Michigan Announces Budget Cuts, But Stimulus Delays Fiscal Reckoning

Michigan Governor Jennifer Granholm’s newly-announced budget cuts are a necessary—but hardly sufficient—step towards addressing the state’s bleak fiscal outlook. Unfortunately, in Michigan we see yet another case of the federal stimulus rewarding states’ poor fiscal management:

Gov. Jennifer Granholm will order about $302 million in state budget cuts today, including 100 State Police layoffs, 4 percent across-the-board spending cuts, $40 million less in revenue sharing with local governments and up to six unpaid days off for state employees, according to sources familiar with the order.

The plan slashes by $16 million the reimbursement to hospitals and physicians for Medicaid treatment of the poor, trims college financial aid and shuts down the Department of History, Arts and Libraries, which will result in the layoffs of 20 workers, sources said. Additional state employees could be pink-slipped, depending on how department directors decide to trim 4 percent out of their full-year budgets.

“Nobody’s going to be happy,” said Matt Marsden, spokesman for Senate Majority Leader Mike Bishop. “This was a difficult situation, given the amount of time left in the fiscal year (about five months).”

The plan to close the state’s $1.3 billion fiscal year deficit depends on $1 billion in federal stimulus money, leaving about $25 million of stimulus funds available for the rest of this budget year — which ends Sept. 30 — should more cuts be necessary to balance the books.

“We’re concerned we’re relying too much on stimulus money to fill holes that will be there again in 2010,” said Bill Nowling, spokesman for House Republican Leader Kevin Elsenheimer. “And none of this takes into account the Chrysler bankruptcy or the nine-week layoff of General Motors employees this summer. So that $1.3 billion deficit is going to get bigger.”

The sooner that Michigan policymakers wake up and get serious about downsizing their fiscally unsustainable state government, the better. The hole’s getting deeper and the Federal gravy train won’t last forever.

In related news, New York Governor David Paterson has proposed a state spending cap, though the political viability of the proposal and its potential effectiveness are both dubious at best, as this New York Times article explains.