State Repeals Unsavory Service Tax on Same Day It Was To Be Collected
More Funding Available for Schools
By Amy Polk

Michigan's unpopular new service tax was repealed December 1, the same day businesses were supposed to begin collecting it.

Described as an extension of the state sales tax, the 6% tax on services would have applied to things like travel and reservation services, business consulting, investment advice, office administration service, design services, transit and ground passenger transportation, wedding and party planning, landscaping, and janitorial service. The tax would have generated an estimated $614 million through the 2008 fiscal year, and was key to balancing the 2008 budget, but public outcry, especially from the business community, buried the tax. Businesses opposed the service tax mainly because it placed a tax on services like legal, accounting, design, and other administrative services that many businesses "hire out" from service providers, said Leslee Fritz, director of communications for the Office of the State Budget.

To replace the service tax, state legislators and the business community crafted a substitute, she said, that would place a 21.9% surcharge on the new Michigan Business Tax. The surcharge will be calculated on the taxes businesses will pay each year, and some small businesses will not pay anything, Ms. Fritz said. Companies doing $350,000 in business or less are considered "small businesses."

The new surcharge helps balance the state's $43.5 billion 2008 fiscal year budget. A higher income tax rate of 4.35% (up from 3.9%), budget cuts, and reforms also helped balance the budget and eliminate a projected $1.75 billion deficit.

The income tax rate hike would remain in place through 2011. Then it would gradually decline through 2015 until it returns to 3.9%. An individual making $20,000 will pay an additional $90 a year in state income tax - $870 instead of $780. A person making $40,000 will pay $180 more. A person making $100,000 will pay $450 more. These figures do not include deductibles and other adjustments. The income tax increase hike will raise an anticipated $765 million. Michigan's income tax is the fourth lowest in the United States.

The new budget also reflects an estimated $433 million in cuts identified by state departments and legislators. Each state department was asked to voluntarily trim 2.5% of its budget, Ms. Fritz said.

Public Schools, Colleges

Get More Funding

Michigan public schools will receive more money per pupil through a foundation allowance increase that varies between $48 and $96. The state's lowest funded schools will receive $96 per pupil this year, while schools that receive $8,385 or more are getting an additional $48 per pupil. Schools with foundation allowances between the low of $7,108 and the high of $8,385 will get an increase based on a sliding scale.

"For the first time, this year, they tried to address the issue of funding inequity," Ms. Fritz said of the fact that some Michigan school districts will receive the minimum allowance of $7,204, while others in districts with higher property values may receive as much as $10,000 per pupil.

Michigan public and charter schools receive state aid payments based on how many students are enrolled at those schools, so districts in declining enrollment areas like the Eastern Upper Peninsula are steadily losing money. Wealthier districts will still get a funding increase, but the smaller increase for them is designed to narrow the gap between the state's highest and lowest per-pupil foundation allowances. The same $20 million budgeted last year for declining enrollment districts will be provided again in the 2008 fiscal year budget.

Michigan's new budget also provides a 1% funding increase for public colleges and universities, which Ms. Fritz said does not quite make up for the 1.5% to 2% midyear cuts made during 2007.

Among the cuts to education are a $20 million mathematics and science allowance for middle school students. The supplemental funding was introduced last year to help prepare middle school students for Michigan's more rigorous high school curriculum. The money was provided for things like tutoring, extra classes, and educational materials.

School Readiness Spending

Increased Per Student

Spending on preschool aged children through the Michigan School Readiness Program has been increased from $3,300 to $3,400, but the number of students the program will pay for remains the same. The program prepares at-risk students for school, based on the needs of students who demonstrate they may not have the same basic learning skills as other children preparing to enter kindergarten. Money can be spent on tutoring or enrichment services provided by the child's school district. Districts typically request

"Although spending has been increased, the number of slots available for these children remains the same as last year," Ms. Fritz said. "Districts that have greater need will get more slots, resulting in some districts losing or gaining based on need."

Districts request the number of students for which they need funding.

Brimley and St. Ignace school districts will see no change.

Three local schools will get funding for more students. Moran Township Schools (Gros Cap) will receive funding for two instead of one child. Engadine's funding was also boosted from two to three. Ojibway and Joseph Lumsden charter school received no funding last year, but Ojibway will get funding for three and Joseph Lumsden will get funding for eight children.

DeTour Area Schools did not request the funding this year. Les Cheneaux Community Schools' funding will be reduced from 11 students to 5. Pickford's was reduced from five to three. Rudyard's funding will be reduced from 32 to 28. Sault Ste. Marie's funding was dropped from 64 to 37.

State Police Closing

Marquette Forensics Lab;

Camp Manistique Closed

Michigan State Police cut its budget by closing two crime laboratories, including one in Marquette that processed all Upper Peninsula forensic evidence. One of seven forensics laboratories accredited by the American Society of Crime Laboratories, the facility was housed at the Upper Peninsula's State Police headquarters, and processed data such as fingerprint, ballistics, DNA, biological, chemical, and other evidence from Upper Peninsula crime scenes. Such evidence will now be processed at the Gaylord crime laboratory.

"It is our hope that this will not slow down the processing time, but at this point, we don't know," Ms. Fritz said. "This is how they [State Police] chose to make their cuts because they believe choosing this way of making cuts was better for the public safety."

Closing the laboratories comprised all of the 2.5% departmental cut, consequently, the department will not cut road patrols or trooper strength.

The crime laboratory closures seem to be getting the most negative attention around the state, Ms. Fritz said.

Michigan's Department of Corrections elected to close facilities at Manistique and Jackson. The Manistique corrections camp employed 49 people, who were offered jobs at other facilities in Michigan.

In the Department of Health and Human Services, the foster care department will receive additional funding to hire more case workers to reduce caseloads. Some services were contracted to private providers, which Ms. Fritz said will not affect users of the system. The department also partially closed its Maxey Training School in Whitmore Lake for juvenile offenders.

Libraries Should Get

More Than Last Year

The Department of History, Arts, and Libraries is expected to get $10 million this year, up from the $6 million it received last year as the result of mid-year cuts that slashed state library grants in half. Final figures have not yet been determined, Ms. Fritz said, but state library grants this year are expected to be about 75% of what libraries were supposed to get before mid-year cuts in 2007. St. Ignace Public Library, for instance, was slated to get $3,768 in 2007, is expected to receive 75% of that amount this year. Hiawathaland Library Cooperative, a group of 13 libraries in the Eastern Upper Peninsula, will receive about $47,000 this year, down from the $62,873 budgeted for the cooperative in 2007.

Ms. Fritz said the budget for History, Arts, and Libraries was reduced, in part, because it lost $1 million in federal funding. The Library of Michigan in Lansing will absorb the lion's share of the department's 2.5% cut, trimming $394,000 from its budget. The budget reduction also means there will be less money available for grants to fund art and culture programs. Money from this department provides Michigan Council for the Arts and Cultural Affairs grants, which are administered through Eastern Upper Peninsula Regional Planning and Development.

DNR Threatens Layoffs, Fish

Hatchery Closures

if Fees Not Raised

Effects of the Department of Natural Resources cuts were introduced in late summer and fall, when it announced state campground closures around the state, and limited trail grooming. Other cuts may come, the department warns, if a package of rate increases for fishing, hunting, and harvesting increases is not adopted by January 15. Among the cuts, the DNR lists employee layoffs and closing state fish hatcheries.

The Department of Environmental Quality has also proposed license and permit application fee hikes, and warns that certain permitting services it provides may be turned over to the federal government if those increases are not passed. Governor Jennifer Granholm announced last week, however, that she would support using state general fund money to pay for programs that would have been funded by the proposed fee increases, Ms. Fritz said.

"She has told legislative leaders in the House that she will support this for this year, but recognizes that a longterm funding solution for both departments will be needed," Ms. Fritz said.

Budget cuts caused in part by sluggish state timber sales have already trickled down to the Chippewa East/Mackinac Conservation District, which is responsible for soil conservation, land management, water quality, and other natural resource services in Chippewa County and Mackinac County townships of Clark, Marquette, St. Ignace, and Moran. The state cut its contribution to the district from $20,000 to $11,000, which will cut employee hours at the office.

"When people come in looking for the typical assistance they used to get, we won't be able to provide it," said Conservation District Administrator Dusty King.

Other conservation districts around Michigan have been forced to cut district foresters from their staffs. Chippewa/East Mackinac did not have a forester on staff.

State Budget Reforms

Remain Intact

Other cost-saving changes already announced include establishing a new Government Efficiency Committee to find additional reforms, and changes to the teacher health insurance and retirement system.

Public schools with more than 100 employees have access to health insurance claims data to allow those districts to seek competitive bids for health insurance packages, Ms. Fritz said.

Districts previously did not have access to their employees' claims data. New teachers will pay 10% of their health insurance premium and the state will pay 90% of the premium. Under the state's new retirement program, new hires will also contribute 2% of their income to the state's retirement fund.

Michigan also now allows prisons to contract with private providers for mental health services, and eliminated state employee "double dipping," which was the practice of allowing retired state employees to return to state employment, drawing pension and earning salary simultaneously.