Governor’s financial panel members look to ’09 budget

By Susan J. Demas
For the Enquirer

Gov. Jennifer Granholm on Tuesday trumpeted an ambitious education and economic development agenda during her State of the State address, but vowed not to raise taxes this year.

The Democrat will fill in some of the fine print when she unveils her fiscal 2009 budget next week. The House Fiscal Agency forecasts the state is on track to be $275 million in the black.

But missing from her 53-minute address were many recommendations made by her own Emergency Financial Advisory Panel on solving the state’s short- and long-term budget problems.

In January 2007, Granholm appointed the bipartisan, 12-member panel chaired by former governors William Milliken, a Republican, and Jim Blanchard, a Democrat. The group (nicknamed the 12 Apostles) penned a 19-page report on Feb. 2 as the state was facing a $3 billion shortfall for fiscal 2007 and 2008.

"I honestly don't know how many people read our report," Blanchard said.

That sentiment was echoed by several members of the panel -- former state Senate Majority Leader Dan DeGrow, former state Rep. Don Gilmer and former U.S. Rep. Joe Schwarz.

"The report is applicable today as it was when it was written," said Schwarz, I-Battle Creek. "I would make a strong suggestion for all men and women in the Legislature to reread it. Some of them never read it in the first place. This should be their top priority. The bell rings as soon as the governor's State of the State and it's not going to be any easier in fiscal 2009."

The report’s general theme of solving the state's structural deficit with “cuts, reforms and revenues,” popped up frequently in speeches by Granholm and other Democrats. Last year, she and lawmakers struck an 11th hour deal to increase business and income taxes by more than $1 billion and allow competitive bidding for school employee health insurance, which Republicans have tried to get through for years.

Schwarz called last year’s cuts and reforms “nip and tuck.”

“The fact remains, you can clearly point out structural problems. The structural deficit is still there," Schwarz said. "Taxes and spending and the structure of state government still have significant problems."

"My advice would have been to solve it all at once so you don't have to do it again," said DeGrow, R-Port Huron. "(Former Gov.) John Engler always said, 'If you have to take a hit, take it early, so you get it over with and don't have to take the hit again.'”

Several of the report’s recommendations, like the Internet tax, were left on the cutting room floor. The report notes the growing service sector is not taxed, but the Legislature made little headway, passing and quickly repealing last fall a tax on a hodgepodge of services.

But in spite of last year’s messy budget wars, Blanchard says he “remains optimistic about Michigan’s future.

“It’s too great of a state to be kept down,” he said.

Making the cuts

On Tuesday, Granholm made scant mention of cuts and reforms, besides promising to slash red tape for businesses by making Michigan a regulatory “one-stop shop.”

Though Senate Majority Leader Mike Bishop, R-Rochester, said the governor had “borrowed a page from the Republican playbook” with her promise not to raise taxes, his caucus wants action to reduce spending and make government leaner.

"It's time to focus on reforms and making investments to lead Michigan into the future," agreed Gilmer, R-Augusta. "We're still providing more government than we have the resources to pay for it."

The Emergency Financial Advisory Panel made several recommendations, including cuts to the $2 billion Corrections budget. Michigan incarcerates more than 50,000 at a cost of $31,000 per prisoner. The nonpartisan, Lansing-based Citizens Research Council reports Michigan could save $500 million if its incarceration levels matched other Midwest states.

Gilmer urges a bicameral, bipartisan committee meetings taking 30 to 40 hours worth of testimony on sentence reform, rehabilitation and recidivism.
The report also said skyrocketing state employee and retiree benefit costs need reform and schools and local governments must consolidate services.

DeGrow said the state could restructure revenue sharing with local governments. The time might be right to let local taxpayers decide what priorities they want to fund instead of getting a blanket amount of state revenues, he said."In an era where state government is so strapped, do we fund something that's optional?" DeGrow said.Consolidation needs to happen on both the local and state levels, Schwarz said.

"There are 19 state departments and I'm not sure they're all necessary," he said. "There can be a consolidation of functions — I'll leave it at that."

Strategic investments

In her State of the State, Granholm did address some of the panel’s findings.

She pushed spending on infrastructure to create 28,000 jobs. She also proposed several education initiatives, such as incentivizing colleges and universities to turn research into businesses. Her Michigan First Health Care Plan providing access to the uninsured popped up, although the state has been in a holding pattern, waiting on a federal waiver for several years.

Panel members want the state to prioritize infrastructure and education, strategically investing in areas research shows will attract businesses and skilled workers.

"You still hear voices that we should cut taxes by $1 billion," Gilmer said. "That would completely destroy any opportunities to invest in our infrastructure, things for people to take notice of Michigan."The gas tax — which hasn't been raised since 1995 — should be on the table to fund road projects, Schwarz said.

Higher education has taken the hardest hit by the budget crisis, he said. Funding has been slashed by 11 percent from 2002 to 2007, the Presidents' Council, State Universities of Michigan reports. Tuition has soared, with most of the state’s 15 public universities last year passing double-digit tuition hikes.

"We've already damaged that a lot," DeGrow said. "Say what you will about Gov. Engler, but he valued higher education. We never cut higher ed."

If Schwarz could pass on one piece of advice to leaders during this year’s budget negotiations, it would be: "Have the courage to do what's right, not what's expedient."This isn't going to be easy to try to run a state of 10 million people with a rapidly changing economy with a government structured for the 1960s. Be bold and courageous."