Granholm's budget plan

Gov. boosts spending 2.2 percent

School aid up; prisons to let 5,500 inmates out

Mark Hornbeck and Charlie Cain / Detroit News Lansing Bureau

LANSING -- Public schools, colleges and preschoolers would be big winners under an education-centered state budget proposed Thursday by Gov. Jennifer Granholm.

Other beneficiaries of the $43.4 billion state budget for the fiscal year starting Oct. 1: local police and cities that share services.

Among the losers are businesses and residents who'd pay the governor's new 2 percent services tax, libraries, smokers, drinkers, private college students, heirs to wealthy estates and many businesses -- most notably insurance and real estate companies and banks. Also among the losers: state prisons, some of which she hopes to close in favor of releasing 5,500 old and sick criminals, and nonviolent offenders who would go into supervised community programs.

The budget marks a 2.2 percent increase over this year's spending. The $9.5 billion general fund, the state's main checking account, would be increased by 3.5 percent, above the inflation rate of near 2 percent.

"This isn't going to fly like this," said Ron Jelinek, R-Three Oaks, the Senate Appropriations chairman. "We're talking about raising an additional $1.5 billion in taxes and spending every dime of it."

In addition to proposing her next year's budget, Granholm outlined a plan to balance the current year's ledger. She wants to do that by deferring some spending to next year in hopes that lawmakers will approve the services tax and the money -- $1.5 billion a year -- will start rolling in June 1.

The governor also is calling for a 5 percent increase in the liquor tax, to generate $29 million; a nickel-a-pack hike in the cigarette tax, for $21 million; and an inheritance tax on estates more than $2 million -- a $119 million money-maker for the state.

Lawmakers can choose to accept all, some or none of the governor's budget recommendations for next year -- and she can veto what they send her.

Of the $400 million in budget cuts she recommended for this year and next year, about a quarter of the savings would come from releasing thousands of sick, elderly and nonviolent inmates from prison and moving many of them into community programs or tethers. The House and Senate appropriations committees must approve those reductions.

Also cut over the two budget years would be $80 million in day care and welfare assistance; $58 million in private college tuition grants; and local libraries, whose state funding would be cut in half, to $6 million. State departments will be asked to trim $167 million.

Big-ticket additions to the budget that begins in October include $200 million for preschool programs for low-income families and $40 million to hire more welfare workers and beef up the child welfare system to ensure children are placed in safe, permanent homes. The additional child welfare workers come on the heels of recent abuse cases that ended in the deaths of children.

Schools to get 2.5% hike

Schools would be spared cuts this year, even though the school aid fund is $377 million in the red. A retirement accounting change and proceeds from the proposed service tax would fill the hole.

Local districts would get a 2.5 percent increase next year, or a $178-per-student raise next year to a minimum of $7,286. Granholm said a service tax rejection would mean "incredible and deep cuts to public education."

Community colleges and four-year universities would also get a 2.5 percent raise.

Factories would benefit

Included in the governor's proposal is a replacement plan for the Single Business Tax. Her plan: A low-rate tax on profits, sales and assets, and a major cut in the tax on equipment.

Manufacturing and construction and many service businesses would be winners, according to state Treasurer Robert Kleine. Losers would be insurance and real estate companies and banks.

Overall, the $1.9 billion corporate tax would be replaced by a version that would generate about $1.5 billion. But that savings would be more than wiped out by the service tax. Individuals would also pay about $500 million, or $65 a year for an average family earning $57,300, in service taxes.

Rob Fowler, CEO of the Small Business Association of Michigan, blasted the service tax as "nothing less than a sharp stake aimed right at the heart of the small business economy."