House “Omnibus Budget” Overview

A Fiscal Year 2005-2006 state budget proposed by Republicans in the House of Representatives departs from past practice by placing all state spending in just three appropriations bills. One of these includes the policy portions of the K-12 school aid budget, and a second contains capital outlays for government buildings and facilities. The third bill, House Bill 4831, contains virtually everything else the state spends money on, 80 percent of which goes for Community Health (Medicaid), the Department of Social Services (formerly the Family Independence Agency, the welfare department), Corrections (prisons), and Higher Education (community colleges and four-year state universities). This was passed on on June 9, 2005.

All told, the three House budgets authorize $39.7 billion in gross spending, about the same as the current year, and approximately $800 million less than recommended by Gov. Jennifer Granholm. To hold overall spending at this level despite general inflation, increases in health care costs, and expanded demand for government assistance brought about by Michigan’s poor economy and high unemployment, the House budget proposes many changes in current policy. Among the highlights, it would cut 15,000 current recipients from state welfare rolls, eliminate Medicaid eligibility for 43,000 current beneficiaries and require co-pays for others, close two Upper Peninsula prisons, and cut funding for Northern Michigan University and Wayne State University.

To pay for higher spending levels that would be needed to avoid these or similar cuts, Gov. Granholm recommended higher liquor taxes, a new tax on doctors that would also generate higher federal Medicaid reimbursements, taxes on vending machine food sales, and more. The House budget contains none of these “revenue enhancements,” but does generate new funding from the proposed Medicaid co-pays and premiums.

Here are some highlights from the major spending categories:

Community Health:
Low-income 19 and 20-year-olds, the “caretaker relatives” of eligible children, and a group of adults who are almost but not quite poor enough to qualify without a special waiver would no longer be covered by Medicaid, removing some 43,000 individuals from a program that currently provides health benefits to some 1.4 million uninsured, low income Michigan residents. In addition, adults who are not disabled, not elderly and not mentally ill would pay a $5 monthly premium, and a $3 co-pay for each physician office visit. Monthly premiums for the “MIChild” program that extends Medicaid coverage to the children of working families that lack employer-sponsored health insurance would rise from $5 to $10.

The budget would not fund any administrative expenses at the Wayne County mental health system that exceed 3 percent of its state aid. Reportedly the current amount is 7 percent, and this change would save $20 million. Other savings include $400,000 from cutting “multicultural health programs” for American Indians, Asian-Americans and Chinese-Americans; $510,000 from eliminating the state's surgeon general, drug czar and chief nurse executive; and $524,000 from eliminating a program that teaches “parenting skills” to adults in “at-risk families.”

Welfare:
The 1996 welfare reform ended federal aid for recipients after five years, but allowed states to use their own tax dollars to provide extended assistance to those deemed to be doing all they can to find work. These additional benefits would end under this budget, which reduces the maximum lifetime welfare eligibility period to four years, removing 10,600 from the rolls. The budget also cuts the maximum monthly welfare benefit by $50 to $409.

Currently, the state pays welfare recipients a child day care subsidy. The subsidy paid to relatives of a child is higher than the amount paid to non-relatives. By reducing the former to same level as the latter, the budget saves $37.9 million. In addition, the budget eliminates funding for seven regional welfare offices, three of which are in Wayne County.

Corrections:
Two prisons in the Upper Peninsula, the Newberry Correctional Facility and Camp Manistique, would close, saving $27.5 million. Supporters of the cut contend that Newberry has the highest daily cost per prisoner of all prisons with comparable security levels. Opponents say that this is because it is the largest provider of GED high school diploma equivalence degrees in the prison system. State spending on prisoner vocational and academic education would be reduced by 52 percent, saving $17.1 million. Contrary to the wishes of Gov. Granholm, the state would not end its lease with the privately-owned Michigan Youth Correctional Facility in Baldwin.

Higher Education:
House Republicans have proposed a new formula for distributing state money to four-year universities based on their enrollment, research activities and the number of degrees granted. This budget begins moving in that direction. The two big losers are Wayne State University and Northern Michigan University, which would get 5 percent less than currently. All other universities would get modest increases.

Other Items:
The above are some of the more important policy changes from the largest of the three House budgets, the 700-page House Bill 4831. Other high profile changes include the following: The Michigan Economic Development Corporation would see $1 million cut from its administration overhead costs and $6.5 million from “job creation services.” The budget cuts arts and cultural institution grants by 12 percent, to $10.3 million. An $8.2 million state subsidy for Amtrak would be cut by $1 million, and the entire $12 million annual state grant to the Detroit “People Mover” is eliminated.

As mentioned, one of the three House budget bills contains state aid to public schools. However, the “omnibus” HB 4831 contains basic school operations funding, including $175 increase proposed by Gov. Jennifer Granholm in per-pupil foundation grants. The minimum per-pupil grant has been $6,700 for the past three years. The average grant is around $7,000. Some Democrats contend that the school aid increase was placed in HB 4831 for political reasons, to make it more difficult for their members to vote “no” on the welfare and Medicaid cuts. Republicans deny this, but frankly have not given a different reason.

The House budget contains literally hundreds of changes from current policies and spending levels. Detailed analysis of the budget from the nonpartisan House Fiscal Agency can be found at http://www.house.mi.gov/hfa/PDFs/hb4831summaries.pdf.

Note: The author wishes to acknowledge the exceptional work done by the Gongwer Michigan Report in describing the details of the state budget. Gongwer’s reporting on HB 4831 was invaluable in assembling this overview. Gongwer is a subscription-only daily newsletter that covers the legislature and state government.