Cuts Aplenty

By: Benjamin J. Gohs, Associate Editor
bgohs@boynegazette.com
(231) 222-2119

Seeking to shore a projected $1.4 billion shortfall in revenue in the 2012-2013 fiscal year, Michigan Governor Rick Snyder unveiled next year’s proposed $46 billion budget on Thursday, Feb. 17.

Charlevoix County Commissioner Chris Christensen (R-District 2) said one of the major items from Snyder’s budget that concerns him is the incentive for implementing best practices and talk of consolidation.

“We’ve been talking about best practices for awhile now trying to figure out the best way to operate,” he said. “If we’re not working in what the state deems as consolidated efforts are we going to be at risk of losing funding or overlooked for funding?”
Christensen added, “How are they going to measure consolidated efforts; and, whose best practices will be the benchmark?”

Significant changes proposed include government job cuts, funding reductions and tax increases on certain individuals in addition to Snyder’s decision to accept a salary of only $1 for his first year in office.

“While significant reductions are needed to restore fiscal solvency, the Governor’s budget recommendation carefully prioritizes remaining resources to protect citizens and preserve critical services,” said Michigan Budget Director John E. Nixon, CPA. “The Governor’s budget … (balances) the needs of our citizens while meeting Michigan’s long-term obligations.”

Plans to eliminate the Michigan Business Tax and create a 6-percent Corporate Income Tax will create a $1.8 billion loss in state revenue. However, Snyder hopes that doing so will help the economy in the long run.

“Under the Governor’s proposal, generally only those business entities that issue public or private stock, known as ‘C’ corporations for federal tax purposes, would be subject to the proposed 6-percent tax,” Nixon stated in the 2012-2013 proposed state budget overview. “It is estimated over 95,000 companies will no longer have to file a state business tax return.”

Along with a flat Corporate Income Tax, the Governor proposes that the individual income tax rate be reduced on Oct. 1,from 4.35 to 4.25 percent, as currently planned.

The Governor also recommends all credits and deductions related to the individual income tax, with the exception of the personal exemption, the exemption for individuals with disabilities, special provisions dealing with military personnel and veterans, the homestead property tax credit and a few other subtractions, be eliminated.

The personal exemption will be retained, but phased-out for income in excess of $75,000 for single filers, and $150,000 for joint filers. Similarly, the homestead property tax credit will be retained, but the phase-out range is lowered to $61,000 to $70,000. The homestead property tax credit will also now equal 80 percent of the difference between property taxes and 3.5 percent of income for most homeowners.

Significantly impacted by these tax changes will be those with private and public pension income. Michigan is one of only three states in the nation that exempt most or all of pension income from state income tax. The projected revenue from the combined tax changes is expected to be $1.7 billion, which will offset the elimination of the business tax.

According to Nixon, under the Corporate Income Tax, business credits for brownfield re-development, the Michigan Economic Growth Authority, Next Energy, advanced battery, film and renaissance zones are among others to be eliminated.

“Governor Snyder’s plan honors the existing commitments made to businesses through signed agreements under the old tax structure, which total $500 million in fiscal year 2013, and it stops the practice of appropriating money through the tax system moving forward,” he said. “Instead, economic development incentives will be awarded through the appropriations process and reviewed for effectiveness.”

The governor has set aside $25 million for business retention and $25 million for film incentives.

Cuts in state spending will also reach government employees.

Over the last 10 years, the number of people employed by the state has dropped by 12,900, or 21 percent.

However, compensation for existing government employees has gone up by 38 percent.

“These costs are increasing at an unsustainable pace, and are a result of employee and retiree benefits that are considered out-of-step with the private sector,” Nixon said.

A number of work rules or negotiated issues that present unique challenges and add substantial costs for the operation of 24-hour institutions must be further examined, according to Nixon.

Governor Snyder’s budget includes savings of $180 million in the general fund for employee concessions to be negotiated with represented employee organizations.

Topping the list of costly items are post-employment benefits like health care – the longterm liability of this benefit tops $14.5 billion.

“Governor Snyder’s budget also includes an investment of $5 million in the Department of

Technology, Management and Budget to incentivize state agency reforms through a new

Information Technology Innovations Fund,” Nixon said. “This fund will be used to competitively select and invest in high-priority, low-cost state agency innovation projects that demonstrate significant return on investment.”

Education spending will see an overall 4.9 percent cut.

“The Governor’s budget recommends the creation of a new State Education Funding Act that utilizes School Aid Fund revenue as well as available general fund dollars to support the

state’s education system at all levels from early childhood to higher education,” Nixon said. “The Executive Budget for education totals $13.8 billion, including $12.2 billion in funding for K-12 school districts, $1.4 billion for higher education and $296 million for community colleges.”
He added, “Nearly 53 percent of state resources in the Governor’s budget are devoted to education.”

Nearly $8.8 billion is provided for K-12 basic school operations – $8.7 billion for per pupil

foundation allowance payments and $62.1 million for intermediate school district operations.

“In order to live within available state funds, foundation allowances have been reduced 4.1

percent, or $300 per pupil in addition to the currently budgeted $170 per pupil reduction, for a savings of $452.5 million,” Nixon said. “Intermediate school district operations have been reduced by 5 percent.”

Despite the cuts, early childhood education programs, which serve 28,000 children, are maintained at nearly $110 million.

Community college spending is also maintained at its current level of $296 million.

University spending is to be reduced by 15 percent – equal to nearly $222 million. This will bring university costs down to $1.2 billion.

Financial aid is maintained at $51.5 million for low-income students, but the existing aid programs will be merged to create the Pathway to Higher Education program in order to streamline administration.

State revenue sharing with local units of government will see a mix of increases and decreases.

The Governor’s budget recommendation increases constitutional revenue sharing payments to cities, villages and townships by $25.5 million or 4 percent in fiscal year 2012, based on estimated sales tax collections.

The Governor’s budget also eliminates statutory revenue sharing payments for cities, villages and townships in fiscal year 2012, leading to a net savings of $92.1 million. This reduction will impact 509 local units of government; currently, less than 30 percent of all local units receive statutory revenue sharing payments.

To encourage necessary reforms, the Governor’s budget includes $200 million for a new incentive-based revenue sharing program available to cities, villages and townships that meet specific standards and adopt best practices.

State revenue sharing payments to counties are reduced by $51.8 million in fiscal year 2012.

Health care changes

Through its partnership with the federal government, Michigan’s Medicaid program provides basic physical and mental health services to low-income citizens, seniors, and people with disabilities. Governor Snyder’s Medicaid budget is funded at $12 billion, reflecting the institution of a new 1 percent health care insurance claims assessment on all paid health care insurance claims.

In anticipation of federal action that will require the phase-out of the current 6 percent tax on health maintenance organizations, the Governor recommends a broad-based claims assessment.

According to Nixon, broadening the base to all insurance claims will allow for the rate to be reduced to 1 percent while generating the same amount of revenue.

Significant changes to health care include:

– Individuals eligible for both Medicare and Medicaid will be integrated into a managed care service delivery model – savings  $10 million

– Proposed efficiencies in the adult home help program – savings $6 million

– Cuts to the Department of Community Health include reduced graduate medical education payments, as well as reductions in other department programs, and savings from adding behavioral health medications to the preferred drug list – savings $41.5 million

“While Governor Snyder’s budget supports continued investment in health care, it also recognizes that with our limited resources, public assistance must be a bridge to family independence,” Nixon stated. “The Governor’s budget includes a lifetime limit of 48 months with exemptions for incapacity and hardship, for families receiving cash assistance through the Department of Human Services’ Family Independence Program.”

Changes to the welfare system are expected to yeild a savings of $77.4 million.

– Cuts to unlicensed aides and relatives who provide child care – savings $13.9 million

– Closing of the Shawono Center in Grayling and reductions to the Maxey Training School in Whitmore Lake – savings $787,000

– Eliminate 300 Department of Human Services jobs in field work, before-school, after-school and program reductions – savings $26.1 million

Other key changes and/or cuts include:

• Closing a prison due to decrease in prison population – savings of $18.9 million

• Streamlining of the Department of Corrections – savings of $32.3 million

• Restructure Michigan State Police (MSP) field services – savings of $3.2 million

• Other MSP reductions and consolidation – savings of $17.5 million

• Grand Rapids Veterans’ Home to bid on certain items – savings of $4.2

• The Senior Citizens Cooperative Housing Tax Exemption program is reduced by $2.5

million and additional efficiencies could provide total savings of $4

• DEQ streamlining – savings of $3.8 million

• Administrative efficiencies and contract reductions in the Department of Technology,

Management and Budget – savings of $3.8

• Payment in lieu of taxes (PILT) payments in the Department of Treasury and in the

School Aid budget, and fire protection grants in the Department of Energy, Labor and

Economic Growth are reduced by 15 percent reflecting declining property valuations,

saving a total of $3.7 million.

• Elimination of the Department of Agriculture’s dairy farm inspection program – savings of  $600,000 (Inspections to be conducted by industry field representatives certified by the department.)

• Other Department of Ag reductions and regulatory support measures in the department provide additional savings of $2.4 million

• Eliminate the Worker’s Compensation Appellate Commission, along with administrative efficiencies in the Department of Energy, Labor and Economic Growth – savings of $2.3 million

• The Department of State budget saves $2.1 million by continuing the integration and expansion of self-service options.

• Elimination of six trial court judgeships – savings of $942,100

Key spending on programs and departments proposed includes:

• $13.8 billion for education in K-12 schools, universities and community colleges, providing the essential foundation for Michigan’s workers of tomorrow;

• $12 billion supporting health care for nearly two million adults and children, representing one in five Michigan residents;

• $3.6 billion in Food Assistance Program benefits for over two million Michigan residents;

• $2.9 billion for road and bridge construction and maintenance and public transportation programs supporting the movement of people and goods;

• $1.8 billion to maintain public safety by managing the custody and care for 44,000 prisoners and supervision of 80,000 felony probationers and parolees;

• $670 million for workforce training and development programs;

• $659 million for constitutional revenue sharing payments to local units of government;

• $340 million for regulatory and consumer protection;

• $250 million for state parks, recreation and natural resource stewardship programs;

• $245 million for environmental protection, pollution prevention and response programs;

• $75 million for the 21st Century Jobs Fund to promote economic development;

• $30 million for the protection of Michigan’s food supplies ranging from inspections to detecting and preventing disease in our livestock.

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