CHICAGO -- Week revenues and growing Medicaid costs have forced Gov. John Engler of Michigan to lower his proposed budget for fiscal 1992 by about $300 million, state officials say.
On Tuesday, the administration gave the Legislature a $7.509 billion general fund/general purpose budget for the fiscal year beginning Oct. 1. In March, the governor had proposed a $8.057 billion budget.
Nick Khouri, the state's chief deputy treasurer, said the revised budget numbers meet the governor's committment of having a balanced budget.
The state had been facing a $400 million deficit in fiscal 1992, according to a July 25 report by Standard & Poor's Corp. that announced the removal of $3.14 billion of the state's debt from Credit Watch. The rating agency had placed the debt on Credit Watch with negative implications on Jan. 23.
While the agency affirmed the state's AA general obligation rating after the state was able to eliminate a $1.4 billion deficit from its current year budget, it also gave the rating a negative long-term out-look. Agency officials also said the deficit could reach $1.1 billion if the state did not institutionalize 9.2% across-the-board cuts made in the current budget last year.
Mr. Khouri said the institutionalization of those cuts would depend on the final budget, currently being negotiated between the Republican-controlled Senate and Democrat-controlled House.
So far, legislative leaders have agreed on initial spending targets. Steve Serkaian, a spokesman for House Speaker Lewis Dodak, D-Birch Run, said the budget revision would further complicate resolving the budget in terms of having "less dollars to fund programs."
With less than a month left before fiscal 1992, both sides expressed confidence that an accord could be reached by Oct. 1.
However, Mr. Serkaian said the speaker was holding out the possibility that a continuation budget could be put into effect if needed.
As for the sinking state revenues, Mr. Khouri attributed most of the decline since March to a drop in single business tax collections, caused by cutbacks in auto production and legal problems surrounding the capital acquisition deduction portion of the tax. He added that sales tax receipts have been "flat."
Michigan estimated that an additional $80 million will be needed for Medicaid payments next year. However, the state expects to cover the increased cost with $102.7 million more in revenues from its Medicaid hospital voluntary contribution plan. The administration has also revised the projected balance at the end of fiscal 1992 down to zero from $16.2 million. Tom Clay, a deputy budget director, said the state should have nearly $200 million in its budget stabilization fund at the end of the next fiscal year.
The administration is projecting revenue growth of 5.1% for the coming fiscal year -- slightly less than its earlier 5.2% projection.
Meanwhile, Gov. Engler is counting on continued revenue growth of 5% a year to fund his latest property tax cut proposal.
Last week, the governor launched a petition drive to place a proposed constitutional amendment on the November 1992 ballot that would cut property taxes by 30% over a five-year period beginning in fiscal 1993 and cap assessments at 3% or the rate of inflation, whichever is less. He scrapped his original plan to cut taxes by 20% over three years after House Democrats came up with their own.
Vladimir Stadnyk, a managing director at Standard & Poor's, said that while it was premature to comment on the proposal, the agency would look "with some skepticism on how it can be accomplished."
In its July credit report, the agency pointed out that the state's commitment to containing tax increases while funding property tax relief will "limit its financial flexibility."
George W. Leung, vice president and managing director of state ratings at Moody's Investors Service, which rates the state's GO debt A1, called the plan "an ambitious goal," given the state's economic and budgetary situation. He added the agency would need to "scrutinize the details and soundness of the plan."
Claire Cohen, executive managing director of Fitch Investors Service Inc., which rates the state's GO debt AA, declined to comment until she has reviewed the governor's budget and tax proposals.
