Beyond crisis: Michigan gov says to 'invest wisely'

Thu Feb 9, 2012 5:01pm EST

Feb 9 (Reuters) - The governor of Michigan, slammed by the recent recession, on Thursday proposed setting aside $130 million in reserves in case another economic crisis hits.

The state is expecting a budget surplus of more than $600 million in the fiscal year starting in October.

During a special statehouse meeting, Governor Rick Snyder said more than three-fourths of the $48.2 billion spending and tax proposal he presented to Michigan lawmakers was devoted to health and education.

The budget also included an increase in the amount of revenues expected to come in during the fiscal year starting in October, identifying a $622.8 million surplus.

"When I took office the rainy day fund had been depleted down to about 30 minutes of running state government. That's not acceptable," Snyder said in a video posted on YouTube before the statehouse meeting. "So last year we made a good deposit into the rainy day fund, about $255 million."

Snyder noted the state's emergency reserves had once surpassed $1 billion. He said the state will have to continue "putting some dollars aside so when we have other economic challenges and downturns, we'll be prepared."

Even though Detroit, the state's largest city, and the rest of Michigan are on the mend, the state is still wary of returning to hard times.

A combination of crisis in the automotive industry, the housing bust and the 2007-09 economic recession pushed the state's unemployment rate up and its revenues down.

Michigan's jobless rate surpassed 10 percent in December 2008, and it stayed there for nearly three years, peaking at 14.1 percent. The rate fell to 9.3 percent in December 2011, according to the U.S. Labor Department.

In his recent State of the State address, Snyder said he would turn his attention to crime, investments in healthcare and infrastructure, improving trade and creating jobs in the energy and environment sectors.

On Thursday, he proposed more spending on public safety, adding $47 million for Michigan State Police, a 16 percent increase, and another $15 million toward helping cover public safety costs in distressed cities. The proposal comes after Detroit announced plans to close police stations 16 hours a day.

Four Michigan cities, including Pontiac and Flint, are currently run by a state-appointed emergency manager to reduce debt. Detroit is in danger of being taken over in coming weeks.

"Last year, we faced a massive deficit - $1.5 billion. And we... were able to structurally balance the budget and make some payments down on long-term liabilities," Snyder said in another YouTube video on Thursday.

During the recession, many states faced similar economic emergencies and cut spending, hiked taxes, borrowed and spent reserves. As revenues fell, many governments pulled back dollars for cities and counties. Many states have cut education funding as the primary source of school district revenues, -- property taxes -- crumble.

"The state is recovering nicely, but as a practical matter, because of how real estate property taxes work in our state, our schools and local jurisdictions could still have another rough couple of years," Snyder told state legislators.

He proposed spending $15 million from the general fund to support economic development in Michigan's distressed cities and increasing funding for education by $113 million.

The state would raise revenue-sharing payments to cities, villages and townships by 2 percent to $711.1 million and also boost to $25 million from $5 million a competitive grant program that Snyder said proved popular among cities, villages, townships and counties.

Democratic State Senator Glenn Anderson said he was worried that local communities would continue to be hurt by depressed property tax revenues and said Snyder's proposal was akin to "trying to fill a barrel with an eye dropper."

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