Dear Colleagues:

Targets have been released and the Budgets are moving! The Governor and her Department of Management & Budget Director and Treasurer Robert Kleine, met with House and Senate Leadership; and Budget Targets were presented, agreed upon, and officially released!

Meetings are being quickly scheduled for Conference Committees to gather and work out the details on Departmental Budgets. I am told that a preliminary meeting between Senate DCH Budget Chairman Kahn and House DCH Budget Chairman McDowell is set for next Tuesday, September 14th. The Full Conference Committee meeting will follow Wednesday, and the DCH Budget will pass both Houses by September 23rd.

At first blush, it appears that your calls and letters have not gone unheeded. The Target Agreement reflects an increase of General Fund Moneys of about $122 Million dollars over the 2009/2010 DCH Budget! Thus instead of $2.024 Billion in General Fund dollars as proposed by the House  for 2011, and compared to this years’ (2009/2010) total figure of $2.309 Billion, the Target Agreement reflects a General Fund total of $2.431 Billion for 2010/2011. Thus giving us an additional $122 Million in General Fund dollars for the DCH Budget in the coming Fiscal Year! Thankfully a slight improvement, which was hoped for but not anticipated, for 2011!

Obviously this will be good news on top of the fact that proposed Departmental cuts in Administration have been reduced from the Senate version of 20%, down to a more manageable 3%. All this without raising taxes!

There are some fund shifts proposed in the package, such as moving the extra tobacco settlement moneys from Public Health to Medicaid ($102 Million), and the $208 Million surplus in the School Aid Fund moved to cover a deficit in the Community College Budget.

Some of the anticipated savings/revenue for 2010/2011 is based on dollars derived from State employees retiring early. Legislation is being developed to offer a 1.6% formula to encourage some of the State’s 12,000 eligibles to retire early. The 2010/2011 Budget anticipates savings of $60 Million based on State employees retiring. I believe we will see no more than $25 Million in savings. State employees will begin a phase-in of a 3% contribution toward their own health-care costs over the next five years, if they do not retire under the target agreement for 2010/2011. The targets provide for a  1.6% sweetener over the normal 1.5% formula. I anticipate that close to 3,000 State employees will retire early, although the Governor predicts 6,000 retirees, and up to $60 Million in savings.

If the State employees retirement plan does not pass, the Target Agreement calls for a cut in local revenue sharing dollars, which is designed to encourage union support for the early retirement proposal.

There will be a “tax amnesty” program offered to allow people to be held harmless while catching up on back taxes, which should enhance State revenues in 2011. The total amount to be realized, due to tax amnesty, is not clear. However, we will see a freeze on State revenue sharing payments to cities, villages, and townships. And certain liquor “reforms” will raise an anticipated $9.1 Million in increased revenues.

The DCH increase in General Fund dollars is also intended to reflect the May 2010 consensus caseload estimates, which are significantly higher than the 2009/2010 original budget projections. Thus a need to cover the Medicaid caseload increases, due to higher unemployment and additional job/business reductions in Michigan.

This memo is intended to reflect the latest developments pertaining to the DCH 2010/2011 Budget Bill, as I see them, and the figures contained herein could change upon final Bill passage, subject to line-item vetoes by the Governor!

I will keep you informed of future developments. If any questions, kindly call 517-319-2580.

Sincerely,

Paul Tarr