July 25, 2003

I’m here to report on the status of Michigan’s budget.

First, I am pleased to report that all the general fund budgets for next year, fiscal 2003 have been signed.

Michigan’s budget for 2003 is balanced. It protects funding for vital programs, prevents cuts in critical services and keeps the promise of Proposal A to fully fund our public schools -- $6,700 for every student. In fact, the 3.1 percent increase in education funding for 2003 represents the largest increase in K-12 spending in the nation.

Given this achievement, however, I am aware of some uncertainty about the budget and how it compares to past years and to the experiences of other states.

For example, many other states are actually cutting or freezing education spending. Across the country, in 2002, the National Conference of State Legislatures reports that 12 states cut K-12 and 19 cut higher education. For next year, 2003, 11 states cut K-12 and 16 cut higher education.

Michigan, in contrast, has made funding for K-12 education our highest priority. In fact, with completion of our ’04 education spending blueprint, Michigan becomes the first state in the nation to make such a strong commitment to funding public schools.

Now, with legislative action and my signature, this means the new governor and new legislature will have a one year grace period. When they arrive in January, they’ll find that half the budget will be done.

The bottom line is total state and local spending for public schools in 2004 will be a record $14.7 billion. That’s an increase of 86 percent since 1990 – a boost double the rate of inflation.

I might also add that the ‘O3 and ’04 School Aid budgets include more than $1.1 billion each year for special education spending.

Given tough economic times, balancing this budget has not been easy, and the process has certainly been challenging. But the result is a budget that sets the right priorities for families, taxpayers and those who depend on government services.

Signing a balanced budget is one thing. After all, it is my constitutional obligation to do so. And I thank all in the legislature who have worked so hard to get these budget done.  However, managing government programs and keeping a budget balanced on an ongoing basis is one of the principal responsibilities of the governor in his role as chief executive officer.

As CEO, the governor cannot foresee all problems, and threats can come from many different and unexpected directions. Today, however, we do know where some of the threats are coming from. And I want to sound the alarm over three budget-busting initiatives on the November ballot.

First, the 1,451-word tobacco spending amendment that would constitutionally mandate 12 expenditures, including $60 million annually to an unaccountable private corporation shielded from legislative oversight. In total, this scheme diverts over $300 million from critical health and education programs, including summarily ending the popular Michigan Merit Award scholarship.

Second, another scheme to end employer-employee bargaining that turns over all contract decisions to unelected arbitrators. The result? Untold increases in personnel costs. Indeed, a similar binding arbitration law has cost Detroit an additional $698 million over the past 20 years in just public safety contracts alone.

Third, I am very concerned about the proposal that not only decriminalizes drug use in Michigan but also mandates millions in health care and treatment for drug addicts. In California, where billionaire George Soros has already implemented this proposal, here’s what one LA County Superior Court Judge said, "We are squandering a lot of resources on people who are not ready for treatment."

Remember, California has a nearly $24 billion deficit. Paychecks for the governor and legislature and their staffs are even being withheld. Does Michigan really want to copy California?

In November, Michigan voters are being asked to add more than 6,000 words to our state constitution, increasing it by 25 percent. Forty years ago at a constitutional convention, the framers of Michigan’s constitution took almost two years and debated every word. Now, these amendments threaten the integrity of our Constitution and usurp the responsibilities of the legislature to approve spending measures and provide oversight.

All three come with huge price tags and we will be constitutionally mandated to keep spending year after year. That’s why I urge everyone who cares about Michigan’s future to turn these initiatives down.

These proposals are bad fiscal policy, bad public policy and bad for Michigan and our constitution. That’s why I cannot in good conscience state my opposition, vote no and leave it at that. I believe it is my responsibility and duty to prepare for the worst and leave Michigan’s next governor and legislature with the flexibility to meet the financial burdens these proposals threaten.

Therefore, with great reluctance, I have acted to reserve $850 million in state resources that would normally be allocated to local governments through state revenue sharing. I have vetoed the entire $850 million statutory revenue sharing payment appropriated for FY ’03.

Caution and prudence dictate this veto and many others as well several other actions to hold down spending. For example, one casualty of the ballot proposals that I especially regret concerns the proposed MI Family Health Plan. It is not prudent at the time to start this program, given the threats we face. As a result, Michigan will not pursue the needed waiver from Washington.

It is my sincere wish to be able to restore these appropriations promptly in November after these proposals are defeated.

Finally, let me focus on another critical issue – increasing Medicaid costs that are burdening Michigan and all the states. At our recent NGA meeting in Boise, my colleagues were united in pressing for Congressional action to provide federal relief from skyrocketing increases. Here in Michigan, general fund Medicaid expenditures have increased from 8.5 percent of total spending in 1980 to 25 percent today.

One in four general fund dollars is spent on Medicaid – paying for hospitals, doctors, nursing homes, prescriptions and many other health-related expenses. Without action, the percentage of our budget devoted to Medicaid will continue to climb.

One thing is clear. All states face this challenge, and you should know that Michigan was better prepared to meet this challenge than most other states because of our strong fiscal management and our foresight in establishing a Medicaid Benefits Trust Fund. This has helped cushion the blow.

Around the country, other states have been forced to cut Medicaid benefits. In Massachusetts, for example, 50,000 long term unemployed people with virtually no earnings will lose coverage. In Missouri, 36,000 low-income parents are losing coverage. In state after state, the costs are mounting and coverage is contracting.

In contrast, Michigan has both protected beneficiaries and protected benefits. We’ve even boosted prescription drug program (EPIC) spending by $17 million to a total of $67 million our for non-Medicaid recipients with high drug costs. In addition, Michigan will spend $157 million this year alone to provide prescription drug coverage for our 165,000 seniors eligible for both Medicaid and Medicare – the so-called dual eligible population.

While Congress debates prescription drug coverage for the poor and elderly, taxpayers in Michigan and other states are scrambling to help our people. The time is long past due for Congress to step up to the plate and deliver on their campaign promises of prescription drug coverage for the American people.

This is my last budget as Michigan’s governor. It is a balanced budget, but it is also a budget at risk. I said in January in my State of State Message that I would not leave to the next governor a budget mess like the one that was waiting for me. I am proud that this budget keeps that promise and I will continue to work until January 1, 2003 to make sure that promise isn’t broken.