Gov. proposes $684 million tax hike now, another half billion later
F.Y. ’10 MINUS 23: GRANHOLM PROPOSES CUTS, TAX HIKES
Gongwer, 9/8/09
Governor Jennifer Granholm made public her proposed solution to the 2009-10 and 2010-11 budgets on Tuesday, calling for a 1-cent per bottle tax on bottled water, extending the sales tax to tickets for live entertainment and a 25-cent per pack increase in the cigarette tax.
Ms. Granholm’s much-anticipated proposal, coming after she took weeks of criticism for refusing to publicly offer a new budget plan to reflect the plummet in revenues since making her original budget recommendation in February, calls for $684 million in new revenues ($546.3 million of which would affect general fund expenditures).
The governor also proposed $862 million in cuts – $572 million from programs paid for through general and restricted funds and $290 million from the School Aid Fund. The governor did not indicate specific programs facing the knife, only the amount sliced from each department.
The proposal calls for phasing out the 22 percent surcharge on the Michigan Business Tax over three years beginning in 2011.
Ms. Granholm said she hoped the House would begin approving its budget bills on Wednesday. But House Speaker Andy Dillon (D-Redford Twp.), in a statement, rejected Ms. Granholm’s budget outline and did not indicate the House would act on other bills.
“The governor should know that showboating a proposal that has no chance of passing is not a way to solve the state’s fiscal crisis,” he said. “All parties need to put theatrics and demands aside and get back to the hard work of negotiating a budget solution.”
Ms. Granholm’s plan comes as the October 1 deadline moves ever closer to either complete action on the 2009-10 fiscal year budget, approve a continuation budget to buy time or endure the second shutdown of state government in the last two years. She has taken heavy fire from Republicans and newspaper editorial pages for refusing to tell the public how she would address the $2.8 billion shortfall between existing spending and available revenues in the general fund and School Aid Fund.
The proposal calls for roughly a 12 percent reduction in tax loopholes, Ms. Granholm said, which would include cuts to the controversial Michigan film credit and stopping any increase in the Earned Income Tax Credit. Also included in the $684 million in revenue increases are the roughly $226 million in tax loophole closings she called for when she presented her 2009-10 budget in February.
The largest single revenue item would be $87.3 million for extending the 6 percent sales tax on tickets for live entertainment, which would be followed by $83.3 million by not implementing the scheduled increase in the Earned Income Tax Credit and $75 million by putting limits on the state’s compensation and research and development credits.
With now hers and the Senate’s budget proposal (which called for approximately $1.2 billion in cuts) in the public, it remains for the House to present its proposed budget. Once the House has voted, Ms. Granholm said, then all three of the main players in the budget debate will have their proposals on the table and final negotiations can move from there.
REACTION MIXED: Despite Ms. Granholm’s call for Wednesday action by the House, bills reflecting the proposals have not been added to the agenda, said Dillon spokesperson Abby Rubley.
Meanwhile, House Appropriations chair Rep. George Cushingberry Jr. (D-Detroit) told Gongwer News Service he is putting together a proposal that would slash some tax credits by 12.5 percent – and immediately eliminate the entire Michigan Business Tax surcharge.
Matt Marsden, spokesperson for Senate Majority Leader Mike Bishop (R-Rochester), said Ms. Granholm’s willingness to finally make public her revenue proposals is a major step toward getting a budget finalized. Mr. Bishop could not be reached.
“Now we have an opportunity move forward in a more public manner and bring this to a resolution,” he said. “We can now allow the public to form their own opinion – do you want to pay more in taxes or do you want to have some reductions in services?”
Senate Republicans stand by their plan, and Mr. Marsden characterized many of Ms. Granholm’s proposals as “general tax” increases. Senate Republicans remain willing to look at some changes with tax exemptions, he said.
Ms. Granholm made her comments to reporters at a press conference held outdoors at the grand opening of the new IBM applications support center at Michigan State University (which Ms. Granholm said was part of the state’s overall strategy to diversify its economy and would allow students graduating in high tech fields to stay in the state) and said the proposal was one she had offered to the four legislative leaders on August 6 in closed-door negotiations.
The priority is resolving the 2009-10 budget, Ms. Granholm said, but the negotiators need to reach agreement on a framework for the 2010-11 budget as well. Actual budget bills for that second year will not be passed, but agreements should be outlined, she said.
The 12 percent in loophole closings would correspond with what she said would be a roughly 12 percent cut in spending.
While there would be significant cuts in her proposal, Ms. Granholm said she could not support the Senate’s proposed cuts, which would prove dangerous to the state and its future, especially the proposal to eliminate the Michigan Promise Scholarship for students.
Looking just at the general fund portion of the ledger, the proposal Ms. Granholm laid out for 2009-10 calls general fund spending cuts of $464 million, another $108.2 million in restricted revenue reductions, a carry-forward of $199.9 million from the current fiscal year as well as from federal stimulus funds, and then $546.3 million in new revenues. In addition there would be $973 million in additional federal stimulus funds. That would leave the fiscal year with a $481.8 million balance that would be carried over to the 2010-11 fiscal year.
In 2010-11, there would be general fund spending cuts of $518.4 million, another $108.2 million in restricted revenue cuts, another $209.6 million in federal stimulus funds, the $546.3 million in revenues and the $481.8 million carryforward, but that would leave the 2010-11 fiscal year with a deficit of $173.8 million.
MORE ON THE PLAN: The proposal calls for reducing the current 42 percent film production credit to 35 percent (which would still make it one of the highest in the nation) and limit the personnel credit to 26.25 percent, which would add $7.8 million to state coffers in the first year and then $19.8 million in 2010-11.
Other tax credit changes the administration calls for include $22.2 million from limiting the small business alternate tax credit, $18.7 million from a personal property tax credit, $7.7 million from the self-employment net earnings deduction and $6 million from the brownfield redevelopment credit.
Increasing the cigarette tax from its current $2 a pack to $2.25 would raise $54.3 million and make Michigan’s cigarette tax the eighth highest in the nation among the 50 states and the District of Columbia. The new 1-cent tax on bottled water would raise $17.8 million.
Expanding the sales tax to vending machines would raise $29.1 million and extending the sales tax to service contracts would add $28.2 million.
Phasing out the MBT surcharge would reduce state revenues by $113.4 million.
The $464 million in new cuts Ms. Granholm proposed are on top of the cuts she already proposed in February, said her spokesperson Liz Boyd, which together account for her tally of 12 percent in cuts.
The largest cuts would be $150 million to the Department of Community Health and $100 million to the Department of Human Services. The Department of Corrections would be cut another $78 million, higher education would be cut by $30 million, the Department of Energy, Labor and Economic Development would be cut $15.4 million while the State Police would be cut $15.4 million.
In non-general fund cuts, revenue sharing to local governments would be cut by $74.2 million and the 21st Century Jobs Fund would be cut by $22 million. The Transportation Economic Development Fund would be cut by $12 million.
In his own proposals to help raise state revenues, Mr. Cushingberry also is calling for a 50-cent hike on cell phone bills and a 5-cent tax on water bottles.
Overall, the changes would amount to $400-$500 million in new tax revenue, he said.
“I want to make less cuts in health care,” he said, adding he thinks some of the Senate’s proposed reductions would compromise the state’s maintenance of effort in the areas of public health and higher education.
Mr. Cushingberry said he would call for annualizing the cuts in the May executive order, which totaled $300 million, except for those affecting public health.
He said the remainder of the deficit would be eliminated by using federal stimulus dollars.
Using that proposal, which he is putting together for Mr. Dillon, Mr. Cushingberry said the committee would set budget targets at its meeting Thursday.
Bill Nowling, spokesperson for House Minority Leader Kevin Elsenheimer (R-Kewadin), said the governor finally did what the GOP has been asking for – to tell the public how she intends to balance the budget and allow people to “kick the tires.”
“We still maintain this is the absolute worst environment to raise taxes,” he said.
Sharon Parks, president and CEO of the Michigan League for Human Services, said she is pleased Ms. Granholm “finally put revenues on the table.” Still, Ms. Parks said she’s concerned about the suspension of the planned increase in the Earned Income Tax Credit and the cuts to the departments of Community Health and Human Services.
Ms. Parks also said the governor did not propose enough revenue increases to stabilize state government for the long-term.
“It’ll be enough to help a lot with the 2010 budget, but in 2011 we’re going to need more than that,” she said.
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