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Governor Granholm's 2008 Budget Invests in Michigan's People

February 8, 2007

Investments made in K-12, higher ed, communities and economic stimulus package

LANSING - State Budget Director Robert Emerson today presented Governor Jennifer M. Granholm's 2008 Executive Budget to a joint session of the Senate and House Appropriations Committees.  The governor's budget combines spending reductions with governmental reforms and tax restructuring so that we can move Michigan forward by investing in our people.

"This budget cuts spending and waste in order to invest in the things that make Michigan competitive," said Granholm.  "It continues to implement the state's economic plan and implements an aggressive, economic stimulus package to further diversify our economy.  It will fix our tax system, which today undermines our ability to compete and win in the fight for new jobs and new investment." 

Since taking office in 2003, Governor Granholm has cut nearly $3 billion in state spending to resolve more than $4 billion in budget shortfalls - more than any other governor in the state's history.  To balance the fiscal year 2007 and 2008 budgets, the governor has closed an additional $2 billion funding gap.  She once again balanced the budget using a responsible mix of spending cuts, tax restructuring, and government reform.  

The overall budget totals $43.4 billion and includes $9.6 billion in General Fund spending, $13.4 billion from the School Aid Fund, $1.1 billion for revenue sharing payments to local units of government, $3.4 billion for transportation needs, and recognizes $13.6 billion in federal revenues.

Highlights of Governor Granholm's 2008 budget include:

  • increasing per pupil funding for K-12 schools by $178 per pupil;
  • increasing our investment in higher education by over $43 million;
  • investing $200 million to expand early childhood education;
  • providing local units of government with tens of millions of dollars to invest more in police and fire;
  • addressing the state's nursing shortage by preparing 500 nursing educators to train 3,000 new nurses in three years;
  • increasing our investment in promoting Michigan by $10 million a year for three years to attract tourism and business investment;
  • investing $7 million for alternative energy infrastructure improvement that will increase the number of biofuel pumps across the state;
  • providing urban communities with over $6 million to tear down blighted buildings to help spur economic development and revitalize neighborhoods;
  • implementing sensible reforms to our prison system that will save taxpayers nearly $100 million next year by reducing prison population while keeping our families safe;
  • providing millions of dollars in incentives to get local governments and schools to engage in common-sense cost sharing measures;
  • investing $40 million in our child welfare system to ensure that more children are placed in safe, permanent homes; and
  • changing the state's tax structure to make it simple and fair to allow Michigan to compete with other states.

Investing in the Next Michigan

The governor's budget for the coming year provides funding for an aggressive one-time economic stimulus package that will invest in short-term initiatives designed to yield long-term economic growth for Michigan and get people back to work. 

As the governor proposed in her State of the State address, the No Worker Left Behind (NWLB) plan will:  help more than 100,000 displaced workers; provide up to two years of free tuition at any state community college; and allow displaced workers to receive training in addition to unemployment benefits.  Eligible participants have three years to take advantage of this training, which will cost $230 million over three years.  

The budget also proposes expanding the 21st Century Jobs Fund to include $7 million for the installation of biofuel pumps across the state.  Once this funding is approved, it will move the state toward the governor's goal of having 1,000 biofuel pumps in Michigan by 2008.  The budget also targets $50 million of the 21st Century Jobs Fund over the next three years to the research, development, and commercialization of alternative and renewable energy projects across the state.

In order to address Michigan's acute nursing shortage, the governor proposes $45 million over the next three years to invest in the Michigan Nursing Corps which will increase the number of faculty available to educate nurses and train 3,000 new nurses.

As a part of the governor's Cities of Promise initiative, the budget proposes $6.25 million a year over the next four years for the Cities of Promise Blight Elimination Program.  This initiative will help revitalize communities and spark economic development in Michigan's urban centers.

The governor's budget also includes an investment of $10 million a year for the next three years for the "Pure Michigan" and the "Upper Hand" marketing campaigns.  This increase in funding will generate new visitor spending at Michigan businesses and return millions of dollars to the state in annual tax collections.

Reforming our Government

The governor's budget seeks greater efficiencies in state government.  Although Michigan continues to serve more state residents with fewer state employees than in 1973, the budget finds more administrative cuts in every single state department.  All told, there are over $310 million in cuts in the fiscal year 2008 budget proposal.  The budget also contains significant incentives to get local governments to engage in common-sense cost cutting. 

To provide the most cost-effective and safe prison system for the state and its residents, the governor's budget recommends comprehensive policy reforms.  These reforms keep the safety and security of Michigan's families as the first priority and will save the state $92 million in the coming year.  The reforms include:  expanding the successful Michigan Prisoner Re-Entry Initiative; closely examining the need for clemency and parole for the elderly and medically fragile; recommends changing the sentencing guidelines for non-violent offenders; and implementing the Community Placement Program. 

The governor's budget proposed a $27.2 million increase for cities, villages and townships, but will provide that increase only to governments that show meaningful efficiencies through sharing services with other units of government.  Those who do not share services to save money will have their payments frozen at current year levels. 

The governor also proposes that school districts cut costs by sharing and consolidating services at the county and regional level.  A total of $10 million in one-time incentive funding will be made available for those districts that consolidate business services, administrative personnel, and instructional services within districts.  The governor will include penalties in next year's budget for schools that do not meet these reasonable expectations. 

As part of Michigan's commitment to children, the governor's 2008 budget makes a $40 million investment to improve the state's child welfare system.  The new resources will be invested in additional workers and to help place foster children in permanent homes.  


The Governor's budget for 2008 continues the state's investment in our public schools.  With the improvements in our children's MEAP scores, we know Michigan's past investments are paying dividends. 

The governor's budget proposes an overall 2.6 percent, or $337.3 million, increase in Michigan's public schools.  These increases include a $178 per student increase, which brings the minimum foundation allowance to $7,286 per pupil.  Also included is a $200 million expansion of preschool for eligible four-year-olds by providing foundation allowances to districts that offer full-day preschool programs for at-risk children.  Districts that participate in this program will offer full-day kindergarten to these children the following year. 

Payments to districts with declining enrollment will increase by $16 million to a total of $36 million to provide transition payments while districts downsize to serve smaller numbers of students.  Over 60 percent of districts will be in need of this funding.

In order to make Michigan more competitive, the governor's budget for the coming year invests an additional $36.6 million, a 2.5 percent increase, in our state universities.   The same percentage increase, or $7.1 million, is proposed for the state's community colleges.

"This budget continues the trend of investing record amounts in education," said Governor Granholm.  "In order to be a better Michigan, we must continue to invest in one of our greatest economic catalysts - our public schools and institutions of higher learning."

Health & Human Services

The budget presented today continues Governor Granholm's investment in health care and services to the most vulnerable of the state's citizens.   While continuing to find efficiencies in these budgets, the departments of Community Health and Human Services will continue to provide the critical levels of health care and assistance to those who need it most.

The governor's budget includes $7.5 billion for medical care and long-term care for 1.6 million residents of the state through the Medicaid program.  This represents a three percent increase.

The governor is also continuing her push for the federal government to approve her Michigan First Health Care Plan that will expand health care coverage to more than 500,000 people in the state.  The budget includes $100 million in federal funds to implement this critical initiative.

Also included in the 2008 budget recommendation is $2.7 billion for mental health funding; $1.2 billion to reimburse hospitals for care to low-income patients; $128 million to fund the Adult Benefit Waiver Program for low-income adults; and $450 million for health and disease prevention programs.

Tax Restructuring

Governor Granholm wants to create a Michigan where our children choose to raise their own families and where every citizen has the opportunity to live, learn and earn.  To do that, she strongly believes we must choose to invest in our people so Michigan can grow and compete.  She has proposed fixing Michigan's tax structure in a way that is fair and simple and both maintains our business competitiveness and allows us to make those critical investments. 

The elements of the tax restructuring plan include:

  • The Michigan Business Tax (MBT).  The MBT has the broadest base and the lowest tax rate possible and will provide substantial personal property tax relief.  It will eliminate the tax on payroll, benefits, and health care and preserve the economic development tools that will help attract new jobs and investment. The MBT, with revisions, represents a $480 million tax cut from the Single Business Tax.

  • A two percent tax on services, excluding education and health care services.  As the economy has shifted from producing goods to providing services, in order to stay competitive, we must shift our tax system to reflect the changes in the economy.

  • An estate tax applicable to about 350 estates each year and decoupled from the federal estate tax.  At least 18 states and the District of Columbia have decoupled from the federal estate tax to ensure that their tax codes are independent and no longer effected by federal changes.  Estates that are valued at $2 million or more are subject to this change with the exception of family farms and businesses.  This will generate about $119 million in 2008.

  • An increase in the tax on other tobacco products (OTP) and a five-cent increase in the rate on cigarettes.  The proposal doubles the tax on OTP and raises over $36 million, while the increased tax on cigarettes generates about $21 million for 2008.

  • An increase in the liquor mark-up percentage.  The Michigan Liquor Control Commission currently sells liquor with a 65 percent mark-up prior to selling to licensees.  This proposal would generate $29 million by raising that percentage to 75 percent.

  • The elimination of certain tax loopholes.  The closing of these tax loopholes will generate about $84 million for the General Fund and School Aid Fund.

  • A sales tax break for people who trade in a car when they purchase a new vehicle.  By charging sales tax on the difference, this will save taxpayers $180 million a year and spark auto sales.

"We cannot cut our way to prosperity," said Granholm.  There is no surer way to lose the competition for jobs than to cut the things that make us proud to call Michigan home.  Instead, we must invest in the things that will allow Michigan to thrive again." 

Fiscal Year 2007

Due to revenue shortfalls and existing spending pressures, the state has a $609 million deficit in the current year's budget that must be solved.  Some examples of the unavoidable spending pressures include increased prison population, delays in federal approval for Medicaid policy changes, and increased number of families in need of cash assistance.  The governor proposes to solve this shortfall with a reasonable mix of solutions that include:  spending cuts of $92 million; changing the actuarial valuation of the state's retirement systems which will reduce costs to state agencies and community colleges by $69 million; and delaying a portion of the August higher education payment for a month. 

In order to ensure that school funding is not cut mid-year, the governor proposes changing the actuarial valuation of the Public School Employees Retirement System to save $185 million and reducing spending of several new categorical programs by $5 million.

These actions, along with swift enactment of the governor's tax restructuring package that will generate $320 million in General Fund and $187 for the School Aid Fund in fiscal year 2007, will ensure that drastic cuts will not have to be made. 

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A copy of the governor's recommended budget and related materials are available on the state's Website at