Americans for Prosperity-Michigan

$1 billion of broken promises

Granholm budget proposal: Cut $2B, hike taxes $1B
Plan draws opposition as state faces Oct. 1 deadline to balance budget
Sept. 9, 2009 — Mark Hornbeck / Detroit News Lansing Bureau

East Lansing — Bottled water, tickets to live events and pop out of a vending machine would be taxed and smokers would pay more under a budget plan Gov. Jennifer Granholm released for the first time Tuesday.

The plan calls for nearly $2.2 billion in budget cuts, $1.09 billion in tax hikes and tax credit reductions and about $2 billion in federal stimulus money spending in the next two years.

But fellow Democrat and House Speaker Andy Dillon, in a rare public clash with the governor, called the plan “showboating” and “theatrics” and said it has “no chance of passing.”

Granholm’s plan is one of the proposals offered in budget talks. She and legislative leaders will work behind closed doors to strike a deal before the new fiscal year starts Oct. 1.

Under her plan, Granholm would cut government spending by 12 percent and reduce business tax loopholes — including controversial film credits — by a similar proportion.

As previously reported, the governor would raise the cigarette tax by a quarter to $2.25 a pack; assess the 6 percent sales tax on tickets to live entertainment, vending machine sales and service contracts such as landscaping; and slap a 1 percent tax on bottled water.

In exchange, she proposes phasing out the 22 percent Michigan Business Tax surcharge over three years, beginning in 2011. Revenue sharing that local governments use to fund police and fire protection and other services would lose $74 million.

Also, $22 million would be squeezed out of the governor’s pet 21st Century Jobs Fund used to attract business, and $12 million would be trimmed from a pot used for road improvements to support economic development, state budget officials said.

The governor does not propose any reduction in the $4,000 Promise Grants for students who complete statewide high school exams and go on to college.

The document does not detail how the tax hikes and spending cuts would affect individuals, but a 1 percent tax on a $1.50 bottle of water would be a penny and a half; a 6 percent levy on a $50 Red Wings ticket would amount to $3.

In the school aid fund, the governor is proposing $290 million in cuts each year, according to state Budget Director Bob Emerson. Divided by the state’s 1.6 million students, that amounts to $181 per pupil in each of the two budget years. The state would use $800 million in federal recovery cash for school aid, budget officials said.

Senate Majority Leader Mike Bishop, R-Rochester, has called for the governor to reveal her budget-balancing plan for weeks. She said this proposal has been on the table in talks with legislative leaders since Aug. 6.

“We have a lot of cuts, some loophole closings and some reforms that will not result in savings for this year,” Granholm said after a grand opening ceremony for an IBM applications center at Michigan State University.

Granholm and legislative leaders are working against an Oct. 1 deadline to balance a budget that is $2.8 billion out of whack. Leaders are looking at a similar hole in 2011.

Matt Marsden, spokesman for Bishop, said the budget balancing can begin in earnest. “We were asking her to come out from behind closed doors. If she’s finally done that, great,” Marsden said.

Granholm said the House was preparing to pass budget bills starting today. But Dillon said that’s news to him. “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 … get back to the hard work of negotiating a budget solution.”

The Senate has passed $1.2 billion in budget cuts, including elimination of the Promise Grants and reductions to many human services programs.

The spending reductions laid out in Granholm’s document add up to $464 million in the budget year starting Oct. 1 and $518 million in the following fiscal year. But Emerson said these cuts are in addition to the $500 million in cuts the governor proposed in her budget plan in February. The spending reductions would be carried over to 2011.

Her plan calls for $684.8 million in tax credit reductions and tax increases in the budget year that starts Oct. 1 and $662.9 million in the 2011 budget year.

She would cut the film credit by 12 percent, or $7.8 million in 2010 and $19.8 million in 2011. Filmmakers qualify for a 42 percent tax credit, and the 12 percent cut would bring that to 37 percent. Other tax credits would be reduced by $130 million in 2010 and $156 million in 2011.

Her plan calls for a liquor license fee increase, a fee for allowing bars to stay open extended hours, a doubled tax on tobacco products other than cigarettes and a freeze in the amount of personal exemptions from the state income tax. The exemption, indexed to inflation, is $3,600.