How large is the budget deficit and why do we have another deficit after
the Governor just cut $1 billion from the current budget?
Answer: The budget deficit in the General Fund and the School Aid Fund
combined is currently about $920 million. Yes, the Governor just recently
approved budget cuts for the current fiscal year that totaled more than $1
billion. The main problem is that the current budget was written based on
economic forecasts that showed the nation rebounding from the current economic
slump sooner. The country still has not recovered, and Michigan’s manufacturing-based
economy is still suffering. Michigan has lost more than 300,000 jobs since
2000, including 170,000 manufacturing jobs. When workers lose their jobs,
the state loses funds from two important sources of revenue – the income
tax and the sales tax.
Is the state going to offer another early retirement incentive to state
workers?
Answer: Not at this time. The State of Michigan’s workforce has
been depleted due to recent early retirements and our current hiring freeze.
In fact, the state workforce is down 12% since December 2000. This has affected
some important services that state government provides, such as inspections
of day care facilities and nursing homes, administering of unemployment benefits,
and water quality monitoring of the Great Lakes.
Is the elimination of a tax cut being considered?
Answer: Governor Granholm has proposed pausing a rollback in the state
income tax rate that is scheduled to go into effect on January 1, 2004, and
putting those revenues toward the School Aid Fund deficit. This would mean
that most schools would face a cut in funding of about $70 per student, rather
than $196 if the rollback is not paused. This rollback would save workers
about $29 a year in taxes. It would save the average Michigan family of four
about $43 a year. If the rollback was paused, it would generate about $115
million in revenue for the state. That revenue could be put toward the $920
million deficit; however, it would only slightly soften the blow of budget
cuts.
Why do we have a deficit in the School Aid Fund? Doesn’t all the
lottery money go there?
Answer: There is about a $350 million deficit in the current budget
year in the state School Aid Fund. Yes, the lottery money does go to the School
Aid Fund, but it only accounts for about 7 percent of the overall fund. The
School Aid Fund is heavily dependent on the sales tax. In fact, about half
of the funding that makes up the School Aid Fund comes from the sales tax.
When the economy is not doing well, consumer confidence is down. When consumers
aren’t spending money, the School Aid Fund is adversely affected.
Is the Governor considering raising taxes?
Answer: There is no will in the Michigan Legislature to raise taxes,
and the Governor is not interested in raising taxes either.
Will the Governor propose cutting aid to our schools?
Answer: Under state law, the Governor is required to send a letter
to all school districts in the state announcing across-the-board cuts in the
foundation allowance (the per-pupil funding provided to schools, currently
set at $6,700) whenever the School Aid Fund has a deficit. The Governor sent
such a letter in early November. The Legislature has 30 days to propose an
alternative, such as finding a new revenue source. Again, if the rollback
in the state income tax rate is paused, the state will have $115 million in
revenue to put toward the School Aid Fund, meaning the amount of school funding
that needs to be cut will be much less.
Will the Governor cut Medicaid, aid to colleges and universities, state
parks, Merit Scholarships, state funds for the laptop computer program for
6th graders, environmental protection, etc.?
Answer: Everything is on the table, and it is likely that every area
of state government will have to be cut in some fashion. The examples of budget
cuts that the Governor has used in her budget discussions around Michigan
did not total up to the $920 million that needs to be cut from the budget
and were only intended as examples of potential cuts that could be made.
What have most people at the budget forums told the Governor not to
cut?
Answer: Many participants have urged the Governor not to cut programs
that impact the health, safety and education of our citizens, such as health
care for pregnant women, seniors, and the disabled. It seems that most participants
want to preserve the state’s safety net that protects persons who need
assistance the most.
What has the state done to cut the cost of doing its business?
Answer: In the first round of budget cuts earlier this year, the state
implemented several administrative changes to save about $360 million. These
included calling in cars from the state’s fleet, reducing the number
of cell phones used by state employees, and working with vendors to reduce
the cost of contracts with the state. Also, the Governor made the very difficult
choice to ask for $250 million in wage concessions from state employee unions.
So far, most of the unions have ratified agreements that cut or defer wages.
Why did the Governor feel it was necessary to hold these budget forums?
Answer: The Governor feels strongly that she was hired by the people
of Michigan to lead the state. She also feels that because she was hired by
the people and the people pay taxes, it is only appropriate that they participate
in setting the spending priorities of the state. The input the Governor received
from the forums around the state – in Alpena, Traverse City, Marquette,
Mount Clemens, Flint, Grand Rapids, Detroit and Lansing – has been shared
with legislative leaders and will be incorporate into the decision-making
process.
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