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Fights begin over state budget windfall

By Rick Pluta, Michigan Public Radio Network


Lansing, MI – Budget officials were briefed Monday on how Michigan's economic recovery is shaping up, and what that means for the state budget. The news was mostly good - it appears there's another $430 million available to help balance the budget.

Now that it's agreed Michigan's economy is improving and there's more revenue, the arguments have started about how to use that money.


Michigan's economy is finally churning out new jobs, more people are earning paychecks, and they are buying stuff. The domestic auto industry is enjoying a change in fortune. At this rate, it will take another decade for the number of jobs to reach pre-recession levels, and forecasts say unemployment will remain high in Michigan, but it will continue to improve.

The state will likely add 68,000 workers to payrolls this year; and the jobless rate will drop below 10 percent to 9.6 percent, says University of Michigan economist George Fulton. And that, he says, could signal the end of Michigan's "Lost Decade."

"Our view is that Michigan is in the early stages of a sustained recovery, supported by improvements in the U.S. economy and in the post-bankruptcy domestic auto industry," says Fulton.

And, because of that, the state is starting to see more revenue from income and sales taxes. It looks like the state is in for a windfall of $430 million that was not expected at the beginning of the year. That figure will play heavily in the final round of negotiations as the Snyder administration and the Legislature work toward an informal deadline of May 31 to wrap up the budget.

"It's not the pot of gold, but it's certainly something that will help," says John Nixon. He's Governor Snyder's budget chief. Nixon says it would be a mistake to move too quickly to spend that money.

"There's a lot of moving parts here, while this is good news and we're excited about it, but we've got to proceed with caution."

A strong rebound this year is expected to slow down a little over the next two years. There are questions about how rising fuel prices and the natural disasters in Japan will affect the economic recovery -- nationally and in Michigan.

Also, rising Medicaid caseloads, and the long-term impact of cutting business taxes will take a big bite out of revenue. In short, Republicans say, the new surplus of money won't last.

Representative Chuck Moss is the GOP chair of the House Appropriations Committee. He says the surplus is really just "one-time money" that should not be used to boost commitments like school funding. Moss says his first priority is to pay off debt, especially on retirement obligations.

"Let's pay down the unfunded liabilities," he says. "These are all things that our local districts owe. These are bills our local school districts have to pay that take money from the classrooms. Let's use this one-time money to pay down our liabilities."

But Democrats say that's not good enough - Republican budget plans call for reducing by hundreds of dollars the per-student payments to schools at the same time the state is cutting taxes for most businesses.

Representative Richard LaBlanc is the ranking Democrat on the House Appropriations Committee. He says directly restoring cuts to school funding should be the first priority.

"Until all the money is restored to provide tax cuts elsewhere, I'm not going to be satisfied," says LaBlanc. "We took an incredible amount of money from the School Aid Fund."

School lobbyists and teachers unions will mount a last-ditch effort over the next two weeks to get the Legislature to restore money to K-12 education. They say schools and students should also reap the benefits of Michigan's economic recovery.

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