Michigan's budget deficit gets deeper

Lansing -- Collections from major taxes continue to plummet, sinking the recession-wracked state budget deeper into deficit, Gov. Jennifer Granholm said Monday.

Sales, income, business and property tax receipts substantially lag estimates earlier this year. State economists say revenues were $100 million behind projections in January and February, and it appears March tax receipts will be down by a similar amount.

Granholm said $2.1 billion in unrestricted cash from the federal stimulus package over the next two years won't be enough to rescue the withering budget.

"You could use every single dollar to fill up the deficit, and you'd still have to cut a significant amount," she said.

Gary Olson, director of the Senate Fiscal Agency, said that's a worst-case scenario. He said the governor has recommended using $800 million in recovery money to balance the budget this year and next year. That leaves $1.3 billion in uncommitted federal cash that the state expects to get.

"Could general fund estimates go down by $650 million each year? That's an 8 percent decline. It's doubtful, but it's in the realm of possibility," Olson said. This year's general fund is about $8.3 billion.

Leaders in the Legislature will huddle with state budget director Robert Emerson on Thursday to hash over the gloomy fiscal picture. The state's top fiscal analysts will meet in May to figure out how much money the state will have to spend this year and next. The budget is based on those estimates. The projections made in January have proven to be optimistic as the state suffers from the recession and the staggering auto industry.

If it's decided this year's budget is out of whack, Granholm may have to make cuts by issuing executive orders in order to balance the books, which the state constitution requires. It's not known where the reductions would come from or whether leaders will use federal recovery money to keep from having to make cuts in the middle of the year.

"We've got to plan in the most conservative way possible and make the cuts that are necessary to be able to survive long term," Granholm said.

Granholm has proposed deep cuts in next year's budget that begins Oct. 1 -- estimated to have a $1.6 billion deficit -- including 1,500 state employee layoffs, closure of prisons and a mental health facility and elimination of a state department. Budget officials have said some of those cutbacks may have to be made earlier to balance this year's budget.