CHICAGO -- After months of on-again, off-again negotiations, state leaders in Michigan on Friday agreed on a plan to bring the deficit in the fiscal 1991 general funds budget down to about $15 million.
However, the agreement did not cover an unresolved issue involving a solution to the capital acquisition deduction portion of the state's single business tax. Without a solution, the state would lose $300 million in tax revenues this year, according to state finance officials.
The agreement between Gov. John Engler, House Speaker Lewis Dodak, D-Montrose, and Senate Majority Leader Dick Posthumus, R-Alto, includes an executive order and other adjustments that would cut nearly $410 million from the $7.6 billion budget for fiscal 1991, which ends Sept. 30.
These cuts, which would still require legislative approval, would be combined with $755 million of one-time revenue fixes, including the use of $230 million of the state's $400 million budget stabilization fund, that were passed by the Legislature earlier this year.
Nick Khouri, the state's deputy treasurer, said the agreement was "good news for the state.
"The deadlock is broken," he said. "Assuming the single business tax is resolved we will close the books [for fiscal 1991] in balance."
The agreement also somewhat settled a dispute between the Engler administration and Democrats in the Legislature over the transfer last month by the state's Administrative Board of nearly $205 million of funds within nine state departments. Mr. Khouri said all but one of the transfers would be withdrawn by the administration and that the Democrats would use the single transfer as the basis for continuing its lawsuit against the board's action in the Michigan Court of Appeals.
Officials at the rating agencies pointed out that while the state seemed to be making progress towards dealing with its budget problems, many of the solutions were not permanent.
"What has been agreed to here are only temporary solutions," said George Leung, director of state ratings at Moody's Investors Service.
Officials from all three rating agencies said they would like to see a permanent fix to the state's budget problems in the fiscal 1992 budget pending before the Legislature. They said the capital acquisition deduction problem, caused by an adverse state appeals court decision earlier this year, must be resolved.
Last week the House Taxation Committee approved a remedy to the capital acquisition problem that would sunset on Jan. 1, 1993. However, aides to Gov. John Engler said he would not support any temporary solution and that he was supporting a permanent measure passed by the Senate last month. Mr. Khouri said the House was expected to vote on the Democrats' plan this week.