Governor Rick Snyder was joined by Lt. Governor Brian Calley and Budget Director John Nixon before a joint hearing of the Senate and House Appropriations committees, Senate Finance and House Tax Policy committees Thursday to present his budget recommendations for the 2012 fiscal year and projections for the 2013 fiscal year.

Beginning his presentation by describing the difficulty through which the recommendations were developed and announcing his intention to return all but $1 of his $159,300 salary, Governor Snyder proceeded to outline extensive tax reform proposals and $1.5 billion in cuts. Though the Republican Governor enjoys a Republican majority in both the House of Representatives and the Senate, the coming weeks are sure to be a challenge as the Governor seeks to have the budget process complete by May 31st. The Governor’s recommendations can be viewed in their entirety at: http://www.michigan.gov/documents/budget/1_345974_7.pdf.

Highlights of the budget proposal include:

• Higher education would be cut by 15 percent, with $83 million set aside for distribution to universities that keep tuition increases below 5-year, system-wide averages. Universities will be funded through a formula beginning in fiscal year 2013 based, in part, on graduation rate.

• Statutory revenue sharing of more than $300 million would be eliminated and replaced by $200 million in combined money distributed to those municipalities that adopt best practices to be announced in March.

• A 48-month lifetime limit on able-bodied welfare recipients.

• No cuts, as promised earlier this week, to Medicaid services.

• The closing of one prison facility, privatization of some prison services such as food service and prison stores and Corrections employee concessions.

Highlights of the tax reform proposal include:

• Elimination of the Michigan Business Tax (MBT) and implementation of a 6 percent net corporate income tax on C-corporations only.

• Honoring of those “contractual” credits promised under the MBT (e.g. MEGA, Brownfield, etc.) through a yet-to-be-determined manner (either by allowing the businesses to elect to continue filing and paying the MBT or by applying the credits to the new tax structure).

• Lowering of the individual income tax rate from 4.35 percent to 4.25 percent in October, 2011 as scheduled – but locking the rate at that level.

• “Flattening” of the individual income tax base by elimination of nearly all credits and exemptions, including the Earned Income Tax Credit (EITC), and the exemptions applicable to both private and public pensions.

• For more information on specific portions of the budget recommendations, please contact PAA and make sure to watch PAAdvisory for weekly updates and more detailed analysis.