While Governor Granholm has already cut more than $3 billion in state government spending to resolve more than $4 billion in overall budget deficits, Michigan continues to face severe budget shortages.

Today, Michigan's budget faces another shortfall of more than $3 billion. In this fiscal year, there is not enough money to cover necessary spending in either the state's K-12 school funding budget or in the general fund that pays for health care for families, keeping prisoners in jail, local police and fire protection, protective services for children and much more.

The state has taken drastic actions to reduce its spending in recent years. Today there are fewer state employees than there were in 1973. The Granholm Administration has cut more than $3 billion from state services and programs in the last four years, more than any previous Governor. Higher education spending has been cut by more than $250 million forcing students and their families to deal with significant tuition increases. Public schools have faced mid-year spending cuts twice. Spending on the arts and cultural institutions has been reduced by almost a third. Spending for local governments, primarily police and fire protection has been cut by $585 million resulting in a loss of police officers.

Despite these actions, the state does not bring in enough money to fund the health care, education, safety and other services it provides — or needs to provide - to citizens. The cuts and other revenue adjustments cannot keep up with the continuing decline of state revenue. The chart below shows the steady decline in General Fund revenue the state has experienced since 1999.

State revenues are declining for a number of reasons. Since 1999, the state and federal government have cut taxes for Michigan citizens by nearly $1.9 billion, including income tax and single business tax rate cuts and the repeal of the federal estate tax. With the repeal of the state's Single Business Tax (SBT) at the end of 2007 and no plan to replace the lost revenue, that total will double to $3.8 billion in cuts.

At the same time that Michigan was cutting taxes, severe contractions in the state's manufacturing base have led to both massive layoffs and reductions in industries and businesses that depend on manufacturing workers for revenue. As people lose their jobs, they pay less income tax and spend less - decreasing the state's tax revenue. These people also often turn to the state for help in ensuring they have health care and food for themselves and their families.
This combination of tax cuts and jobs loss has resulted is historically low levels of state revenue.

Add to this the state's aging population, the rising cost of health care for citizens and for businesses, reductions in the federal government's commitments to cover services at the state level and an increasing prison population and the result is a state with 32% less revenue than it had thirty years ago but significantly more citizens to serve.
This combination of declining revenues and rising costs create a structural deficit that will only worsen in coming years.

A sharp drop in sales tax revenue in the final months of 2006 combined with the elimination of the SBT without a plan for replacement has worsened this already serious budget situation.

When the state Legislature eliminated the SBT last year, it eliminated nearly $1.9 billion in revenue the state uses to fund health care, education and police and fire safety. That shortfall compounds an already challenging situation with both the state's education and general fund budgets.

To solve this $3 billion problem, Michigan is faced with a choice - make significant cuts to education, public safety, child protection and health care or change the way Michigan does business.

$3 billion is approximately 35% of the state's general fund budget. Advocates of the budget cut solution must be willing to make deeps cuts to significant state programs, or eliminate programs entirely.

To save $3 billion, Michigan could:

• Cut all funding for the state's universities and community colleges and eliminate all mental health services to save $3 billion. Or ...

• Eliminate all health care programs for seniors, children and the poor and release all 51,000 prisoners to save $3 billion. Or...

• Eliminate funding for local police and fire protection, end all public assistance programs including daycare and disability assistance, end worker training programs, close the state police, the courts and all Secretary of State offices, end environmental protection and land management programs, eliminate food safety monitoring, gas inspections and all arts and cultural programs to save almost $3 billion. Or ...

• Cut roughly 20% of funding for public education ($ 1,700 per student)