As Oct. 1 quickly approaches, Michigan's Legislature is racing to try to balance the budget. Michigan faces a $302 million deficit and a projected $484 million shortfall. Additionally, Michigan has missed the budget deadline in the past two of three years. Last year, the deadline was extended one month to Oct. 31 and in 2007, the State government was forced to close down for several hours while the legislature tied up the loose ends. However, many Democrats and Republicans are feeling optimistic coming into the final week of the fiscal year.. In her last term of service, Governor Jennifer Granholm aims to, "Help our state [Michigan] live within its mean while continuing to provide critical services" (LSJ.com, 09/3/10). Along with Republican Senate Majority Leader, Mike Bishop, and Democratic House Speaker, Andy Dillion, Granholm has made several proposals to improve the budget situation. Key among these proposals is a tax amnesty plan and a state employee retirement plan.
The tax amnesty plan proposes savings by allowing taxpayers a window from May 15 to June 30 to pay back taxes from the end of 2009 without civil or criminal penalties. Similar to the retirement plan passed ealier this year for school employees, the current proposed retirement plan would improve the pension benefits of state employee retirees. About 3500 to 6000 of 12000 ellibible employees are estimated to retire. Additionally, a change in the bill also would require employees to contribute 3% of their salaries over five years to a retiree health care plan.
Both plans are estimated to create savings of about $60 million. Unfortunately, it is not guranteed that both of these plans will pass. The future of the tax amnesty plan looks good as Both the Senate and the House have passed their own versions the bill and a settlement for a final bill is all that will be required for it to pass into legislation. However, lawmakers are still in heavy debate over the retirement plan. Despite a lot of original support for the bill, including a lot from state employees, support has since waivered due to the change in the bill requiring salary contributions. Moreover, these contributions are not guranteed for their intended purposes: retiree health care. If the retirement plan fails to pass, it likely would mean unfavorable consequences.
Regardless of whether or not the retirement plan passes, budget cuts of about 3% to many state departments are also in the plan. However, if the retirement plan does not pass, further budget cuts will be implemented to make up the $60 million difference. In particular, Granholm has highlighted public safety and other service sectors such as police and fire protection for these budget cuts. Budget cuts which have already been passed include a $42 million cut to the Department of Corrections, Medicaid cuts to the Department of Community Health, and program-funding cuts to the Department of Energy, Labor, and Economic Growth. Additional consequences could also mean increases in the deficit as lawmakers have already passed legislation assuming the $60 million savings.
Fortunately, Michigan has received some unexpected help in the form of $300 million from the federal government for school aid. This money has allowed lawmakers to use $200 million to help cover a $302 million shortfall in the general fund. More good news has come from a recently passed piece of legislation, which could produce $150 million next year due to a change in how Michigan accounts for unclaimed property.
If everything falls in line, it is likely the legislator will meet the budget deadline, but unlikely the budget will actually balance. In any case, Michigan lawmakers and state departments will have to continue to work hard and be creative in order to save and share money in these difficult economic times. Unfortunately, due to the slow economy and increased spending, the deficit is only likely to grow in the upcoming years. However, in an election year, hopefully Michigan will gain some new life and maybe a lift or two out of this economic downfall.