LANSING – Governor Jennifer Granholm is apparently beginning the process of a massive overhaul of state government to “transform” it so government is more flexible and responsive to new economic realities, sources have said.

She may make the restructuring announcement part of her State of the State address on February 3.

While details are sketchy, Granholm apparently is naming Lt. Governor John Cherry to chair a new executive committee of her cabinet, with top officials acting as secretaries to oversee the multi-year effort that will extend through the rest of her term and go possibly into the first term of her successor.

One source, and all spoke on background, said Cherry has signaled this announcement at several interviews where he has said Michigan’s government structure is now based on a 1950s manufacturing model when it must be based on 21st Century realities that reflect an economy that is now largely services-based.

Another source said the plan is in keeping with other actions the administration has taken to consolidate human resources functions for state government and the administrative rules hearing functions.

But ongoing economic pressures and the overall shrinking of the state government workforce is also a major factor in pushing the drive for the restructuring, the source said.

Earlier this week, in fact, Granholm said “nothing was off the table” when it came to the efforts she would have to enact to balance the 2009-10 budget, including possible major governmental changes. Without any funding from a federal stimulus package, the 2009-10 budget is now looking at a $1.4 billion deficit.

Also pressuring the move to restructure government is the fact that while the state has some 22,000 fewer state workers than 30 years ago – even though it has nearly three times the number of Department of Corrections workers – the number of functions and responsibilities that state government must shoulder has increased, the source said.

A spokesperson for Granholm said she is working on the State of the State address and it would be premature to look at what might be featured in the address.

Sources indicated Granholm may raise in the State of the State address that despite previous attempts at restructuring state government, reform has been largely “static” for decades.

But the economic crisis the state is undergoing, with the need for cuts to help keep government’s budget balanced, helps put officials in a position to undertake the overall review, sources indicated.

There are indications that legislators, universities and others will be asked to be part of the review process.

The review process will look at how to eliminate duplication of functions, standardize operations and procedures, sources said. Those would be in keeping with other efforts Granholm has taken to streamline some operations, they said.

The process is expected to take years because of the complexities of adjusting law, moving personnel, closing offices let alone agencies and departments (and one source said eventually departments will be consolidated and eliminated) and re-establishing functions.

The move by former Governor John Engler to split the Department of Natural Resources into two departments, the DNR and the Department of Environmental Quality, took nearly seven years to fully complete, a source said, going well into first years of Granholm’s administration.

The process will also take time because “a lot of people are going to be unhappy,” a source said, and it will require substantial political efforts to win approval.

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