Governor Granholm Releases Proposed FY 2011 State Budget

Governor Granholm presented her proposed state budget for Fiscal Year 2011 before a joint meeting of both Houses’ appropriations committees yesterday.  She acknowledged that during her administration she has made cuts to the budget every year and those cuts have dramatically affected how the state does business.  Despite these facts, the state once again faces another projected deficit of $1.6 billion if nothing more is done. 

The Governor’s budget for next year proposes that the gap will be filled by first assuming the federal government passes a bill extending the enhanced Federal Medical Assistance Percentage for two additional quarters.  This would result in about $500 million more in revenue.  Her budget proposal further assumes that the 29 reforms she outlined last week will be implemented.  Most of the savings that will accrue from those reforms comes from changes and incentives related to retirement commitments to state employees, and assumes that state employees retiring will be replaced by fewer employees at a cheaper cost. 

The most controversial proposal of Governor Granholm FY 2011 budget is to spread the sales tax to services and lower that tax to 5.5%.  In the short run this would generate about $554 million next fiscal year.  It would exclude health care, social assistance, education, new construction, real estate and insurance commissions, and business-to-business services.  In the long run, however, this new revenue would be offset by a proposed reduction and eventual elimination of the Michigan Business Tax.

The Governor also proposed some changes to the budget process, suggesting a two-year budget cycle.  The off years would be spent reviewing tax loopholes and credits with the intent of sunsetting those that are not creating jobs or offering direct benefits to the state.  She also said she would veto any budget that passes the responsibility for being balanced into the next fiscal year, or a “continuation” budget if the budget is not completed by October 1.  She asked that legislation be passed that docks the pay of the Governor and all legislators if the budget is not passed by July 1 each year.

Finally, the Governor re-introduced a Quality Assurance Assessment Program (QAAP) tax on medical providers that would generate $133 million and increase Medicaid reimbursement rates to Medicare levels.

Of special interest to MPCA and Michigan Community Health Centers are the following:

  • The primary care line item that provides funds to several of our members remains at current levels
  • Medicaid rates, eligibility and services remain the same BUT assumes passage of the service tax and the QAAP
  • A service tax is introduced, however it does NOT really address the structural deficit because it is offset over the next two years by an equal amount of reduction to the Michigan Business Tax
  • The idea of reviewing “tax expenditures” regularly was introduced

The last two provisions DO address two of the four planks to the “A Better Michigan Future” platform, a coalition of which MPCA is a member.

For a copy of the state budget visit www.michigan.gov/budget.

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