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Michigan state budget (2011-2012)

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Governor Snyder asked the legislature for $38.25 million from the state's general fund to pay a portion of the $106 million the state owed in interest on Michigan's $3.1 billion federal unemployment insurance debt. The remaining portion of the interest payment was to come from a state solvency tax that went into effect in 2011 on Michigan employers and from state unemployment penalty and interest funds.[1]

On June 21, 2011, Snyder signed the fiscal year 2012 $47 billion budget into law.[2] The two budget bills signed by the governor were House Bill 4526 and House Bill 4325. The last time the state had a completed budget in place this early was 1981.[3][2]

The budget assumed $265 million in savings in fiscal year 2012 from employee concessions. The governor hoped to convince state employee unions to reopen their contracts to provide those concessions and delayed making layoffs in September 2011. The union contracts did not expire until the end of the 2012 calendar year.[4] One of the concessions the governor sought was having employees increase the percentage of health care costs that they paid for from 10 percent to 20 percent. At the unions' urging, the governor agreed to study whether the state government had too many managers, and to consider reducing the number of managers. The state's ratio at the time the study started was six employees to each manager. The union claims that if the ratio was seven to one that the state would save $75 million.[5]

In fiscal year 2012, the state deposited $362.7 million into its emergency fund, a fund that in fiscal year 2011 had a balance of only $2.2 million.[6]

Before the budget was signed into law, the state faced a projected $1.85 billion deficit in fiscal year 2012.[7][8]

The governor said that the budget would foster a stable environment for business, due in large part to a tax cut that essentially did away with business taxes on companies except for large corporations with shareholders. The elimination of that tax had the potential to cost the state $1 billion in revenue in fiscal year.[9] The budget taxed public pensions and reduced exemptions for private pensions.[2]

The budget included several cuts in funding. The School Aid Fund gave districts $12.7 billion, $300 per pupil less than in fiscal year 2011, a 2.2 percent reduction. However, school districts that showed cost-cutting initiatives could receive additional funds from a $100 million fund. Public universities saw 22 percent less in state aid -- 15% less if they held down tuition increases to 7 percent or less. Local government received $100 million less.[3]

The governor vetoed some portions of the budget bill, including a $4.25 million adoption subsidy, and he made it clear that some language in the bill was not legally enforceable, including provisions regarding universities offering health care benefits to employees' domestic partners.[9] That included provisions added by Republican lawmakers that would have penalized universities that offered health care benefits to employees' domestic partners and required public universities doing embryonic stem cell research to report data to the state.[9][3]

As of 2011, the state received about $400 million a week from the federal government, which was approximately 44 percent of the total state budget.[10]

Deal negotiated

On April 12, 2011, the governor and legislative leaders announced that they had reached a budget deal that would modify the governor's proposed tax on pensions and delay a scheduled reduction in the personal income tax rate, but make $150 million in undetermined spending cuts in addition to those originally proposed by the governor.[11]

Taxes

Under the budget, the pension income tax exemption would continue but would exempt those aged 67 and older from the tax, and for those between 60 to 66 years old, the first $20,000 would be exempt for an individual and the first $40,000 for a couple. For retirees aged 59 and younger, pensions would be taxed at the full rate until they turn 67. All income, including Social Security income, would apply against that higher-than-normal exemption. The tentative agreement would delay the planned income tax reduction to January 1, 2013, generating an additional $210 million in revenue.[11]

The legislature enacted a six percent flat tax on corporations, replacing the state's complex business tax and reducing corporate income taxes by $1 billion for fiscal year 2012, which started October 1. The Senate narrowly passed the measure, with Lieutenant Governor Brian Calley casting the tie-breaking vote.[12]

Education

On May 5, 2011, the House approved its education funding bill by a vote of 57-53. The House proposal cut school funding by an additional $256 to $297 per student, on top of a $170 per student cut that was already in place. Funding for community colleges and universities also would be cut.[13] The Senate Appropriations Committee was considering a bill that would reduce state aid by $340 per pupil.[14] Differences had to be reconciled before a budget could be adopted.

Governor's proposed budget

After being sworn in, Governor Rick Snyder promised to have a two-year state budget in place by July 1, whereas the state had typically had a one-year budget that had taken until October 1 to finalize.[15]

The governor named John Nixon, Utah's budget director, as Michigan's new state budget director as of January 1, 2011.[16]

In February 2011, Governor Snyder introduced a $45 billion budget intended to close a $2 billion budget deficit for 2012. The budget included a series of cuts in several state departments. Snyder wanted lawmakers to cut the state budget by $1.5 billion, boost income tax revenue by more than $1.7 billion and cut business taxes by $1.8 billion.

Prior to submitting his budget proposal, Snyder unveiled the Citizen's Guide to Michigan's Financial Health, which laid out the state of the Michigan economy. The guide showed that the state’s citizens were poorer, older and deeper in debt than they were a decade prior. The guide also showed that taxpayer obligations for pensions and health care for retired public workers were unsustainable. It also pointed out that the 15 percent of workers in the state who were public employees had seen their salaries rise over the last decade, while private employees in the state had experienced diminished paychecks and fewer job perks.[17]

To close the state's deficit, Snyder proposed a new tax on pensions and a flat corporate tax that would end billions of dollars of tax incentives. He also proposed reduced funding to municipalities, education budgets and public retiree health benefits.[18]

Central to the budget was a reshaping of tax policy that eliminated the state's complex business tax and replaced it with a flat six percent corporate-profit tax that would raise about $1 billion less revenue.[19] Some of Snyder's proposals included:[20]

  • Dropping the individual income tax rate from 4.35 percent to 4.25 percent
  • Removing the Michigan Earned Income Tax Credit that provided an average $432 benefit to some 800,000 low-wage filers
  • Eliminating the state income tax exemption for pensions
  • Eliminating business credits awarded for films
  • Eliminating statutory revenue sharing payments for cities, villages, and townships in fiscal year 2012, leading to a net savings of $92.1 million
  • Cutting per pupil funds $300, in addition to the then-currently budgeted $170 per pupil reduction
  • Eliminating 300 field worker positions in the Department of Human Services
  • Closing one prison
  • Reducing the number of Michigan State Police posts, saving $3.2 million.
  • Reducing state aid to libraries in the Department of Education budget by $2.3 million in the general fund, with $950,000 directed to the Michigan eLibrary, resulting in net savings of $1.4 million.
  • Setting a lifetime limit of 48 months for residents to receive welfare payments, with exemptions for incapacity and hardship

The proposal also had $200 million for a new incentive-based revenue sharing program for cities, villages and townships. Those standards were expected to be detailed in March.

Snyder also planned to tax the pension incomes of senior citizens to the tune of $900 million in order to offset losses from a $1.9 billion cut in business taxes.[21] Then-current Michigan law exempted all Social Security, public pension payments, IRA, annuity and employer-contributed 401(k) withdrawals from income tax. Under proposed law, all retirement income, except for Social Security, would be taxed at a 4.25 percent rate. Snyder said senior citizens made up about 13 percent of the state's population, and that this figure would grow close to 20 percent over the next 20 years.

He later revised his original pension tax proposal, calling instead for raising about $300 million through retiree income tax changes. That plan was passed by the House Tax Policy Committee on April 27, 2011.[22]

Over the first decade of the new millennium Michigan was in a recession as its manufacturing base crumbled and its population declined. During that time special interests and lawmakers fought over dwindling revenues. When Snyder was elected in 2010 he announced there were going to be shared pains in the new budget, including attempts to change the tax status of pensions. In Michigan, public pensions were fully tax-exempt and private pensions were exempted up to $42,240.[19]

It was unlikely all of Snyder's goals would be included in the final budget passed by the legislature. State lawmakers told The South Bend Tribune that cuts were necessary, but that the final budget might show cuts in areas other than what Snyder proposed.[23]

Education cuts

School administrators feared Gov. Snyder's proposed cuts would force school districts to cut staff, close buildings, privatize some services, create more online courses and cause administrators to share more duties, measures Snyder maintained would cause school districts to become more efficient while still providing an excellent education. Michigan has more than 500 school districts.[24] More than half of Michigan's school districts include fewer than 2,000 students.[25]

Snyder proposed cuts between eight and 10 percent for school districts, which translated into a $715-per-student reduction. Those reductions included the loss of $170 per student in federal money, a $300 cut by Snyder in per-pupil funding and the fact that districts had to pay a bigger share of pensions, costing them $245 per student, according to the nonpartisan Citizens Research Council.[26]

Several media outlets in Michigan, including the Detroit Free Press, were calling for the consolidation of some school districts following the release of a 2010 Michigan State University study. The study said taxpayers could save $612 million a year after three years by consolidating districts around county lines, without closing any schools. Putting all public school transportation, food service and operations and maintenance at the county level would save $328 million, the study said.[27]

Snyder also proposed to shift $896 million in the school aid fund to colleges and universities. The proposed shift from that fund, typically used for K-12 programs, angered public educators who said institutes of higher learning had other means to raise funds.[28]

Snyder had not thrown support behind bills in the legislature that would eliminate tenure, freeze teachers' pay if a contract expires, force teachers to pay at least 20 percent of their health care costs or otherwise affect collective bargaining rights.[29]

Snyder's proposed educational budget cuts were not popular. According to an EPIC-MRA poll, 62 percent opposed Snyder's plan, with 32 percent in favor and six percent undecided. The poll surveyed 600 likely voters and had a margin of sampling error of plus or minus four percentage points.<[29] According to Ann Arbor school leaders, the district was facing a $7 million deficit, but if Snyder's proposals were approved, that deficit could jump to between $15 and $20 million.[30]

Union protests

On February 22, 2011, hundreds of union members lobbied at the state Capitol, urging lawmakers to vote against measures they said would threaten collective bargaining rights, while smaller groups of activists rallied outside the Capitol against other budget proposals, including the elimination of some tax exemptions and reductions in school funding.

Union members were upset over the Republican-controlled legislature's attempts to take away binding arbitration, which allows a neutral party to determine what is and isn't fair in contracts for police and fire departments.[31]

Other legislative proposals angering Michigan union leaders included emergency financial managers powers to remove elected officials and break labor contracts as they worked to turn around failing schools and cities.[32] The measures changed the way emergency financial managers were selected and expanded their authority, including suspending collective bargaining for up to five years and rejecting labor agreements.

Other proposals raised by Michigan lawmakers that upset labor organizations included a plan to create right-to-work zones and repeal the prevailing wage law.

Some of the protesters at the capitol were also protesting Detroit Public School’s emergency manager Robert Bobb’s plan to close public school, which would increase class sizes to 60 students. The deficit elimination plan filed with the state in January by emergency financial manager Robert Bobb, was expected to wipe out the district's $327 million deficit by 2014.[33]

The American Association of Retired Persons was planning to protest Snyder's proposal to tax seniors' pension payments. The AARP called Snyder's proposals an "all out attack on older Michiganders."[34] AARP Michigan President Eric Schneidewind said the measure would take money from seniors and hand it to corporations.[35]

On March 16 a host of progressive groups, led by state unions, planned to protest at the state capitol on a range of issues including budget proposals and 40 pieces of legislation that activists said would undermine collective bargaining rights in the state.[36]

References

  1. Crain's Detroit Business, "$38.25 million sought from state general fund to pay interest on unemployment insurance debt owed to U.S.," September 20, 2011
  2. 2.0 2.1 2.2 The Detroit News, "Gov. Snyder signs 'milestone' budget for Michigan," June 22, 2011
  3. 3.0 3.1 3.2 The Detroit Free Press, "Snyder signs state budget, touts it as national standard for fiscal soundness and efficiency," June 22, 2011
  4. The Detroit Free Press, "Snyder delays move on state employee layoff notices," September 1, 2011
  5. The Detroit Free Press, "Too many managers in Michigan government? Gov. Rick Snyder orders study," September 16, 2011
  6. The News Star, "Budget turnarounds: Some states socking cash away," Jun 23, 2012
  7. The Detroit News, "Public workers in Snyder's sights," January 3, 2011
  8. Bloomberg, "Budget, economy top themes as Mich. lawmakers meet," January 13, 2011
  9. 9.0 9.1 9.2 Businessweek, "Gov. Snyder signs $47.4B Michigan budget Tuesday," June 21, 2011
  10. The Detroit News, "Debt deal's effect on Mich. 'hard to know'," August 1, 2011
  11. 11.0 11.1 The Detroit News, "Budget deal phases in pension tax, delays income tax rollback," April 12, 2011
  12. The Wall Street Journal, "Michigan Legislature Passes New Tax Plan With Flat Corporate Tax," May 12, 2011
  13. Businessweek, "Michigan House approves school funding cuts," May 5, 2011
  14. The Detroit News, "State school aid budget cuts $340 per student," April 21, 2011
  15. The Detroit Free Press, "Gov. Snyder sets ambitious budget goal," January 4, 2011
  16. The Deseret News, "Utah budget director to be 'super executive' in Michigan," December 1, 2010
  17. Grand Rapids Press, "A Sobering Assessment of Michigan's Budget Woes," February 6, 2011
  18. The Wall Street Journal, "Budget Battles Roil Straitened States," February 25, 2011
  19. 19.0 19.1 The Wall Street Journal, "Lasting Budget Fix Sought in Michigan," February 17, 2011
  20. Associated Press, "Governor's Budget Proposal Details," February 17, 2011
  21. Ann Arbor.com, "Snyder Tax Cut Would Be Costly For Thousands of Michigan Residents, Including Many Seniors," March 4, 2011
  22. Forbes, "Snyder's tax plan for Michigan clears first hurdle," April 27, 2011 (dead link)
  23. The South Bend Tribune, "Michigan's Credit Card Called 'Maxed Out'," February 23, 2011
  24. Associated Press, "Gov. Rick Snyder's Education Cuts Aimed at Spurring Change," March 5, 2011
  25. The Port Clinton News Herald, "Editorial: Snyder budget forces schools to get lean -- quickly," March 12, 2011
  26. Associated Press, "Gov. Rick Snyder's Education Cuts Aimed at Spurring Change," March 5, 2011
  27. The Grand Rapids Press, "Is Momentum Growing to Merge School District, Share Services?" March 13, 2011
  28. Associated Press, "Gov. Rick Snyder's Education Cuts Aimed at Spurring Change," March 5, 2011
  29. 29.0 29.1 Associated Press, "Gov. Rick Snyder's Education Cuts Aimed at Spurring Change," March 5, 2011
  30. AnnArbor.com, "Local Leaders Rally in Ann Arbor, Call Governor's Budget an Attack on Michigan Families, Education," March 14, 2011
  31. Chicago Tribune, "Protests Continue as Lawmakers Mull Arbitration," February 23, 2011 (dead link)
  32. Reuters, "Michigan Workers to Oppose 'Anti-Labor' state proposals," February 21, 2011
  33. Huffington Post, "Michigan Officials Order Robert Bobb to Shut Half the City's Schools," February 21, 2011
  34. Michigan Messenger, "Capitol Protests to Ramp Up this Week," March 14, 2011 (dead link)
  35. Public News Service, "AARP: Don't Balance MI Budget on Backs of Seniors," March 14, 2011
  36. Michigan Messenger, "Snyder Budget Foes Prepare for Battle," March 15, 2011 (dead link)