LANSING – Governor Jennifer Granholm expressed wariness on Tuesday about re-opening a wide-ranging debate on the state’s tax structure, but renewed her own proposal for a reduction in the Michigan Business Tax surcharge as part of the payoff from savings achieved through changes in prisoner sentencing policies.

She also said she is looking at the potential of an early revenue estimating conference in light of the shaky economy and its impact on revenues.

The governor made her comments relative to proposals by House Speaker Andy Dillon (D-Redford Township) to craft a comprehensive plan addressing the MBT and homeowner property taxes.

“I’ll have to talk with him,” Granholm said. “I’m always open to hear what ideas are out there to make Michigan better.”

But noting the acrimonious debate surrounding last year’s debate that produced the surcharge as a way to balance the budget, she said she does not want to go back and reopen budget problems.

In May, the governor proposed offsetting some of the MBT surcharge with savings from reforms in the Corrections budget and she said Tuesday that continues to be her goal, along with using other portions of the spending savings for increased law enforcement. A process is underway with the Council of State Governments to identify savings in the budget – one benchmark is the state has a higher incarceration rate for longer terms than surrounding states – but Republicans have pressed for ways to cut costs per prisoner.

Dillon spokesperson Greg Bird said the speaker agrees that Corrections budget reforms are a high priority, adding that the comprehensive reforms Mr. Dillon envisions also provides for voter participation in the form of a constitutional amendment. The House passed a proposal to bar increases in property taxes in a down housing market (HJR III ), though it remains lodged in the House pending further talks on a wider tax approach.

Asked about the governor’s concerns regarding the budget, Bird said a net loss in revenue is something that has to be talked about. “We want to ensure vital services are protected and that’s why we need to have this discussion on how we can reform the tax structure to protect services and to ensure that we remain competitive,” he said.

Senate Majority Leader Mike Bishop (R-Rochester) is open to Corrections reforms, but that phasing out the surcharge is mandatory if the state is to nurture business growth, spokesperson Matt Marsden said.

“The governor has to come to the table with a little bit more of an open mind,” he said. “It does blow a hole in the budget, but savings can be found. If filling the hole means creating an environment for business, then we have to do it.”

The national financial crisis, Granholm added, means the state is already facing a potentially huge impact.

“I’ve prepared my cabinet for potential cuts,” she said. The state has already reinforced its politics regarding travel bans and hiring freezes, and she added, “We have already battened down the hatches on spending.

“We might have to ask for an earlier consensus revenue estimating conference to gauge how e stand for the rest of the fiscal year,” Granholm said.

The state’s next scheduled revenue conference is in January, when officials from the executive branch, Senate and House reassess the revenue picture to determine if mid-year cuts are needed and to set spending levels for 2009-10.

Budget Office spokesperson Leslee Fritz said that with just two weeks into the fiscal year, it is too early to conclude from any data that revenues will suffer, but added the situation does call for constant monitoring. That, she added, means it is premature to talk about when a potential early conference would be called.

But she said state officials are confident the 2007-08 year concluded without significant overspending problems and that the $30 million in carryover funds that had been built into the new budget will in fact occur.

“We’re ok right now,” she said. But Fritz noted that further cuts in the auto industry will affect the state.

Dillon could also support an early revenue conference if and when financial information suggests it would be appropriate, Bird said. “Right now, from what we’re hearing, things are coming in but with the volatility of the markets, that could change quickly,” he said. “From the things we’ve seen, the coming fiscal year could be problematic.”

Bishop has already signaled his support for an early revenue conference, and Marsden said that is an attempt to get ahead of what the state is facing in the current as well as the 2009-10 fiscal years. That will help the state avoid the pressures of last year that led to the tax increases that Bishop says is hurting the state’s economy, he said.

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