Michigan Lowers Business Taxes While Cutting Welfare Benefits and Aid to Eduction, and Taxing Retirement Income

Welfare Limits, Education Cuts Kick in Saturday

September 30, 2011

AP - Michigan's new state government spending plan kicks in Saturday, with lost welfare benefits for some families and education funding cuts among the repercussions.

Republican Gov. Rick Snyder acknowledges there's some short-term pain ahead in the state's new fiscal year, but says the plan puts Michigan on more stable financial footing for the future.

"These are difficult decisions ... (but) we're going to be well positioned for the long term," Snyder told The Associated Press in a phone call during his trade trip to Asia. "We're doing things in a structurally balanced way."

New spending plans for state departments and programs begin this weekend, but tax policy changes connected to the new fiscal year — including business tax cuts and income taxes on some retirement income — don't begin until Jan. 1.

The $47.4 billion budget, signed into law in June, resolves a projected $1.5 billion revenue shortfall and partially addresses long-term pension and health care liabilities for public employees. The 2011-12 budget also had to make up for $1 billion in revenue lost through the business tax cuts.

A stricter four-year, lifetime limit on welfare benefits could kick up to 14,000 families — about 41,000 people — off cash assistance during the fiscal year. Many would lose the help right away. A lawsuit was filed Friday in federal court seeking to stop the limits from taking effect and a court hearing was set for Tuesday.

Michigan also will measure certain financial assets to help determine eligibility for food assistance. People with more than $5,000 in regular savings or checking accounts, for example, will no longer be eligible for food stamps under rules adopted by the Michigan Department of Human Services.

Social service agencies say it's a bad move, particularly with the state's sluggish economy pushing more families into poverty.

"With the number of children living in poverty in Michigan rising every day, putting more roadblocks in the way of families that need help now makes absolutely no sense," Jack Kresnak, president and CEO of Michigan's Children, said in a statement this week.

Schools, universities and community colleges have been planning for the upcoming reductions in their state aid for months.

State aid to universities is cut by 15 percent. To help make up the difference, Michigan's public universities made spending cuts and raised tuition by an average 6.6 percent this fall. The average annual tuition and fee bill for a full-time, state resident undergraduate is climbing $641 this year to $10,416, according to the House Fiscal Agency.

State aid to community colleges fell by an average of about 4 percent.

The state's minimum per student foundation allowance for K-12 schools drops to $6,846. That reflects a new $300 per student cut in addition to a $170 cut that was effectively already on the books and will be made official in the new fiscal year. Districts get some of that offset, however, with $100 per student to help offset rising retirement costs. Most districts also may qualify for an additional $100 per student if they achieve a number of so-called "best financial practices," which include such things as employees paying at least 10 percent of their health insurance premiums.

The Snyder administration wants about $145 million in concessions from state employees as part of the new fiscal year, but they haven't materialized. The concessions target drops to $90 million with the planned closing of Mound Correctional Facility in Detroit and other changes in the state prison system. The Snyder administration also plans to require unionized state workers to take at least four unpaid furlough days in the new fiscal year.

There are some financial positives to the plan for the state, including the addition of $255 million to the budget stabilization or "rainy day" fund.

Supporters point to this summer's success on Wall Street when Fitch Ratings revised its outlook for Michigan bonds from stable to positive, reflecting what it called "prudent budgeting" for the new fiscal year. The New York ratings agency left the state's overall bond rating unchanged at AA-, an investment-grade rating that's three steps below the top rating of AAA. But it noted Michigan's efforts to boost the rainy day fund and to use longer-range forecasts to estimate spending in fiscal 2012-13.

"That's really the biggest change — the way that Michigan is being viewed as a much more stable place today than perhaps it used to be," Republican Lt. Gov. Brian Calley said this week.