Michigan gov. proposes expanded budget amid local, federal risks

Thu Feb 7, 2013 3:22pm EST

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Feb 7 (Reuters) - Michigan Governor Rick Snyder unveiled a fiscal 2014 budget on Thursday that increases education funding, includes previously announced plans to expand Medicaid and launches a road rebuilding program.

But the state, which is on the comeback trail after being battered by the 2007-09 recession, still faces risks, the Republican governor said in his budget presentation to a joint House and Senate appropriations committee.

Snyder pegged the federal fiscal fight as the greatest risk, adding there was local risk as well from the many Michigan school districts and cities, including Detroit, experiencing severe fiscal stress.

"We still have a number of challenged local jurisdictions and school districts that are going to require a significant amount of time and effort that we need to deal with," the governor said.

He added that he is awaiting a report from a review team he appointed in December to determine if Detroit needs an emergency financial manager. If ultimately appointed by the state, the manager could decide the city should file for bankruptcy, a move the state could block. A Chapter 9 municipal bankruptcy by Detroit would be the biggest ever in the United States.

"We do need to support Detroit and we need Detroit to be on the path to being a great city again," Snyder said.

There are currently eight cities and school districts with state-appointed managers and three cities, including Detroit, with consent agreements aimed at restructuring their finances.

Detroit has been particularly hit by a drop in state revenue sharing and a spokeswoman for top Democratic lawmakers in the Republican-controlled House said the governor is not allocating enough money to aid struggling cities despite identifying them as a risk to the Michigan economy.

Budget documents indicate that constitutionally required revenue sharing payments will increase by $29.4 million to $742.6 million for cities, townships and villages based on estimated sales tax collections. Governments that adopt practices aimed at enhancing accountability, transparency and cost-savings could gain additional funding.

EXPANSION OF HEALTH COVERAGE

Snyder's nearly $51 billion all-funds budget, which includes a $9.3 billion general fund, would boost the school aid fund for primary and secondary school districts by more than 2 percent to $11.5 billion for the fiscal year that begins Oct. 1. The governor also proposed a $65 million increase for early childhood education and $30.7 million more for public universities and community colleges.

Democratic lawmakers said the budget would continue to underfund education.

"Michigan's economic success is tied to education, but the governor's budget priorities don't reflect that," said House Democratic Leader Tim Greimel in a statement.

Snyder on Wednesday endorsed an expansion of health coverage for the poor under President Barack Obama's reform law, joining five other Republican governors who have done so.

But some Republican state lawmakers questioned the need to partner with the federal government.

John Nixon, Michigan's budget director, said given that health care reform is the law of the land, it was better for the state to participate and cover some residents that might not be able to afford mandatory health insurance.

More than $20 billion will come into Michigan through 2023 by leveraging federal funds made available through the Affordable Care Act, while the state's general fund will see $1.2 billion in savings through 2020, according to the governor's office.

In his state of the state address last month, Snyder proposed a multiyear plan to fix the state's crumbling roads and bridges. The proposed budget calls for increasing motor fuel taxes to a flat rate of 33 cents per gallon and hiking certain vehicle registration fees to raise $1.2 billion for the program.

Michigan's rainy day fund would grow by $75 million under Snyder's budget to $580 million, while another $103 million would be put in the state's newly created health savings fund to offset future healthcare costs, according to budget documents.

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