Sunday, November 09, 2008

Michigan's Governor Presents an Austerity Budget; Calls for a 90 Day Freeze on Foreclosures

Friday, November 7, 2008

Granholm to slash budget as economy worsens

School funding, other programs may face cuts; governor presses for freeze on foreclosures

Mark Hornbeck / Detroit News Lansing Bureau

LANSING -- Michigan's deepening economic crisis will force Gov. Jennifer Granholm to order budget cuts by year's end that could be in the hundreds of millions of dollars and impact spending across state government, possibly including aid to public schools.

Granholm also asked lawmakers Thursday to pass legislation giving authority to state financial regulators to put a 90-day freeze on foreclosures, and she directed the state treasurer to make $150 million available during the credit crunch to help small businesses meet payroll and to help get loans to citizens who want to buy large items, such as automobiles.

The governor announced she will make executive-order cuts, probably in December, but won't have details on programs affected or the amount to be slashed until the University of Michigan makes its state and national economic forecasts on Nov. 20-21.

"We know we have to cut; we don't know how much we're going to have to cut," Granholm said during a news conference.

Asked about the possibility of school-aid reductions, she said: "Nobody wants to cut school funding in the middle of the year," but added she'd wait for the U-M forecast before making a decision.

Senate Majority Leader Mike Bishop, R-Rochester, agreed cuts must be made.

"It's a reality. Our fortunes have changed the last four or five months and it requires we step back in and reposition ourselves," he said. "We have to put together cuts based on priorities."

House and Senate fiscal analysts report the state budget for the fiscal year that started Oct. 1 is probably $300 million to $900 million out of whack, because of the global financial collapse, the foundering auto industry and the overall languishing economy.

"We could be looking at job loss numbers in 2009 that are similar to numbers during the recession in the early '80s," said Gary Olson, director of the Senate Fiscal Agency. He said the state has lost 1.5 percent of its jobs in each of the last few years, and the decline could be in the 3 percent to 5 percent range next year.

But how much actually needs to be axed from the state budget depends on the economic forecast and the amount of Medicaid relief available in a federal stimulus package being debated in Washington, as well as the size of the carryover from last year's budget.

Mitch Bean, director of the House Fiscal Agency, said the state could get $300 million more for the Medicaid health care program for the poor and disabled. Olson said the figure could be as high as $600 million. That federal aid would allow the state to shift money from Medicaid to pay for other programs and services.

"They're selling this as a way to help states balance their budgets ... not as a way to expand Medicaid programs," Olson said.

Olson and Bean said the state's surplus from the fiscal year that ended Sept. 30 is likely to be $200 million to $250 million.

"The amount of any reduction in state revenue above that, we just don't know yet," Bean said.

Since 2002, the state has severed some $3 billion from the budget, affecting a long list of spending, including especially deep cuts in funding for colleges and universities and aid that communities use for police and fire protection, road repair and garbage pickup. While they were cutting, Granholm and lawmakers raised taxes $1.4 billion in 2007 to help balance the budget.

There also have been a couple of mid-year reductions in public school aid. Olson said the school aid pot is $150 million to $300 million short. A cut of $100 per student saves the state about $160 million. The state provides a minimum of $7,204 per student. A reduction of $100 per pupil would cost a large district like Detroit Public Schools about $9 million to $10 million.

"School aid depends on sales tax. And retail sales looking ahead through the Christmas season are not expected to be good," Bean said.

If cuts come, many school districts are likely to dip into their savings. Bob Cipriano, director of business services for Dearborn Public Schools, said his district would do everything in its power to keep from cutting teachers or programs now.

"It's very difficult to change anything in the middle of a school year, and we'll avoid that at all costs," Cipriano said. "We would need to utilize any fund balance and make plans for those reductions in the following year."

He said the Dearborn district, which has an annual budget of $200 million, has just $5.7 million left in fund equity -- less than the 10 percent to 15 percent of annual budget experts recommend that districts keep in the bank.

"We'd prefer not to use our fund balance, but that at least gives us time to plan -- and we would expect the same from the state," Cipriano added. "Don't give us a mid-year cut; tell us we're getting a cut the following year so we can plan appropriately."

As part of her financial distress relief package, Granholm also said Thursday she will:

• Ask the Legislature to approve a bill authorizing state banking and insurance regulators to call for a 90-day freeze on foreclosure proceedings to allow homeowners and lenders to work out new payment plans. Chances of passage are uncertain.

• Direct state Treasurer Bob Kleine to make $150 million available to state banks and credit unions for small businesses struggling to meet payroll and citizens wanting to make large purchases like automobiles. The money comes from cash dedicated to future spending for school aid, revenue sharing, or other accounts. Treasury sometimes invests the cash while holding it. Granholm's aides said she can accomplish this without legislative approval.

• Urge state lawmakers to pass so-called "promise zone" legislation that would allow communities in high-unemployment areas to offer free college tuition.

• Seek quick resolution in the Legislature on Cobo Center expansion and a light rail system along the Woodward corridor in Detroit to spur economic development and construction jobs.

Senate Majority Leader Bishop isn't surprised by Granholm's priorities for the Legislature's nine remaining days in session this year.

"I recognize the importance of Cobo and the light rail is a great public-private opportunity. But I have to say what we need to do is identify a few things we can do and do them, instead of throwing a bunch of things on the table."

Staff Writer Karen Bouffard contributed to this report.

Granholm to release $150 million for banks to loan out

Foreclosure freeze also sought


LANSING -- Gov. Jennifer Granholm said Thursday she'll release $150 million from the state treasury for banks and credit unions to loan to businesses and consumers who've been squeezed by the nation's credit crunch.

She also said she'll ask lawmakers to allow a 90-day freeze on home foreclosures to give homeowners time to refinance their loans with lenders.

Granholm also warned, just five weeks into the budget year that began Oct. 1, of more state budget cuts by year's end to avoid a deficit that could be as high as $600 million. She said she would wait until University of Michigan economists issue an economic forecast later this month before ordering budget reductions.

Granholm said a new federal stimulus package would lessen the need for cuts if states get more federal money.

"We know we're going to have to cut," she said. "We don't know how much we're going to have to cut."

The financial incentives were among a raft of plans and pleas to the federal government from Granholm in an effort to help Michigan withstand the shock waves from its faltering auto industry.

The state will purchase $150 million in certificates of deposits from state banks and credit unions and get competitive interest on the CDs. The banks and credit unions, in turn, would use the state money to provide loans, 80% to Michigan businesses, Granholm said.

How the remaining 20% is loaned has yet to be determined, said Department of Treasury spokesman Terry Stanton. He said the $150 million would come from a cash fund that's routinely invested in financial markets. The difference is that the $150 million is earmarked to be used for loans mostly to Michigan businesses.

Todd Anderson, spokesman for the Small Business Association of Michigan, said small businesses are having difficulty acquiring loans to grow or purchase equipment. He said while the details of the governor's cash infusion plan were unclear, "if it encourages banks to make loans, we appreciate the effort."

Plea to Congress

Expecting dire financial reports from Detroit's three automakers, Granholm on Thursday issued a plea to Democratic leaders of Congress to approve emergency federal aid for the ailing U.S. auto industry. She requested $260 million in federal aid to build new roads, sewers and other infrastructure projects she said would create over 4,000 jobs.

In a letter to U.S. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., Granholm also asked for federal money to help homeowners avoid foreclosures, and for an extension of 13 weeks on how long unemployment benefits can be collected.

Granholm also said she'll ask state lawmakers to tackle four issues during their lame-duck session:

• Authorizing expansion of Cobo Convention Center in Detroit.

• Allowing the state to impose a 90-day freeze on foreclosures to allow homeowners to refinance with their lenders.

• Allowing communities with large numbers of low-income residents to provide free college tuition for students, similar to the privately funded Kalamazoo Promise. The new Promise Zones would match state tax money with private donations for tuition grants.

• Authorizing legislation to permit use of some state transportation dollars for a light-rail transportation system on Woodward Avenue in Detroit.

Contact CHRIS CHRISTOFF at 517-372-8660 or

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