed by business groups, who say it would convince many of the entrepreneurs and businesses most likely to create jobs to take their business to another state.

Cyndi Roper, spokeswoman for A Better Michigan Future, said the state has cut too much from budgets that affect schools, local police and fire services, roads and the environment. The coalition includes 27 labor, social services, medical and environmental groups.

"Our financial system is broken," Roper said. "Every year, there's a crisis around the state budget."

Not much expected

But major reforms haven't come easy, said Bill Rustem, president of Public Sector Consultants in Lansing. In 2007, Rustem worked on Granholm's emergency financial commission, co-chaired by former Govs. James Blanchard and William Milliken.

The commission's recommendations for change were largely ignored. Rustem doesn't expect much more from Lansing's leaders now.

"For whatever reason, this group wants to debate their differences rather than work to reach common ground," he said. "It's more important to have an issue than a solution. I think the public's looking for solutions."

Contact CHRIS CHRISTOFF: 517-372-8660 or cchristoff@freepress.com

Newstex ID: KRTB-0048-42239038