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Published: 4/20/2007

Budgetary woes the tip of Michigan's iceberg of a crisis

ANN ARBOR, Mich. - Kalamazoo County Administrator Don Gilmer understands state government far better than most people, which is why he is deeply worried about Michigan.

"I was alive then, but I am too young to really remember the payless paydays that happened in the 1950s. But I think we could easily be headed there again," said Mr. Gilmer.

He has reason to know what he is talking about. Mr. Gilmer served in the Michigan Legislature from 1977-99, before becoming Gov. John Engler's budget director. He has always been a loyal and dedicated Republican. But he is not especially happy these days with his party's leadership in the state senate.

Whether or not you agree with Gov. Jennifer Granholm, Mr. Gilmer said, the Senate needs to be willing to talk - and compromise. "Basically (all sides) have to get all the leaders in a room, and check their guns and cell phones at the door," he said.

"Then they have to sit down, lock the doors, get to know each other very well, thrash it out, and someone has to keep them in there until they reach a deal," he said.

Three months ago, Mr. Gilmer was one of a dozen members of the governor's bipartisan Emergency Financial Advisory Panel. When the panel was formed, conservatives snorted that it was merely meant as a cover for the governor's secret desire to raise taxes.

But the panel actually had as many Republicans on it as Democrats, and they not only came to a unanimous conclusion, they produced one of the shortest (19 pages), best, and too-little-read reports in recent government history.

The advisers did call for revenue increases - but also for government streamlining, budget cuts, and virtual reinvention of parts of state government. Former Gov. James Blanchard, who co-chaired the panel, thinks the governor ought to have sent a copy of their report to every household in the state.

If she had, more of us might be more scared. The report opens with an assessment by respected, nonpartisan analyst Tom Clay that "the state faces a fiscal train wreck." The commission then concludes:

"Budgetary woes do not begin to describe the depth of the governmental crisis facing Michigan. Leaders have only weeks, at most four months, to solve this crisis or face the rightful wrath of Wall Street, students, retirees, workers, and employers thinking of staying in or moving to Michigan." That was published Feb. 2.

Little has happened since. The governor somewhat timidly proposed a 2 percent sales taxes on most services. The Republican-controlled state Senate rejected that contemptuously, with no attempt at compromise. They then passed a budget calling for draconian cuts, a budget the Democratic state House ignored.

Meanwhile, the state, with a deficit approaching $1 billion, careens down the track to disaster. Standard & Poor's, the credit rating agency, downgraded Michigan last summer, when the legislature abolished the Single Business Tax, effective next year.

Dumping the tax wasn't the problem; what was is that the lawmakers irresponsibly put off coming up with a replacement tax. Nearly a year later, there still isn't one. Everybody agrees no business is going to want to relocate to Michigan if they can't even tell what their tax structure will be. But the legislature still dithers.

Jim Weimken, a vice president of Standard and Poor's who monitors conditions in Michigan, confirmed reports that the agency will downgrade Michigan's credit rating again by June 1 if a budget deal isn't reached by then. "But that doesn't mean we won't do it earlier," he added. Michigan's current AA rating is more like the equivalent of a report card C or C-minus. It is already below where more than half of the rest of the states are, he noted.

Should the state's credit rating be lowered again, it will be increasingly hard for Michigan to borrow money or sell bonds, and the state is likely to have to pay higher interest penalties.

Meanwhile, many of the state's schools are facing a fiscal crisis which is about to get worse. Thomas Svitkovich, superintendent of Genesee County Intermediate Schools, noted that Flint schools are already looking at a $13 million deficit. They are likely to lay off 100 teachers, plus some staff, and close an elementary school.

This is happening just as tough new high school graduation standards are kicking in. Schools need more teachers, but many will have less. Last week, the state budget director said that if a deal wasn't reached by May 1, he would cut school funding by as much as $125 a pupil for the last month of this year.

That would mean disaster, and districts ending their fiscal years with technically illegal deficits, unless something happens soon.

"I blame term limits most of all. It takes years to learn the complexities, and learn how to be a legislator," Mr. Gilmer said.

Michigan's future may depend on a few key people getting some common sense - and learning on the job very quickly.



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