Thursday, May 14, 2009

Michigan Economic Crisis Update: Budget Shortfall Hits $2 Billion; Detroit School Czar Asks for Federal Emergency Funds

Thursday, May 14, 2009

State budget shortfall could eclipse $2B

Mark Hornbeck / Detroit News Lansing Bureau

Lansing -- The outlook for Michigan's recession-bludgeoned budget for next year is grim or grimmer, according to two state financial forecasts released Wednesday.

A Senate Fiscal Agency report says the deficit is on course to eclipse $2 billion for the budget year that starts Oct. 1. The House version, while still gloomy, predicts a slightly more optimistic $1.58 billion shortfall, more in line with recent predictions.

Either way, the state would be looking at cuts beyond those announced last week to solve this year's budget gap -- possibly to schools and universities -- and fee increases.

Both outlooks indicate tax collections will continue to fall as the economy worsens, pushing the state deeper into the hole.

The economic outlook released by the Senate Fiscal Agency predicted that state unemployment will average 14.2 percent this year and 16.9 percent next year, and personal income will dip by more than 4 percent in each of the two years. The House Fiscal Agency expects the jobless rate to be 13.6 percent this year and 14.5 percent next year. The state's jobless rate peaked at 15.5 percent in 1982, and was 7.8 percent in 1979 when Congress OK'd a bailout of Chrysler.

"The revenue numbers are depressing," said Gary Olson, director of the agency, the financial arm of the state Senate. "There's no way to get out of this without significant cuts."

Fresh off approving more than $300 million in budget reductions and using $1 billion in federal stimulus money to close the yawning gap in this year's budget, Gov. Jennifer Granholm and lawmakers are looking at more cuts in programs and services and another infusion of money from Washington to erase next year's shortfall. The directors of the House and Senate fiscal agencies and the state treasurer will huddle Friday to determine how much money the state has to spend through next year.

It's growing more likely that the executive order cuts made last week -- including State Police layoffs, cuts to health care providers who treat the poor, revenue sharing reductions to cities, unpaid days off for state employees and across-the-board reductions in state departments -- will be extended at least through next year.

"The cuts last week were considered a down payment," said Liz Boyd, spokeswoman for Granholm.

Olson added that spending for public schools and colleges likely can't be maintained at current levels over the next couple years "absent a general tax increase."

Granholm has proposed closing business tax loopholes and increasing fees for tobacco products, liquor licenses and state parks totaling about $230 million. More than two dozen education, labor, human services and other groups will call today for closing tax loopholes totaling $400 million .

But the governor and legislative leaders have said they will not resort to a general tax increase. The state income tax and business taxes were raised by $1.4 billion to eliminate red ink in 2007.

"To go back again to ask people struggling themselves to pay more for government that is too big and inefficient is not an option," said Matt Marsden, spokesman for Senate Majority Leader Mike Bishop, R-Rochester.

House Republican Leader Kevin Elsenheimer of Kewadin said profound state budget and tax policy reforms, which have proved elusive, must be made to balance the books.

"We must enact reforms that attract jobs and investment to our state," he said.

Olson said the state has $2.3 billion in discretionary federal stimulus money to help bail out the general fund and school aid budgets in the 2010 and 2011 budget years.

The general fund, the state's main checking account, will drop 9.3 percent next year to $6.7 billion, and the school aid pot will decline 5.1 percent to $10.3 billion, according to the Senate Fiscal Agency report. The House document says the general fund will be $7.1 billion and the school aid fund will be $10.6 billion.

The Senate report predicts vehicle sales will decline from 13.2 million last year to 9.3 million units this year and then rise slightly to 10.5 million next year. The House forecast says auto sales will dip to 9.5 million units this year and then increase to 11.1 million next year.

"You look at those numbers and you see why we are where we are," Olson said. "By the end of 2010, we will have lost 25 percent of the jobs we had at peak employment in July of 2000."

The two reports confirmed that this year's budget will be about $1.3 billion short of estimates made in January. Without the federal recovery cash the general fund would end this year $931 million short and the school aid fund would be $465 million shy, the Senate forecast says. (313) 222-2470

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Thursday, May 14, 2009

DPS asks for federal disaster funding

Jennifer Mrozowski and Santiago Esparza / The Detroit News

Detroit -- Detroit Public Schools emergency financial manager Robert Bobb on Wednesday asked the federal government to put the school district under a "special presidential emergency declaration" to allow it to receive emergency funding.

"We are encouraged by the administration's redirection of additional resources into school improvement," Bobb said in a letter to U.S. Secretary of Education Arne Duncan. "However, much bolder action is necessary to redirect the Detroit Public Schools so that it may become a model for 21st century urban education."

The U.S. Department of Education did not comment on the request, but state officials said no other Michigan school district has used this tactic.

Presidential emergency declarations are typically made available only in natural disasters, which may mean Bobb's request is not applicable.

Duncan, who was in the city on a listening tour, did not address Bobb's request, but said the district is poised to receive federal funding -- possibly millions of dollars -- if radical changes occur.

He also said he supports efforts to have Detroit's new mayor take over the school system, saying necessary changes happen when good leaders are in control.

"I am strongly advocating for mayoral control," Duncan said at Cody High School on the city's northwest side.

Mayor Dave Bing, who accompanied Duncan on his tour of Cody, said now is the time for mayoral control, but added that he prefers a ballot measure versus legislative action.

"A lot of the leadership is perfectly aligned to make changes," said Bing, who has consistently said he would welcome the opportunity to take control of the troubled district.

Bing later addressed a national United Way convention at Cobo Center, saying that improving the district is a top priority and that he plans to rely on partnerships to help get the job done.

Mayoral control is not new to the system, nor has it been embraced by voters.

In 1999, then-Gov. John Engler pushed for a takeover of the district by empowering the mayor. Legislation passed that year allowing the mayor to appoint six board members, but Detroiters felt resentment over the loss of local control and voted in 2004 to restore the elected board.

They picked an 11-member board the next year, and the elected group took control in January 2006. By many accounts, the takeover left the district in worse shape than before.

Wayne County Commissioner Keith Williams, talking with a group of leaders assembled at Cody, said mayoral control isn't the answer.

"We don't need a takeover," he said. "We need cooperation."

Duncan, before ascending to his federal spot, was superintendent of Chicago Public Schools. That district is run by Mayor Richard Daley. He said he hopes the Detroit schools can move from being a "national disgrace" to a "national model," and he would like to commit significant federal resources to help the system.

But to receive the funding from Washington, Detroit will need to make dramatic reforms, Duncan said on WDET-FM's (101.9) "Detroit Today."

"We're not going to invest in the status quo," he said. Regarding Bobb's letter to Duncan, district spokesman Steve Wasko said the district's education crisis is like the one New Orleans schools faced after Hurricane Katrina, necessitating the special request.

"The basic concept is that all levels came together in the case of New Orleans after Katrina," Wasko said. "Our emergency has been longer in coming and slower to dissipate. That is the same level of call to action we need in DPS."

Bobb's requests included funds for a new student information system, new construction and improvements to existing schools. Because of the more than $300 million deficit the district is facing, Bobb asked that the district be exempt from the traditional process that requires the system to pay for improvements and then receive federal reimbursement.

He pledged "bold" action to reform the system.

"While we are planning to fundamentally alter the way we are organized in the Detroit Public Schools, we do not have the financial resources to fund the investments I know are necessary to turn around this system," Bobb said.

Duncan credited Bobb with making quick improvements to the district, which includes the announcement Tuesday that 29 schools will be shuttered as part of a plan to trim the deficit.

During the tour of Cody High School, Duncan also met with students. The school was selected for the visit because it's being transformed this fall into a collection of smaller, specialized programs on one campus. Duncan also met with Gov. Jennifer Granholm, State Superintendent Mike Flanagan, Detroit Federation of Teachers President Keith Johnson and Bobb.

"We're here because we want to figure out how to make Detroit Public Schools the best in the country," Duncan told students.

Flanagan, who launched the process to have an emergency manager appointed in Detroit Public Schools, said he, too, is optimistic about the changes in the district. (313) 222-2269

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