Lawmakers scramble to find solutions to plummeting state revenues

LANSING — As the state is bracing for the worst for the coming budget 2010-2011 year, many are also working to find answers.

In an interview with Michigan Messenger on Monday night, Rep. Joan Bauer, a Democrat from Lansing who serves on the Appropriations Committee, said the state has to look at long term tax reforms.

“There are some things we could do to provide a more stable base,” she said. Among the options she listed: A graduated income tax, which would require a vote of the people, or an expansion of the sales tax to cover services.

Bauer said her thinking on the later option has changed over the years, and she now believes that expansion is necessary because our economy is more service focused, than product purchase focused. She mentioned legislation introduced by East Lansing Democrat Mark Meadows which would reduce the sales tax from 6 percent to 5 percent and expand it to cover services. Bauer siad that plan would increase revenues substantially.

“That will mean doing some short-term things, but longer term as well. If we do not have the discipline, the courage to now — before the fall — to look at real tax reform, we will be next year, at this time … [the current budget crisis] is going to seem like a piece of cake,” she said.

Acknowledging that short-term budget fixes feel something like moving the deck chairs on the Titanic, Bauer said the state has to enact temporary measures to fill the budget gaps.

Those measures she noted included a freeze on personal income tax exemptions, which would cost the average taxpayer about $4.35 she said; to filling in loopholes which give massive breaks for everything from the arts to oil companies through exemptions.

Bauer pointed her frustrations at Senate Republicans, who she said refuse to move on any revenue increases, but said that Speaker Andy Dillon, a Redford Democrat, also bears responsibility for the mess because he agreed to the GOP’s cuts-only plan, which eliminated $1.3 billion in state spending without replacing it.

“We had huge doubts about the strategy,” Bauer said. “We had hoped we would have sent over a budget with revenue attached.”

Bauer said she and fellow Democratic caucus members tried to warn Dillon about their concerns. Instead, they found themselves voting against budgets because they did not want to cut vital services, like K-12 education.

To solve the current crisis caused by a combination of the cuts in the final budget sent to Gov. Jennifer Granholm and her line items vetoes, Bauer said something has to be done. A last-grasp measure, she said, would be to use what remains of the state’s federal stimulus money to plug the holes.

Michigan received about $1.3 billion for use on state issues, she said, noting that money was supposed to be used over two or three years. But the state only has $184 million left, and lawmakers could opt to use that money to plug the holes caused by the budget and subsequent veto.

The problem?

“That just means a year from now we are even deeper,” Bauer said.

And how bad are things starting to look already?

Liz Boyd, spokeswoman for Granholm, told The Associated Press Tuesday that state agencies have been directed to develop budgets of next fiscal year “that reflect a 20 percent reduction.”

That 20 percent reduction is on top of a 10 percent reduction many department took in the budget finalized Friday by Granholm.

Michigan, already dealing with the nation’s highest unemployment rate, faces an unprecedented challenge in putting a balanced budget in place next year, Boyd said.

“This is a tall order when you take into consideration the state’s revenue picture, the loss of the federal dollars … and the growth in services that people rely on in tough times,” she said.

The AP story says Michigan is struggling with the lowest revenue rates since 1964 if one adjusts for inflation. Since 2003, the state has eliminated $10 billion in revenue short falls, including $1.9 billion in the most recent budget.