CHICAGO -- Michigan won the second round in a legal fight to eliminate a $230 million general assistance program from its fiscal 1992 budget when the state appeals court on Friday reversed a lower court ruling that reinstated the program.

John Truscott, a spokesman for Gov. John Engler, said the appeals court decision "helps eliminate a cloud that was hanging over our heads."

The plaintiffs, however, plan an immediate appeal to the Michigan Supreme Court, according to a statement from their attorneys at Michigan Legal Services.

In the statement, the attorneys said the appeals court decision "does not properly interpret the obligations of the state government" under the Michigan or U.S. constitutions. They disagreed with the court's conclusion that the program was never authorized by statute, but existed only if the state appropriated the money for it, saying that argument was "unsupportable."

Chris DeWitt, a spokesman for the Michigan Attorney General's office, said the state "will certainly be prepared to take the case to the Supreme Court."

Ingham County Circuit Court Judge James Giddings had ruled Oct. 11 that the state had erred in the way it notified recipients that the program would be ended an ordered its immediate reinstatement.

The administration appealed to the higher court, which stayed the implementation of the lower court ruling in a lawsuit that was brought against the state's department of social services by general assistance recipients.

In its reversal, the appeals court said the circuit court had erred in finding a due process violation, pointing out the state had notified recipients as early as May that the program may be ended and that a new program for disabled adults could be implemented.

The general assistance program for about 80,000 able-bodied, single adults in the state was not included in the $7.5 billion general fund budget signed into law by Gov. Engler last month.

That budget for fiscal 1992, which began Oct. 1, was brought in line with revenue estimates through $110 million of vetoes and nearly $90 million of one-time revenue measures.

Last week the Legislature passed an administration-sanctioned $46.8 million supplemental spending bill for social services. Most of the funding for the bill will come from increasing the amount of bond proceeds used to fund state building projects that are paid for with a mixture of bond proceeds and state general funds, according to Tom Saxton, executive director of the state building authority. He said that would free up about $33 million in the general fund to help pay for programs included in the bill.

Another $5.7 million will be realized from the upcoming refunding of $300 million of building authority lease revenue debt. Mr. Saxton said the money would be taken from the $25 million in total savings the state will get from the refunding deal that will have Merrill Lynch & Co. as the book-running manager and First Boston as the co-senior manager. He added that additional firms would be added to the deal closer to the selling date, which he said may be in early December.

Mr. Truscott said because the supplemental spending bill was changed in both the House and Senate, the administration was waiting to see the final product before the governor decides whether or not to sign it.

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