Governor Granholm 2011 Executive Budget Makes Critical Investments, Spending Reductions and Reforms

February 11, 2010

Implements State of the State priorities for a new economy

LANSING - Governor Jennifer M. Granholm and State Budget Director Robert L. Emerson today presented the 2011 executive budget recommendation that invests in our state's most important priorities:  creating jobs, educating children, and protecting citizens while building on the steps she has taken over the past seven years to address the fiscal challenges caused by the national recession and struggles in the auto industry.  The budget was presented to a joint meeting of the House and Senate Appropriations committees at the State Capitol. 

"This budget reflects the critical changes we must make in state government:  cut spending, attack the state's structural deficit, reform government, and restructure our tax system," said Granholm.  "These changes are essential if we are to maintain our critical investments in job-creation and education and provide the services citizens need during this time of economic transition."

The fiscal year 2011 budget recommendation continues the governor's commitment to reforming state and local government to make it less costly, more flexible, and better able to serve the needs of citizens.   The budget includes savings from reforms the governor outlined in January, including changes to the state employee retirement system that are expected to result in the retirement of more than 6,000 employees, a lower-cost health-care plan for new state employees, and sentencing reforms that will further reduce the prison population.  In addition, the governor is proposing spending cuts that impact every state department.  Altogether, the budget recommends more than $566 million in general fund spending reductions.

The overall budget totals $47.1 billion and includes $7.9 billion in general fund spending, $11 billion from the School Aid Fund and recognizes $20.1 billion in federal revenues.  Highlights of the governor's budget include:

• Funding for public schools, early childhood education, and community colleges and universities are all maintained at current levels.
• The Michigan Promise scholarship is restored as a $4,000 tax credit available to any student who completes a degree and works for one year in Michigan.
• The 21st Century Jobs Fund is maintained at $75 million.
• Additional federal funding that will allow for the expansion of No Worker Left Behind, the Michigan Nursing Corps, and the JET Plus programs, which provide job-training.
• Additional federal funding to provide for the increasing number of citizens eligible for the food assistance program.
• $39 million for additional improvements in the child welfare system.
• A permanent funding source for tourism promotion, including the successful Pure Michigan advertising campaign, through a rental car fee.
• Revenue-sharing payments to cities, villages and townships are maintained at fiscal year 2010 levels and additional funding to restore county revenue-sharing payments to the 38 eligible counties.
• Funding is provided to maintain the current level of Michigan State Police troopers.  In addition, a fiscal year 2010 supplemental is recommended to provide funding to reduce the forensic case backlogs at the state crime laboratories.

"Spending cuts alone cannot create the economic growth and jobs that Michigan needs," said Granholm.  "We must continue to invest in things most critical to attracting business investment, and my budget makes those important investments."

The governor's budget recommendation proposes a restructuring of the state's tax system to fuel job-creation and economic diversification and prevent deep cuts for public schools until savings from long-term reforms are in place.  The proposal, which modernizes the tax structure to more adequately align with a 21st century economy, lowers the existing sales and use tax rates from 6 percent to 5.5 percent, expands the base of the sales and use taxes to include other services, eliminates the Michigan Business Tax (MBT) surcharge over two years, and reduces the gross receipts portion of the MBT over two years.  Together, these changes provide $554 million in additional funding to the School Aid Fund in fiscal year 2011, but are revenue neutral by the end of the 2013 fiscal year.

"These tax changes - lowering the sales tax rate, spreading the rate to services, and eliminating the business surcharge - have been recommended by job providers across Michigan and suggested by almost every economist and expert who has reviewed our tax structure," said Granholm.  Let's take them up on it."

When combined, the spending reductions, structural reforms, and tax restructuring eliminate a projected $1.5 billion budget shortfall for the year that begins October 1, 2010.

In addition to outlining a balanced budget, which is required by state constitution, Governor Granholm called on the Legislature to pass the budget by July 1, 2010, to allow cities, schools, universities and other organizations to move forward with their spending plans, which are dependent on state revenues.

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> Copies of the governor's recommended budget and related material are available at www.michigan.gov/budget

> Read Governor Granholm's  Budget Address