LANSING – After two years of major budget cuts, tax changes and controversial policy changes, Governor Rick Snyder on Thursday proposed a 2013-14 budget of nearly $51 billion that attempts to master prudent growth and investing additional money into education while at the same time winning approval for some controversial transportation tax increases and creating a spending plan Wall Street will reward with a higher credit rating.
In outlining his third budget proposal to a joint meeting of the House and Senate Appropriations committees, Snyder put some tires on the wheels of his transportation funding proposal by outlining what the retail equivalent of his gasoline tax proposal would be, as well as how large an increase motorists would pay on their vehicle registration.
He also called for making a major investment in the state’s early childhood education system, which was probably the most significant change to the state’s education system proposed. Snyder did, as Gongwer News Service first reported, call for 2 percent increases in K-12 school aid, higher education and community colleges. But that increase was blasted for not being more.
Snyder also called for a significant contribution of $75 million to the state’s Budget Stabilization Fund. While that move was questioned, especially as the BSF now has more than $500 million in place, the move provides the state with extra insurance against the unforeseen, the administration said.
Budget Director John Nixon told the combined committees it could also help the state with its bond rating.
The budget was titled “Moving Michigan Forward – Continuing Our Comeback,” and Mr. Snyder told the committees the budget was aimed at building on the success the state is beginning to show following the changes enacted in 2011 and 2012.
In a roundtable discussion with reporters after the presentation, Nixon said the budget ranks as one of the finest he had ever worked on, and compares favorably to budgets produced by states with AAA ratings.
“I’ll put this up against any budget in the country,” Nixon said.
Snyder simply told reporters that it was a “great budget.”
The budget also represents a critically important change for the state, as it presumes the era of budget cuts is over. Asked what cuts were in the budget, Snyder and Nixon said essentially none. There are situations where one-time funding provided in the 2012-13 budget is not renewed, they said, but they would not classify those as cuts although surely those who receive those funds would disagree.
While it calls for more spending in certain critical areas, and calls for higher taxes in the area of transportation funding, the budget still hews to certain basic conservative practices that Snyder (who is an accountant by background, as the title page of the budget document makes clear with his CPA designation by his name) has adopted.
For example, in a number of areas it calls for one-time funds instead of building basic funding into the base of those programs. Nixon said most states would add funding to a program’s base, leaving the program exposed to the chance of significant cuts when financial situations turn bad.
Even controversial decisions such as his call to expand Medicaid eligibility for adults with incomes of 133 percent of the federal poverty level are geared towards overall fiscally sound values, Snyder, Nixon and Community Health Director Jim Haveman said.
Society is already paying the cost of uncompensated care, Snyder said, and by being proactive in this manner it can help shift the cost of caring for these individuals into a less expensive mode.
Nixon said the state will actually save “some hard dollars” with the Medicaid proposal.
Another example of fiscal conservatism that Snyder took particular note and pride in was the change in state spending on anticipated state and education worker retirement. In fact, as he outlined his budget proposal to the legislative committees, Snyder praised them for their “outstanding work” on the retirement changes in the last several years.
The overall long-term spending cuts the changes will provide – an anticipated $21.3 billion with $15.6 billion of that in school employee pension changes and $5.7 billion for state employees – “is just huge,” when it comes to overall state spending, Snyder said.
The administration also forecast that given the state’s current population, the savings from the reduced pension amount would total more than $2,200 a person.
In outlining the basic elements of the budget, Snyder, Nixon and Lt. Governor Brian Calley focused not just on the Medicaid and transportation proposals, but on a series of measures especially designed to improve overall health. Those included an increase in the number of children getting dental care under the Healthy Kids Dental program to another 70,500.
Calley particularly highlighted a plan to put $2.5 million into infant mortality reduction, which he said was far too high in the state and one of the few areas on the report cards (which Snyder started) that had not shown improvement.
Monitoring legislative responses to the presentation via social media, legislative Democrats complained that the budget presentation did not discuss programs for cities.
And while there was widespread support for Snyder’s plan to add a new trooper school for the Department of State Police, Democratic legislators complained that it failed to recognize that local governments have been forced to reduce police and fire services.
Republicans – while generally praising the overall budget – did question the Medicaid expansion proposal and the transportation plan.
Sen. John Pappageorge (R-Troy) said the state could simply make permanent the one-time change in funding it had enacted for the 2012-13 budget, which moves some of the sales tax collected on fuel sales out of the School Aid and General funds to transportation. That would meet the state’s match with the federal government.
But Nixon said that was a solution that would provide only about $120 million to $130 million to the state, and the overall problem was at least $1.2 billion.
Sen. Mike Green (R-Mayville) questioned why the state would want to trust the federal government in terms of the Medicaid expansion – even Mr. Snyder had said the biggest threat to the budget was the overall operations of the federal government, Green said.
But Nixon said officials had to recognize that the federal Affordable Care Act will become a reality after both the U.S. Supreme Court upheld its constitutionality and President Barack Obama was re-elected. Expanding Medicaid eligibility will help state residents and businesses control costs and provide real savings to the state.
Given the importance the state placed on the Budget Stabilization Fund contributions, and with Nixon saying the budget would compare favorably to budgets from AAA-rated states, Nixon was asked if the administration thought the budget could win Michigan the coveted AAA rating from Wall Street agencies.
That would be too much a step from the AA- ranking the state holds with two agencies, Nixon said, but it should be enough to get the state back on the right course.
“But it does put us in a great position to ask for an upgrade,” Nixon said, and he, the governor, and other state officials will travel soon to New York City meet with rating house officials to discuss the state’s financial situation.
The state is “poised and deserving” of an upgrade, Nixon said, and “we know it’s coming.”
Even without an upgrade, Snyder said, when the state last went to the bond market, the changes it had made won it the lowest interest rate on a new issue in state history.
THE BUDGET BASICS: The total proposed spending by Snyder for 2013-14 is $51.6 billion, approximately a 5.8 percent increase over the total $49 billion projected to be spent in the current fiscal year.
For 2014-15, Snyder projects spending a total of $53 billion, a 2.7 percent increase over 2013-14 and an 8.1 percent increase over spending in the current fiscal year.
For the current year, total non-education spending would ring in at $36.6 billion, up $2.3 billion from the current year.
Education spending would total $15 billion, up some $500 million over the current year.
The bulk of the overall increased spending comes in two areas: community health and transportation. And those changes are due mainly to the state expanding Medicaid eligibility and boosting transportation revenues.
The budget totals show that overall spending for DCH would rise by $1.6 billion, or 10.7 percent overall.
But the percentage increase for transportation is a whopping 32 percent due to the anticipated increase of $1.2 billion through increase taxes and federal matching funds.
In fact, there are reductions of more than $767 million from the current year in the budget. If those reductions were not included, overall spending would be up by $3.3 billion over the current fiscal year.
In terms of the revenues for the 2013-14 fiscal year, total General Funds are anticipated at $9.036 billion, and education spending will account for $1.5 billion of that.
School Aid Funding is expected to total $11.6 billion.
Other state restricted funds will total nearly $8.8 billion. Of that, the largest single share will be in the transportation funds, which will total $3.3 billion (presuming the increases Snyder has called for are adopted by the Legislature).
That puts so-called restricted funds at a total of $20.4 billion, the largest share of overall state revenues.
But even that is dwarfed by expected federal funding of $20.8 billion. Of that, $18.96 billion will go to non-education budgets. And of that, more than half, $11.4 billion, will go to DCH. That is followed by $4.8 billion to the Department of Human Services and then nearly $1.2 billion to transportation.
Local revenue sources provide the budget with $345.5 billion and private funds will provide a total of $136.1 million.
Spending from all state sources will total $29.4 billion, the budget forecasts, with $16.3 billion for non-education sources and another $13.1 billion for education purposes.
The 2013-14 budget also reflects a contribution of $75 million to the BSF, which increases to a $150 million contribution in 2014-15 (Mr. Snyder has said his goal is to get the BSF up to $1.2 billion), as well as Medicaid savings for the proposed health savings account of $103 million in 2013-14. Medicaid savings were projected to increase to $137.8 million in 2014-15.
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