Granholm proposes budget fixes for 2010, 2011

Gov. Jennifer Granholm held a press conference on Wednesday to propose ways to fix the budget shortfalls for the current fiscal year, 2010, and for the FY 2011, which begins on October 1.

As is routinely the case, some cuts or shifts are necessary in the middle of the current year as a result of inaccurate revenue predictions. But the in-year maneuvering for 2010 are relatively minor compared to recent years because revenues for the School Aid Fund are higher than expected, balancing off General Fund revenues that were lower than expected.

For the remainder of this year, Granholm proposes to shift the funding for the state’s community colleges, which usually come out of the General Fund, over to the School Aid Fund, where the surplus can help make up the shortfall. That and an unexpected $94 million in federal funding for drug prescriptions covered under Medicare and Medicaid, the governor says, will address the roughly $303 million budget shortfall and make cuts unnecessary.

For FY 2011, Granholm blames the expected shortfall on “increased spending pressures, legislative refusal to consider corrections reform and a physician-provider assessment, and lower-than-expected federal funding through the Federal Medical Assistance Percentage (FMAP).”

The FMAP funding is for Medicaid and the state expected to get $560 million in FMAP funds for 2011, but Congress struggled to pass an extension of the program at all and the final figure is around $300 million instead.

The physician-provider assessment refers to a program called QAAP, which would impose a tax on doctors to establish a quality assessment program for Medicaid, but would qualify the state for hundreds of millions of dollars in additional Medicaid funding from the federal government. During last year’s budget battles, the Democratic-controlled House passed the bill to establish QAAP but the Republican-controlled Senate refused to do so.

In addition to the cuts contained in her proposed budget in February, Granholm is now proposing a 3 percent across the board cut for all state agencies, $50 million cuts to the budgets of the Departments of Community Health, Human Services and Corrections, and an unexplained restructuring of the state’s long-term debt. That brings the total of the governor’s proposed cuts to just over $600 million for next year’s General Fund budget, with no new revenue increases to offset any of those cuts.

She is also proposing to use $50 million from the School Aid Fund to establish a grant program for local school districts to encourage them to consolidate services to save money.

In a press release, Granholm said, “We must continue to make the tough decisions necessary to reduce spending. The cuts I’ve proposed help our state live within its means while continuing to provide critical services.”

But it’s hard to imagine how the Department of Human Services, for example, can continue to provide all critical services with an additional 3 percent plus $50 million cut to its budget, on top of the huge cuts last year that resulted in the layoffs of 350 DHS employees at a time when more Michigan residents than ever rely on Medicaid and other social programs administered by that agency.

Republicans instantly cheered the fact that the governor was proposing no new revenues this year. And given last year’s budget battles, it seems unlikely that House Speaker Andy Dillon will demand any new revenues to help prevent such deep budget cuts. It appears that the cuts-only approach to the budget will continue again this year.