By By JOHN EBY / Dowagiac Daily News
GRAND RAPIDS – Michigan faces its most challenging budget crisis in recent memory due to the convergence of a weakened economy, lack of business tax revenue and spending pressures the state cannot avoid, Gov. Jennifer M. Granholm told the Michigan Press Association Friday noon.
Underscoring the depth of the state's fiscal crisis, the governor said Michigan faces a $3 billion deficit – approximately a third of all discretionary spending available to the state.
In her remarks, Granholm emphasized that after four years of slashing state spending – almost $3 billion to resolve $4 billion in deficits – the state still faces difficult choices to resolve the crisis.
"The days ahead are going to be challenging for everyone who cares about this great state of ours," she said at the Amway Grand Plaza Hotel on the eve of her State of the State address Tuesday night. "The crisis we face has been decades in the making and cannot be changed overnight, even though we have the most aggressive economic plan in the nation, a plan to diversify the economy, create new jobs, retrain displaced workers and give every child college education or technical training they need to be successful in the 21st century."
Granholm said it is commonly accepted – even by the Emergency Financial Panel report released earlier Feb. 2 – that Michigan's economy is fundamentally different because of changes in the global economy that have led to serious and lasting changes in Michigan's manufacturing-based economy.
The governor noted the auto industry is heavily concentrated in Michigan. When it is challenged, Michigan is affected more than any other state.
Since 1993, the domestic share of the Big Three automakers has dropped 21 percent, which translates into a loss of 246,000 manufacturing jobs since 2000.
"That has an impact on the overall psyche of Michigan," she said. "We must ask our citizens what is the Michigan that we want to be because in a crisis you have a moment to rebuild and to recalibrate who we are and what we want to be. The lack of sufficient diversity in our economy has caused massive, massive problems unique to Michigan. We have 635 percent more automotive jobs and investment than any other state in the country. That's our problem. We've got to diversity. Automotive industry restructuring is not over."
As a result, Granholm said, less revenue comes into the state at the same time the number of people needing state services is rising.
She pointed to three areas creating "spending pressures" on state government: a growing number of Medicaid cases as the elderly population increases, the growing number of human services caseloads as more families find themselves in crisis; and the increased costs of housing more prisoners.
Granholm's Feb. 6 State of the State will be followed by her 2008 budget recommendations on Thursday, Feb. 8.
"I want to talk to you in a very straightforward way about what we're facing," she said. "I want to get us all on the same page. How we got here and why it is what it is."
The $862 million deficit this budget year combines the general fund and school aid. In 2008, another $2 billion budget shortfall is forecast.
"The Single Business Tax was eliminated last year, so going into the next year we've got to find a replacement for that," Granholm said. "The total budget is $42 billion. The decisions that we've got to make that have some discretion attached to them are about $9 billion. Nineteen billion dollars of the $42 billion are restricted by law," such as natural resource protection funds. Another $13 billion is federal money.
Granholm used a pie chart to show that $2.9 billion of the $9.2 billion goes to community health; $2 billion to universities and community colleges; $1.2 billion to human services, such as foster care; and $1.9 billion for corrections, which includes 50,000 inmates in the prison system.
A black slice of $1.3 billion represents everything else, from the Agriculture Department and Secretary of State to the judiciary.
The Emergency Financial Panel said the $3 billion gap could be closed by eliminating all funding for community colleges and universities and all mental health services.
Or, health care for seniors and children could be eliminated. Or, cut education spending by $2,000 for every student at every school.
"We have today in state government fewer employees than we had in 1973. The Department of Human Services alone had an early out that lost 3,000 workers," Granholm said. In 1973, there were 52,000 state employees.
Granholm demonstrated how state revenue "is at extreme historic lows." Adjusted for inflation, in 2006 there was $8.2 billion in the general fund. "(Her predecessor, Gov. John) Engler had 39 percent more revenue than Granholm has; 47 percent more revenue under (Gov. William) Milliken. That gives you some historical perspective on the level of the crisis today … since 1999, revenue to the state has dropped 30 percent. Some of you are probably saying, 'Oh, she's saying all this to set up some sort of tax increase.' I am saying this so you know what we're facing and the debate that we're going to have to go through over the next few months. It's not going to be easy."
"I encourage all of us – whether we're in journalism or in politics – to not point the finger of blame," she said. "We are where we are and we must find bipartisan solutions to move forward. (Democrats and Republicans alike) are on the same team. We're on Michigan's team. We love Michigan more than we love our political parties or our philosophies. This next few months are going to be about Michigan," Granholm told an audience which included many legislators, including state Sen. Ron Jelinek, R-Three Oaks, and state Rep. Rick Sheffer, R-Three Rivers.
"It would be so helpful in the next few months" if Michigan newspapers "exhort us to not run into our respective right and left corners, but to run together to find solutions for Michigan," said Granholm, who must find common ground between a Republican-controlled state Senate and a Democratic House.