Michigan funds sink further; Budget talks resume as study shows state has largest revenue drop in U.S.

Gov. Jennifer Granholm and legislative leaders resumed closed-door state budget talks Thursday, even as a new report showed Michigan's fiscal nosedive is unparalleled across the nation.

This state's revenues are down $556 million, or 2.7 percent compared with last fall's projections.

That's a steeper drop than any other state, a study by the nonpartisan National Conference of State Legislatures shows.

Most states are generating the amount of revenue they expected, and 15 are taking in more than expected.

At least a dozen states are considering tax cuts, the report shows.

Michigan's drop-off is due mainly to anemic sales and business tax revenues. Income tax receipts are coming in a little higher than anticipated.

"The strengthening (national) economy has helped states balance their budgets since the recession of the early part of the decade. It has also given some the opportunity to boost rainy day funds, plug holes in programs, consider tax cuts and even explore new ideas," said NCSL Executive Director Bill Pound.

But not Michigan.

The governor and economists have said repeatedly that the state's sinking fortunes are linked directly to the declining domestic auto industry, while critics say the report is further proof Granholm is mismanaging the state.

"Michigan's economy is challenged because of the transformation under way in the auto industry," said Granholm spokeswoman Liz Boyd.

Matt Marsden, spokesman for Senate Majority Leader Mike Bishop, R-Rochester, said: "It's not shocking we are listed at the bottom of another financial outlook list. It's just another example why we need to get this budget resolved and start focusing on how we can move the state forward in the future."

Granholm and legislative leaders met off and on throughout the day Thursday, in an attempt to close a $686 million hole in this year's budget.

The governor said early Thursday that they're attempting to find "the sensible center" and will continue to meet over the next couple weeks until they get there.

Granholm and Democratic leaders in the Legislature favor a mix of budget cuts and tax hikes; Republicans contend the books can be balanced this year without a tax increase.

Next year's budget is as much as $3 billion out of whack, including the $1.9 billion lost due to the expiring Single Business Tax. There has been no agreement on a new business levy.

How we compare

Findings by the National Conference of State Legislatures:

¥ In Michigan, and six other states, revenues trail forecasts.

¥ Over 10 states are boosting education funding; Michigan may cut.

¥ At least 12 states may cut taxes; Michigan is mulling hikes.

¥ Michigan's business and sales taxes trail forecasts; income taxes are ahead of forecasts.