LEGISLATURE: BUDGET PLAN TARGETS JOBS FUND; SENATE GOP: USE TOBACCO MONEY TO LESSEN SCHOOL CUTS

Michigan's budget crisis continued in a stalemate Wednesday, as the Senate approved another budget-cutting plan that faces certain rejection by Gov. Granholm and House Democrats.

The Senate vote occurred after negotiations for a budget compromise were canceled, and disagreements continued between Granholm and Republicans over whether to raise taxes to avert deeper budget cuts.

The Senate Republican plan, which would erase some $700 million in red ink without a tax hike, added a new twist to the debate: It would grab $290 million from a special fund that uses money from tobacco companies to lure new businesses to the state with grants.

The 21st Century Jobs Fund is a centerpiece of Granholm's plan to diversify the state's economy. The $290 million in the fund has been promised to business ventures but not yet spent.

Under the Senate GOP plan, about half the money from the fund would be used to reduce the size of cuts to school districts to $36 per pupil, instead of the $122-per-pupil cut set to take effect June 1. The other half would go to the general fund.

Both uses of the money would violate the law that created the fund.

Both Senate bills passed on straight party-line votes. Senate Democrats called them "nonstarters" that would hurt the state's ability to create jobs by raiding the 21st Century Jobs Fund.

Senate Majority Leader Mike Bishop, R-Rochester, said the 21st Century Jobs Fund has produced virtually no jobs. But Liz Boyd, spokeswoman for Granholm, said the jobs fund is a 10-year plan to create jobs in new, innovative industries.

Bishop said the new Senate plan approved Wednesday is meant to keep the budget debate stirred, even if it is sure to be rejected by the Democratic-controlled House. He said if Democrats and Granholm want a tax increase, they should vote on one in the House rather than link it to budget negotiations.

Earlier Wednesday, Granholm told reporters that Republicans are unwilling to compromise on a tax increase, which she said is necessary to prevent cuts to funding for schools, Medicaid and other state programs.

"We've compromised on cuts; we've compromised on reforms. We'll continue to compromise on those," she said. "But there has been no compromise on the revenue side."

Republicans are demanding that the current year's deficit be eliminated solely through budget cuts.

Granholm is calling for a mix of cuts and tax increases.

The developments Wednesday heightened anxieties over the budget crisis, which is about to get worse Friday, when state economists meet to determine the size of the deficit.

The House Fiscal Agency announced Wednesday that tax revenues will fall $175.7 million short of what was predicted in January. Of that, $61.3 million affects state funding to schools.

The $175.7-million shortfall - plus added demands on state prisons, health care and welfare programs - is expected to boost the total remaining deficit this fiscal year to about $700 million.

Contact CHRIS CHRISTOFF at 517-372-8660 or christoff@freepress.com

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