More Bad News About Budget Deficit

By: Associated Press
By: Associated Press

LANSING, Mich. (AP) -- Pressure to fix Michigan's finances intensified Friday when experts agreed there is an $800 million hole in the state budget that ends in 4 1/2 months, with the outlook for next year only deteriorating.
A high unemployment rate, poor housing market, shrinking auto sales and job losses have combined to hurt the state's economy -- and tax revenues. Fiscal experts said this year's revenues are $195 million lower than estimated in January.
When that number is added to previous tax revenue shortfalls and higher-than-expected prison, welfare and Medicaid costs, the budget deficit is $803 million.
The new estimate from Friday's revenue-estimating conference is not a big surprise.
But unless Gov. Jennifer Granholm and lawmakers do something by June 1, K-12 public schools stand to lose $116 per student -- slightly less than an earlier $122 estimate -- and doctors and hospitals will get less for treating low-income patients on Medicaid.
Bob Emerson, the Democratic governor's budget director, said a tax increase is needed soon or else K-12 spending will be reduced late in the school year. He noted that even a plan informally backed by both parties to resolve about 40 percent of the deficit relies on many one-time fixes and delayed spending into the next budget year.
"Everybody would love to find, as is tradition around here, another one-time solution," Emerson told reporters. "I just don't think that's realistic. At some point in time, you have to face up to the fact that you have a structural problem that needs to be dealt with."
But Republicans insist the budget can be balanced without a tax hike by shifting money from an economic development fund, cutting schools by $36 per student and giving doctors less for Medicaid care -- though their cut would be less than one warned by Granholm. Democrats call the GOP plan a "nonstarter."
Sen. Mark Jansen, a Republican from Kent County's Gaines Township, said if Democrats' only answer to fill the budget hole is a tax increase, "we have probably a long summer." He said replacing Michigan's expiring Single Business Tax is a bigger priority than raising taxes to balance the budget.
Like others in the GOP, Jansen did not rule out higher taxes for the budget year that starts Oct. 1. The leaders of the House and Senate fiscal agencies, along with state Treasurer Bob Kleine, also agreed Friday to lower next year's revenue estimate by $338 million.
If Granholm's proposed '08 budget is adopted and business taxes are fully replaced, next year's shortfall could top $1.6 billion, or nearly 4 percent of the total budget, including federal money.
The big focus Friday was on tax revenues, but economists also delivered bad news about the economy.
Joan Crary with the University of Michigan estimated that domestic automakers' share of vehicles sold in the U.S. could drop below 50 percent for the first time in 2008.
"Hardly anything good for Michigan's economy can come from this," she said.
Crary also said the state's unemployment rate -- the highest in the nation -- will be 7.5 percent in 2008, above an estimated 6.9 percent rate this year. Job losses are expected to continue through next year before possible gains in 2009, though the rate of job losses may be lower than in recent years.
Sam Kahan, senior economist with the Federal Reserve's Detroit branch, said there is little evidence so far of a turnaround in Michigan.
"If you want to be an optimist, it's meager," he said.
Democrats say the dire economic situation means the state must invest money in education, health care and other programs to help protect vital programs and grow the economy, or else it will wither. Republicans say now is not the time to ask taxpayers for more money.

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