Last Updated: February 17. 2011 7:37PM

Snyder's first Michigan budget rattles some, relieves others

Paul Egan, Catherine Jun and Karen Bouffard / Detroit News Lansing Bureau

Lansing — Gov. Rick Snyder's first budget proposal reverberated throughout Michigan today, earning applause from groups seeking a business-friendly tax structure and criticism from cities, schools and taxpayers who see revenue cuts or pay more.

Among the chief critics was Detroit Mayor Dave Bing, who said cuts to cities were aimed squarely at the state's largest municipalities.

The first-time budget from Snyder calls for total spending of $46 billion, including deep cuts to spending, higher personal taxes for many residents and a business tax cut of nearly $1.8 billion. A like amount of the state's tax burden would be shifted to individuals."This budget threatens the concrete but fragile fiscal progress made by the City of Detroit over the last 20 months," Bing said in a statement.

"This is more than just a budget or a tax proposal," Snyder said in today's presentation to lawmakers. "This is our opportunity to say let's stop living in the past and start looking towards the future."

"We are going to take responsibility for a legacy of debt that has built up for decades."

The budget proposal now goes to lawmakers; Snyder has asked for the Republican-controlled Senate and House to pass the budget bills by May 31.

Sen. Randy Richardville, R-Monroe, said he was pleased with Snyder's plan overall and will meet with his caucus next week to go over the line items and examine how it will affect individuals.

"We've been asking for bold leadership for a long time and we got it today," said Richardville, the Senate Majority Leader. "It's building at least a foundation for long term success."

Swift negative reaction came from state employees, who are being asked for $180 million in concessions, and seniors whose pensions will be taxed for the first time.

Eric Schneidewind, president of AARP Michigan, said the budget "declares war on older Michiganders."

"What our members are getting in this plan is a much higher tax bill and reduced services in exchange for a huge business tax cut," he said. "That is unfair and unacceptable."

State officials conceded the cuts would be difficult to stomach.

"A lot of people are going to be upset with this budget. We understand that," state Budget Director John Nixon told legislators. "But it's a right budget. It's a responsible budget.

"This will put Michigan in one of the strongest financial positions in the country."

Among Snyder's proposals: After a scheduled reduction in the income tax rate to 4.25 percent from 4.35 percent this year, the rate will freeze there and further scheduled reductions will be abandoned.

All public and private pensions will be subject to tax, with the exception of Social Security income.

Many other personal income tax credits will be eliminated or reduced, including a reduction in the homestead property tax credit to 80 percent of the difference between property taxes and 3.5 percent of income for most homeowners.

Though it was not addressed in his speech, the governor is calling for the elimination of the Earned Income Tax Credit, officials confirmed. "We don't believe there is any additional incentive to adding it to the Michigan tax code," Lt. Gov. Brian Calley told lawmakers. He added he preferred the state preserve the resources for other types of assistance for residents, for example, maintaining Medicaid access. The $3,700 personal income tax deductions would be phased out for individuals making at least $75,000 or couples making at least $150,000, a change that will result in higher state taxes for many Michigan residents, not just pensioners.

Community college funding will be moved to the School Aid Fund.

Major cuts to revenue sharing with local governments Cuts to the Department of Human Services that include the elimination of 300 field worker positions.

Closure of one prison, though details are not specified.

Closure of Michigan State Police posts to save $3.2 million.

Elimination of the dairy farm inspection program in the Department of Agriculture and Rural Development.

Elimination of the Workers' Compensation Appellate Commission.

Concessions of $180 million from state employees through higher health care premiums and other changes.

Scrapping of the Michigan Business Tax to be replaced with a 6 percent corporate income tax applied to only a minority of firms that issue private or public stock. Snyder said it's estimated 95,000 Michigan companies will no longer have to file a business income tax return, ending "double taxation" by which owners were taxed on both their business and personal income. It's a business tax cut of nearly $1.8 billion, he said.

Eliminating business credits for brownfield redevelopment, the Michigan Economic Growth Authority, Next Energy, advanced battery, film and renaissance zones, and others, although commitments already made will be honored.

Incentives such as ones for the film industry could only be made through the appropriations process and would be capped at $25 million, he said.

'More than just a budget'

Seated before legislators from the House and Senate, Snyder said his proposal will help end years of dysfunctional spending. In a show of tough fiscal decisions, he also said he would accept a salary of $1.

Snyder's budget summary says he will call for the elimination of all credits related to the personal income tax with the exception of the personal exemptions, which will be capped at a certain income level; exemptions for individuals with disabilities; special provisions for veterans and the military; and the Homestead Property Tax Credit, which will be reduced.

Critical responses from Democratic lawmakers immediately following the speech suggest the budget will face some resistance.

"Gov. Snyder revealed his true stripes this morning by proposing the largest tax increase in history on Michigan's middle and working class residents," Rep. Maureen Stapleton, D-Detroit, said in a statement. "I don't believe we will be moving Michigan forward by kicking people onto state assistance and taxing seniors struggling on a fixed income."

House Democratic Leader Richard E. Hammel of Mt. Morris Township similarly chafed at the budget.

"It gives huge tax breaks to corporations while shifting the burden to others who can least afford it.

"House Democrats cannot support that type of approach. We wanted to see more reforms in state government and more sacrifice at the top."

It wasn't immediately clear, however, whether Republicans will embrace the transformation in how Michigan applies taxes.

Taxing pensions was tough call

In his statements to legislators, Snyder admitted that taxing pensions was one of the most difficult of budget issues. He emphasized in his remarks he recognized this would primarily affect seniors. He added Social Security would not be taxed.

"It's always had a special place, and our seniors could use and need those dollars," he said.

But Jay Kuhnie, president of the National Chrysler Retirement Organization, said taxing pensions would harm vulnerable retirees who can do little to offset the loss of income.

"Unlike active employees, retirees cannot recover from cuts made during times of economic crisis because of dependence on a fixed pension. Therefore, Gov. Snyder is not following one of his own 'guiding principles' — to assist those who need help the most. He is just adding to their burden." The organization represents 7,000 members across the country.

"What we're looking at for seniors is higher taxes and worse services to pay for a business tax cut," said Mark Hornbeck, spokesman for AARP Michigan. "No thanks."

Unions slam state worker concessions

Snyder said the budget "cuts $1.8 billion and tackles other necessary reductions for a long-term solution to our problems, while providing a critical safety net for Michigan citizens in need and preserving core, essential services. It provides the course correction that is needed to help businesses succeed and create jobs. Simply put, we are done kicking the can down the road."

Ray Holman, legislative liaison for the union representing the largest number of state employees, United Auto Workers Local 6000, said he was unhappy to learn state employees will be asked for $180 million in concessions, including higher payments for health insurance premiums.

Holman said he knows there is a $1.4 billion deficit to erase, but "I think there are other ways you can resolve that, rather than coming back for more blood from us."

He said state employees support shared sacrifice, but "we've already made structural changes, and we feel that we've done our part."

He said he was referring to changes to a less costly pension system and requirements that new state employees pay a much larger share of their health insurance costs, among other changes.

In response to one legislator's questions about seeking concessions from state workers, Nixon said he expected blowback, but the state simply cannot afford to pay for rising costs.

"We're not wanting to go after state employees that do the hard work that they do, but … the pie is only so big," he said. "It's very difficult to deal with these increasing costs with little or no revenue growth."

At the Michigan Municipal League, Carol Shafto, president of the board of trustees, said the cuts to revenue sharing would be disastrous.

"Cuts of this magnitude are beyond unacceptable; they are harmful to our communities," she said in a statement. "They threaten public safety services in local communities across the state, and they threaten to push literally dozens of local governments into fiscal stress. We are now past the point of living within our means and moving to where it will be impossible for some local governments to even survive.

"When local governments lay off more police officers and firefighters, when more roads and bridges crumble, when our waste water treatment systems fail, when our parks and libraries close, who will want to live here?"

Major cuts to revenue sharing

Michigan cities, villages and towns would lose their right to statutory revenue sharing under the plan, which trims the pot from nearly $300 million to $200 million — and require communities to earn the money by enacting reforms.

Municipalities will have to demonstrate that they've adopted "best practices" like sharing services or reducing employee compensation to get there share. The "incentive" approach doesn't apply to counties, though the county portion of statutory revenue will be reduced from $150 million to $100 million.

A second "constitutional" pot of revenue sharing money, which totals more than $600 million, will remain unchanged.

"The number of public safety officers, salt on the roads, how soon streets are plowed—all of these things will be impacted," said Summer Minnik, director of state affairs for the Michigan Municipal League.

Minnik said the change would effectively eliminate statutory revenue for communities who can't compete for the incentive due to obstacles to sharing services or cutting costs. The group has proposed reforms, including changes in binding arbitration laws, they say are needed to help communities adopt "best practices."

"We knew there were going to be reduction, but we did not expect the elimination of the program and all of it tied to incentives," Minnik said.

Still some communities are eager to compete for the money. Eric DeLong, deputy city manager in Grand Rapids, said his city has been working for several years to trim costs and make other changes need to live within their means.

"We're not afraid of competition," he said.