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Posted on 06/01/2004 7:03:07 PM PDT by Dan from Michigan

Gov. Granholm warns schools of cuts without cigarette, liquor tax increases

By AMY F. BAILEY
The Associated Press
6/1/2004, 4:36 p.m. ET

LANSING, Mich. (AP) — Just days before finishing their academic year, Michigan schools learned Tuesday they may have to scramble to cut their budgets by $28 per student if lawmakers don't agree to increase the state tax on cigarettes and liquor by July 1.

Democratic Gov. Jennifer Granholm said the higher taxes must be approved by the Republican-controlled Legislature by June 15 if they are to take effect next month. Without them, Granholm said state funding for health care or schools will have to be cut to resolve a $250 million shortfall in the overall spending plan for the current fiscal year, which ends Sept. 30.

"The clock is ticking," Granholm said during an afternoon news conference with state Budget Director Mary Lannoye.

Lannoye issued a letter Tuesday to K-12 schools warning them their state funding will be reduced by $28 per student if the higher tobacco and liquor taxes aren't approved. The school aid fund for the current budget year is $50 million in the red.

The state also may have to cut reimbursements to hospitals and physicians who take care of low-income Medicaid patients if the tax hikes aren't approved, Granholm said.

Granholm wants to raise the tax on all tobacco products from $1.25 to $2 per pack to generate an additional $97 million for the current fiscal year. She also proposing increasing the price of a $10 bottle of liquor by about 50 cents to bring in $10 million for this budget year.

The tax hikes would stay in effect and raise hundreds of millions more to help fill an estimated $1.3 billion shortfall in next year's budget, which starts Oct. 1.

Michael Flanagan, director of the Michigan Association of School Administrators, said a cut in state funding for schools a few months before their fiscal year ends would be devastating.

Schools already have signed contracts for summer construction work and summer classes, Flanagan said. Although some districts have extra money set aside for emergencies, others don't.

"In some districts there's absolutely no option that they have with this $28 cut," he said. "I don't get why the legislators aren't stepping up to the plate on this. This is a simple solution. It's not rocket science and it gets us through a crisis."

The House voted last week to approve increasing the tax on cigarettes by 75 cents, but its version was significantly different from Granholm's proposal. The House restricted the 75-cent-per-pack increase to cigarettes rather than all tobacco products, put a three-year limit on it and added a two-week grace period before vendors have to transfer the increased tax receipts to the state.

Granholm said the House version is unacceptable, but a spokesman for House Speaker Rick Johnson, R-LeRoy, said there isn't enough support for the governor's original proposal in the GOP-controlled chamber.

"The House Republicans want to be able to balance the budget by cutting spending, not just raising taxes," Johnson spokesman Keith Ledbetter said.

The House voted down the liquor tax hike once this year, and its prospects at this point look uncertain.

Republican Senate Majority Leader Ken Sikkema of Wyoming has said GOP senators won't vote for the higher cigarette tax unless GOP legislation aimed at creating jobs is included in the deal.

Granholm's proposal to increase the cigarette tax won't have the 20 votes needed for approval in the 38-member Senate, where the GOP has a 22-16 majority, because it's not part of a comprehensive budget-balancing plan, Sikkema spokesman Bill Nowling said.

Nowling said Granholm's announcement on Tuesday doesn't change the Senate's position. ___

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