Banking & Finance and Government

Snyder proposes $54B state budget

February 12, 2015
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LANSING — Republican Gov. Rick Snyder unveiled a $54-billion budget yesterday that he said prioritizes education and health care, while cutting spending this year and next, because larger tax-incentive credits are being claimed by companies than expected.

The plan includes new initiatives focused on improved reading for third-graders, more training in the skilled trades and a partial expansion of dental coverage for low-income children in Michigan's three largest counties.

The state's per-pupil funding for K-12 districts would rise by $75, or 1 percent - more for schools with at-risk students or that meet best practices. Aid to universities would go up 2 percent if they keep tuition hikes to no more than 2.8 percent.

Snyder proposed new or increased fees for liquor licenses - which he said have not risen since the 1970s - air emissions and other permits. He also sought to put more money into Michigan's savings account and increase a tax that health insurers and HMOs pay on claims to help the state secure federal Medicaid funding.

Before next year's budget is approved by the GOP-led Legislature - likely in late May or early June - it could change drastically if voters in May approve a one-percentage point hike in the state sales tax as part of a plan to raise $1.2 billion more to fix deteriorating roads and bridges.

While Snyder's plan does not assume passage of the proposal that lawmakers put on the ballot, he clearly supports it as a long-term solution - designating Lt. Gov. Brian Calley to spend time explaining the measure during the budget presentation. Proposal 1 also would raise $300 million more for education and $94 million more for municipalities.

"Hopefully you can see how important this is," Snyder told members of the House and Senate budget committees. "This is something that people can make complicated. This is actually simplifying our lives and doing the right thing and creating better roads and saving lives."

His plan for the fiscal year starting in October would increase spending by roughly $2 billion, or 3.8 percent, mostly because of higher federal funding. But in the two primary accounts funded with state taxes, spending next year would drop $635 million in the $10.2 billion general fund while rising $250 million in the $12.3 billion school aid fund.

The revenue decline is blamed primarily on large businesses cashing in old Michigan Economic Growth Authority tax credits as the economy improves - a system Snyder ended beginning in 2012, but which will continue having a budget impact for decades.

Snyder said his administration is working to get a better handle on when the incentives will be redeemed, noting that individual tax filings are confidential.

The unexpected redemptions led him to announce $207 million in cuts this year across state agencies and $572 million in general fund reductions next year across the departments. Dozens of state employee layoffs are possible and incentives for movie makers will be cut $12 million, or nearly one-quarter.

Snyder said about 76 percent of the total budget is dedicated to education and health and human services.

"We should be proud. Michigan's strong. We're making strong investments and we're doing it together," he said.

Democrats, however, raised concerns over Snyder's K-12 funding proposal, saying the $75 per-pupil boost might not be enough for some districts because he wants to cut or eliminate some other one-time sources of money for schools. They also questioned moving $250 million from the school aid fund to help cover holes in the general fund.

"It's one thing to say it's a $75 increase in total, but if not every school district is seeing an increase and they're seeing cuts, then I think it's an irresponsible use of school aid fund to solve other budget problems," said Rep. Sam Singh, an East Lansing Democrat.

Among the governor's priorities is $25 million in funding to target third-grade reading, considered an education benchmark because it is when students transition from learning to read to reading to learn. He wants to implement a kindergarten entry assessment in part to gauge the effectiveness of the state's boost in early childhood spending in recent years.

Snyder also wants a $36 million, or 75 percent increase, to encourage training in trades such as welding and high school vocational classes.

Budget highlights

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K-12 SCHOOLS

- $11.9 billion in state spending on K-12 schools, up from $11.8 billion in the current year.

- A $75 increase in the per-pupil grant, which ranges from $7,126 to $8,099 depending on the district.

- A $100 million hike in funding for schools with at-risk students, up from $309 million.

- $75 million into a "distressed district" fund to mitigate the impact on students from unforeseen financial emergencies in their district.

- A $217 million increase in state payments to the Michigan Public School Employees' Retirement System, filling the difference left after the districts' contribution rate was capped under 2012 changes.

- $25 million for a third-grade reading initiative.

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HIGHER EDUCATION

- $28 million, or 2 percent, more for operations at Michigan's 15 public universities. To get all the funding, the schools could increase tuition no more than 2.8 percent.

- $4.3 million, or 1.4 percent, more for operations at 28 community colleges. Snyder also proposed bringing back adult part-time student grants for the first time since the 2008-09 fiscal year.

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SKILLED TRADES

- A $36 million increase in spending on skilled trades training, career and technical education and student outreach, planning and dual-enrollment opportunities.

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POLICE

- $7.7 million to train 75 Michigan State Police troopers.

- $3.4 million to help resolve sexual assault cases, including processing DNA from old rape-evidence kits.

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DENTAL

- $22 million to expand the Healthy Kids Dental program to the last three counties without it - Wayne, Oakland and Macomb - but limiting it to kids age 8 and under for now.

- $23 million to increase access to dental care for adult Medicaid recipients.

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LOCAL GOVERNMENTS

- At least $1.2 billion in state revenue sharing for local governments, a 1.5 percent increase. Constitutionally required payments would rise, while those approved in statute would stay flat.

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HEALTH TAX

- Snyder proposed increasing a health insurance claims tax on insurers and HMOs from 0.75 percent to 1.3 percent to help ensure a federal match is secured for the Medicaid program. The assessment, which was reduced last year, must be overhauled because the federal government says the state cannot use "use" taxes to help get the maximum match.

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FEES

- Snyder proposed $25 million in new or increased fees, covering liquor licenses, air emissions permits, agriculture and other fees.

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SAVINGS

- A one-time $95 million increase to bring the state's savings account to $611 million. The rainy day fund lost $195 million last year to help prevent steep cuts in Detroit retiree pensions and the sale of city-owned art in bankruptcy. The account is being repaid $17.5 million a year for 20 years from Michigan's tobacco settlement.

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Cybersecurity

- A $7 million increase to protect the state's computer systems, networks and sensitive data.

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