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 Articles of Interest - Gongwer News Service, December 5, 2002

starMI Gongwer 12-05-02 Lawmakers Reluctantly Adopt Exec. Order Cutting $337.4 Mstar

starMI Gongwer 12-05-02 Transfers Target Health Carestar

starMI Gongwer 12-05-02 License Plates for Education Approvedstar

starMI Gongwer 12-05-02 Administrative Rules Measure Passes Senatestar

Thought to be an attempt to slow Granholm changes.

starMI Gongwer 12-05-02 Education Trust Announces New Enrollment Periodstar


For more articles visit



The lights almost went out Thursday on Governor John Engler's $463 million budget-cutting plan, literally as well as figuratively. But by the end of the day, lawmakers found a way to soften the budgetary blow and narrowly approved the $337.4 million executive order, leaving for later approval the rest of the plan contained in a supplemental and a change in state law.

It took two votes of the Senate Appropriations Committee before the proposal was approved that officials hoped would keep the remainder of the 2002-03 fiscal year in financial check. A big item to winning approval was finding an extra $11 million out of the Michigan Merit Scholarship to reduce the overall cut to the state's universities from 2.5 percent to 2 percent-although the House later altered that provision by tying the money to passage of a separate bill changing the way university boards are elected.

The House Appropriations Committee had earlier given its OK to the executive order, and as was the case in the later Senate vote, it drew no support from Democrats.

But everyone-from Budget Director Don Gilmer to all the lawmakers-recognized that the task of approving the executive order was a warm-up to the major exercise of keeping the 2003-04 budget in trim. A variety of officials have warned that the budget, the first of Governor-elect Jennifer Granholm, could be as much as $1.8 billion in the hole.

"We pricked our fingers today for a little draw of blood," said Sen. Joe Schwarz (R-Battle Creek). "Next year is going to be an evisceration; it's going to be a blood-letting."

But the day was hardly a finger-pricking given the exercise lawmakers went through before the executive order was approved. During the process, lawmakers hinted they would vote to delay the next stage of the income tax rollback, even though they were told by Mr. Engler he would not support such a move. The House actually put an income tax delay bill up for a vote, where it crashed when nearly half the chamber did not vote on the measure.

And it all started when the lights went out. Shortly before the two appropriations committees began their joint meeting in the third floor House Appropriations Committee, a fuse blew and threw the packed room into darkness. The lights stayed off for the entire meeting with the only light coming from the windows. Mr. Gilmer joked that the situation demonstrated how bad Michigan's budget really was.

Mr. Engler was very pleased with the Legislature's action, a spokesperson said. "This is a plan that as much as we could fairly spread out the reductions," Susan Shafer said in noting that revenue sharing and higher education were included in the mix of cuts for the first time. "When you look at the plan, it reduces all state spending."

Ms. Granholm is pleased that the governor and Legislature are stepping up to deal with the budget but remains concerned about the one-time changes that are part of the solution, a spokesperson for the transition office said.

"While we're pleased on the one hand, we're painfully well aware that a mess is still being left," said Chris De Witt. "They (the legislators) knew they had a responsibility to deal with it as best they could."

He said Ms. Granholm did not discuss a preferred approach she wanted, and in general believes that the budget situation is at least partially being addressed. "With the situation that Governor-elect Granholm is going to inherit, there will be cuts when she takes over. This budget story is far from over," Mr. De Witt said.

Local government groups, which earlier this year successfully won an override of an Engler veto of all statutory revenue sharing, had expected far deeper cuts based on signals that they had heard over the past few weeks and greeted the 3.5 percent cut they will bear with a measure of some relief. They also said, however, that the cuts, coming with the governments' fiscal years already half over, will mean cutbacks in services that are felt first by residents.

Tim McGuire, executive director of the Michigan Association Counties, said the cuts will hurt but accepted them as proportionately fair. "We thought we were going to get a little bit more of a whack on revenue sharing, so we are pleased from fact that everybody has had to bite the bullet," he said. "There wasn't anybody that didn't get something somewhere, and as long as we were not singled out, we are comfortable with the order."

Mr. McGuire said counties will have to review the services they provide, will likely have to cut positions and, like the state, spread cuts across all aspects.

Don Stypula of the Michigan Municipal League said even though the reductions are not as drastic as feared, "they are still going to be a significant cut for local units that are already struggling to provide the kind of services people rely upon." He said a lot of communities had already scaled back travel, curbed spending and postponed filling vacancies in anticipation of the move by the state.

With the deeper budget problems looming in the 2003-04 year, Mr. Stypula added, "It makes you wonder where is it going to end. There is going to be a significant impact on local services."

Dave Bertram of the Michigan Townships Association said some of his members will undoubtedly have to lay off employees and cut the services they provide. He expressed appreciation for lawmakers who held out for a smaller cut than had been under discussion. "In many communities, the main money from revenue sharing is spent on essential safety services like fire protection and ambulances. It's very difficult to deal with these cuts," he said.

But Rich Studley, vice president for government relations for the Michigan Chamber of Commerce, said the state's spending habit has to be curbed and governments at both the state and local levels are only doing what the private sector has already done in much greater measure to deal with the recession.

He noted businesses lost about $100 million in promised cuts in the business tax as a result of the diminishing Budget Stabilization Fund, and many companies have already had to cut their spending by 5 percent to 15 percent.

"We supported the executive order and we're very pleased to see it approved and even more encouraged that the state House rejected a bill to raise the state income tax so hopefully that will put to an end talk of raising taxes to solve the budget," Mr. Studley said. "This is just a down payment or an installment on what we see of a necessary downsizing of state government."

He said total state spending has increased at three times the rate of inflation over the past decade, so it is clear government has a spending problem. He also said he is not ready to give up on the 2003-04 budget being helped by a recovering economy.

But Mr. Studley said the upcoming budget crunch should lead to a re-examination of how universities function, particularly in duplicative programs, and that some aspects of school aid need to be put on the table for cuts, such as aid given for specific program categories that have gradually been re-introduced since the passage of school finance reform. "We would not argue that in the future that the entire school aid fund should be exempt from cuts," he said, adding that the Chamber would continue to defend the property tax cuts of Proposal A and its per pupil grant guarantees.

The total budget-cutting plan presented by Mr. Gilmer amounted to $462.9 million. The largest share of that was the nearly $337.4 million cut in Executive Order 2002-22.

Another $63.7 million, which includes cuts in the Legislature and Judiciary budgets, was included in a supplemental budget, HB 5705, approved by the Senate on a vote of 35-0 and by the House 66-30. In addition the tie to the university board bill, the House also added $2.5 million for a new Detroit crime lab.

Another $58.2 million will come from the retiree health benefit prefunding program, which Mr. Gilmer said should have no affect on the health care costs of current and future state retirees.

But union officials argued the move was technically taking funds from the state employee retirement fund. The health benefit prefunding came largely from excesses in the retirement fund being shifted to pay for health insurance.

Alan Kilar, legislative liaison for UAW Local 6000, said the funds should be used, as they were in previous administrations, to increase retiree benefits and that health benefits should be funded, as they were, with general fund moneys. "He looted it (when he first took office) and he did it again," he said. "He's basically stealing that money from our retirees."

The largest single part of the executive order cuts is $107.4 million in departmental reductions. The cuts averaged 2.5 percent in all departments, except for a 1.5 percent cut in the State Police, amounting to $4.3 million, and 1 percent cuts for the departments of Corrections, $16 million; the Department of Human Services, $8 million; and Military and Veterans Affairs, $400,800. The Michigan Strategic Fund was cut by 6.7 percent, $3 million.

The largest departmental cut was in Community Health, slashed $63.5 million.

Because the departments of Transportation and Information Technology have no general funds, they were not affected by the executive order.

After the departments, the next largest cuts were $53 million each in revenue sharing and to the state's universities and community colleges. The revenue sharing cut equaled 3.5 percent of the total and the universities cut amounted to 2.5 percent. In addition, another $9.9 million was cut from revenue sharing in hold harmless payments.

But several Senate members, especially Mr. Schwarz, balked at the university cuts, arguing they would force either tuition increases or significant programmatic cuts.

After the Senate Appropriations Committee initially rejected the executive order, discussions generated an agreement to move an additional $11 million out of the state's Merit Scholarship fund to the universities. The money was included in the supplemental budget.

With a net cut of no more than 2 percent for the universities, Mr. Schwarz said he could support the executive order.

Officials with two universities, Central Michigan University and Grand Valley State University, said their schools had decided they could weather the cuts without resorting to an additional tuition increase.

Glenn Stevens, executive director of the Presidents Council State Universities of Michigan, asked if he was comfortable with the cuts, said, "2.5 percent is better than 3.5 percent. Would less be more desirable? Of course."

Mr. Stevens said the cuts put pressure on tuition levels. "Any reduction in the state level of support puts pressure on tuition," he said.

However, the arrangement-coming after the House Appropriations Committee approved the executive order-might engender some anger from House members who were more concerned about revenue sharing cuts.

Also in the administration's plan is a $50 million cut in the Merit Scholarships by splitting the awards over two years. The House overwhelmingly passed a bill to achieve that aspect of the plan later in the day. Another $30 million was drawn from the bottle deposit for environmental bond debt service, and another $10 million from the environmental cleanup fund balance also to cover bond debt service.

There was another $11.6 million coming from a freeze in home and community based waiver enrollments.

Another $7.4 million was scheduled to come from cuts in fire protection grants to communities with state-owned property. However, Sen. Leon Stille (R-Spring Lake) said that cut should be pared back to help those communities.

Finally, the executive order also gets $5 million in increases from third party recoveries in the FIA and converts the state's maternal outpatient medical service program to a federal program, saving $2.9 million.

In the supplemental, the state takes $27 million in a temporary aid to need families shift to the general fund, transfers $24 million from the Healthy Michigan Fund to the general fund and transfers $7.8 million in an unreserved balance in the waterways fund to the general fund.

As Mr. Gilmer finished his presentation of the budget-cutting proposal, initially it seemed there might be an earnest attempt to freeze the next rollback in the state's income tax cut-which could save the state better than $100 million.

Mr. Gilmer insisted a freeze on the rollback was an issue for the 2003-04 budget and not the current budget.

But Sen. Alma Smith (D-Salem Township) said the budget is in deficit largely because of the tax cuts the state had enacted. The Democrats were prepared to vote for a delay in the rollback, she said.

And Mr. Schwarz said the small amount the average taxpayer would save with the rollback-about $25-would not recompense them if they had to pay more in tuition for their children or for local services.

"Boy, you can sure as hell tell it's not an election year," snapped Sen. Shirley Johnson (R-Royal Oak) in opposing the proposal. "Anyone who suggests that $25 or $28 doesn't mean diddly-squat has never lived dollar to dollar."

While it appeared there may be an effort to hold back the tax rollback, opponents to that plan quickly got to work. Senate Republicans went into a caucus where they were joined by Mr. Engler, and it was apparent the only caucus members willing to back the freeze were Mr. Schwarz and Committee Chair Harry Gast (R-St. Joseph).

Mr. Engler took a dim view of a halt in the income tax cut, saying doing so would compromise the state's competitiveness. "One of the reasons our unemployment rate is below the national average is because we've worked hard to make Michigan more competitive," he told reporters.

The governor said his plan was fair and would put the state in a sound position.

"We've finished '02 with a balanced budget and the carry forward is helping us with the '03 budget and that combined with the executive order today put Michigan on a firm fiscal footing," he said. "This was a reasonable and fair plan."

As for the prospect of the stabilization fund falling to $0, Mr. Engler said it had served its purpose for tough times. "It's a rainy day fund, and it's been raining," he said. "It will need to be rebuilt, but that's what you do when times are better."

When the Senate Appropriations Committee initially rejected the executive order, Mr. Schwarz told reporters that there would be an executive order approved because, frankly, there was no interest in freezing the income tax rollback.

After the Senate Appropriations Committee defeated the executive order, the House Appropriations Committee quickly approved it on a 16-11 vote mostly along party lines. Only Republican Reps. Laura Toy of Livonia and Jerry Vander Roest of Galesburg broke from majority GOP ranks as Ms. Toy voted "no" and Mr. Vander Roest decided not to vote.

Ms. Toy said higher education should have borne more of the pain to ease the burden on revenue sharing and local governments. "I thought we could get the percentage down even further," she said of the 3.5 percent cut in revenue sharing. "They've already taken a hit. Ultimately, I don't want to see cities go to millages and go to tax increases."

But Rep. Scott Shackleton (R-Sault Ste. Marie) said the restrained cuts in revenue sharing made it possible to support the package of cuts. "There's parts that I find painful and very close to intolerable," he said. "I will vote 'yes' on the EO in recognition that the revenue sharing cuts are at three and a half percent."

Said Rep. Marc Shulman (R-West Bloomfield), the House Appropriations chair: "It's not easy, but this is an opportunity again to exercise fiscal discipline."

But Rep. A.T. Frank (D-Saginaw Township), the ranking committee Democrat, said the budget fix still relied too heavily on one-time revenue sources that would put more pressure on the 2003-04 fiscal year.

"The structural deficit is huge," he said. "I don't think they're doing enough to balance the budget."

Rep. Mickey Switalski (D-Roseville) also criticized the use of one-time revenues. "These are one-time sources," he said. "So those of us that are here next year will be feeling the pain."

During the morning Rep. Mike Pumford (R-Newaygo) and Rep. Charlie LaSata (R-St. Joseph) suggested the votes might exist in the House to block the income tax cut scheduled for January 1. After the Senate Appropriations Committee defeated Mr. Engler's plan because some of its top Republican members preferred halting the tax cut, House Speaker Rick Johnson (R-LeRoy) decided to send the message that the House would oppose that approach.

Mr. Johnson called for a vote in the full House on a bill that would have allowed the 2003 reduction in the income tax cut to take place, but blocked the cut scheduled for 2004. The bill was crushed with only 10 votes in favor and 58 against. Only two Republicans supported it-Mr. Pumford and Rep. Pan Godchaux (R-Birmingham). Mr. LaSata and Rep. Ron Jelinek (R-Three Oaks) decided not to vote.

Although eight Democrats did support the bill, the vast majority deliberately did not vote.

Rep. Nancy Cassis (R-Novi) said halting the tax rollback would break a promise to taxpayers expecting the rate to drop from 4.1 to 4 percent on January 1 and from 4 percent to 3.9 percent in 2004. "Suspending the rollback on the income tax sends the wrong message to working families," she said.

In the end, Mr. Gast was the only Republican on the committee to vote against the executive order, approved on a 9-6 vote. Saying he was personally and "morally convinced" the freeze was the right thing, Mr. Gast said policymakers will have no choice but to freeze the rollback before the 2003-04 budget because otherwise it will be impossible to maintain any level of essential services.

Tom Clay, analyst for the Citizens Research Council, who has projected a $1.8 billion deficit in the 2003-04 year even with no increased spending for things like education, said the executive order is a beginning to solving the situation at hand but there are "far worse" actions to come. "These cuts are very small in comparison to what is needed in '04 if a majority of that problem is going to be dealt with by cuts," he said.

Mr. Clay also said from a budget standpoint it would have been preferable to have more cuts be of a permanent nature rather than one-time actions, but added, "it's understandable that they did not want to pull the rug out from agencies, universities, community colleges and local governments any more than they have."


Medicaid and mental health programs would see some of the largest cuts under the Engler administration's proposed solution for fulfilling the executive order cuts approved Thursday by the Legislature.

In Medicaid, long-term care, hospital services and therapy and Medicaid mental health services all would see sharp cuts, according to a copy of the proposed transfers obtained by Gongwer News Service.

Some of the larger proposed cuts:

$7.02 million to hospital services and therapy

$3.72 million to health maintenance organizations

$4.31 million to long-term care

$2.42 million for Medicaid mental health services

$2 million for respite services in Community Mental Health


LICENSE PLATE: Legislation approving a new specialty license plate to raise money for educational programs was approved on a 32-2 vote.

However, the Senate did not act on legislation that would create a specialty plate for the Ducks Unlimited organization and a "choose life" plate.

An effort to specify that any monies raised by the plate's sale should go to public education failed to win a majority of the elected and serving members, though a majority on the floor voted for the proposal.

Voting against SB 614 were Sens. Joanne Emmons (R-Big Rapids) and Bev Hammerstrom (R-Temperance), who said the provision will "open the floodgates" of requests for specialty plates for private fundraising efforts. They also said the proposal would rob money from the Children's Trust Fund, which already has a specialty plate raising funds to deal with child abuse.


Legislators would have more time to review and rule on proposed administrative rules under SB 1507 passed by the Senate on a 33-0 vote.

But the measure was amended so that lawmakers would have a little less time than originally planned to review the rules.

As originally introduced the legislation would give lawmakers 90 days to review and pass on administrative rules. Currently, the Legislature has 21 days to pass on administrative rules.

The Senate amended the measure to cut that time frame down to 60 days.

Governor John Engler has expressed reservations about the bill, saying it is an intrusion into executive authority. And while the measure passed unanimously,

some critics charged lawmakers passed it solely because of the incoming administration of Governor-elect Jennifer Granholm.


Families in the state will be able to purchase Michigan Education Trust contracts between January 2 and August 30, the MET Board announced Thursday. The board also announced 10 percent price increases for the new contracts.

A one-year Full Benefits contract, which covers all tuition and fees up to 30 credit hours at a Michigan public university, will run $6,063. A Limited Benefits contract, which pays up to 105 percent of the average tuition and fees at a Michigan public university, will cost $4,884. And a Community College contract, which covers in-district tuition at any community college, will cost $1,730, a 5.3 percent increase over a 2002 contract.

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