Thank you, Committee Chairs Shulman and Johnson, Minority Chairs Prusi and Whitmer. Good afternoon, members of the Michigan Legislature.

It is an honor to be with you today to present the proposed budget for Fiscal Year 2004, my first budget as your Governor, especially because of the fiscal crisis we face.

I decided to join our Budget Director, Mary Lannoye, in presenting this budget to you, because I can think of no better way to signal my determination to work with you on this over the coming months.

When I spoke to you at the State of the State address just a month ago, I said that the budget deficit presents us with the opportunity to achieve greatness. We can now ask the difficult questions that complacency might have allowed us to avoid. Questions like: We did it this way in the past, but does it make sense to do it this way today? Is this program what government should really be spending taxpayer dollars on? Is this a critical, vital function of government?

In the weeks since the State of the State, I’ve traveled across Michigan to help our citizens understand our fiscal challenge and to hear – first hand – their thoughts on how to fix it. The experience has energized me to meet this challenge and to work with you to build the better Michigan we all seek. The input I received from the citizens is reflected on the pages of this budget, as it should be. It’s the people’s money – they should have a direct voice in telling us how we should spend it.

As I said many times on my budget tour, and as you have undoubtedly explained to your constituents, the problem we face in Michigan today is one that any family in our state can understand. You simply can’t spend more than you make, month after month, year after year, without digging yourself into a deep hole. But, that is exactly what we’ve done in Michigan, and together we must fix it.

The days of spending beyond our means are over. As long as I am your Governor, this state will live within its means.

The budget I present to you today is balanced. The general fund deficit was projected at $1.7 billion, and we have wiped it out, without raising taxes. We have slashed more than $1.1 billion of spending – the largest reduction in Michigan history. And, most important, we have invested in the priorities that really matter: protecting our families and educating our children.

How did we do it? We cut waste, innovated, and made decisions based on the most vital services and the investments most critical to Michigan’s future. This is a budget based on both value and values. Value so that each tax dollar spent produces the most a dollar can possibly buy. And values so that while reducing the size of government, we do the things that matter most – nurturing our children, honoring and protecting our seniors, protecting our neighborhoods, and treasuring the God-given wonder of our natural environment. We have built a government that is lean but not mean.

While I share the pain of some of the decisions we had to make, let me begin by sharing my enthusiasm about the priorities that we have lifted to the forefront of all we do.

First, I am most proud that we protected our children. We did not cut the K-12 education foundation allowance; in fact, we restored it to the full $6,700 per pupil. Given the budget deficit, this fact is astounding. Nor did we cut the money for educating at-risk children, or the funding for vital pre-school early learning initiatives. That we were able to preserve funding for educating our children despite the fiscal crisis is a loud, resounding statement of my priorities, echoed and amplified by citizens throughout the state. You are listening to those same people, and I trust you agree with our assessment.

We have set other priorities, which I think you will value:

• We restored health care to 40,000 caretakers of foster care children who had recently been cut from Medicaid. We did not reduce the Medicaid health benefits of children, seniors, the disabled, or pregnant women.
  
• And we did not cut the provider rates, because we want to make sure hospitals and doctors continue to be there for those who need them.
  
• We protected our safety by finding a way to fund a new trooper school to replenish the dwindling ranks of the Michigan State Police.
  
• We are tripling the number of seniors who will have a prescription drug benefit through our expanded state drug program, EPIC.
  
• We are increasing mental health funding by 2%.
  
• We are opening up again for enrollment the home and community-based waiver for those seniors who prefer to be cared for in their homes rather than in a nursing home.
  
• And we are maintaining our commitment to environmental protection.

So you might be asking yourselves, if we were able to preserve or expand all of these things, what got cut?

The number one victim in this budget is waste and inefficiency. This budget reflects well over $200 million in administrative cost reductions – cuts that reduce the cost of government without reducing services. As many of you know, we hauled in cars from the state’s fleet of vehicles; we halted all management raises; we will be consolidating administrative functions across state departments (for example, why can’t one department do the purchasing or the human relations functions or the financial services for another?). We are in the process of renegotiating all of our contracts with outside vendors to the state, asking them for at least 10% reductions. We even reduced the cost of the budget book we submit to you today by some 50% by doing away with binding.

Unfortunately, we could not eliminate the massive deficit just by doing things more efficiently. There were things that we just could not afford to do. Now, it isn’t hard to choose between the effective and the ineffective, or between the useful and the useless. But to balance this budget, more often than not, we’ve had to choose between the important and the vital.

• For example, we’ve had to make sizable cuts in funding for the arts in this budget; grants to arts organizations were cut by 50%. This to me is a painful cut. Make no mistake about it, I believe the arts are important – they make us more fully human and connect us not only to each other but to the genius of generations across the ages. They are important, but perhaps not vital, in the same way that feeding a child is vital, or that giving a senior his heart medication is vital.
  
• And we all understand the importance of higher education funding – higher education is an important way to create high wage jobs and employees. It is truly an economic development arm of the state. But for people across the state, higher education funding is perhaps not critical in the same way that preparing a child for college in the first place might be, or protecting that child from abuse or neglect. Thus, higher education takes a 6.5% cut in this budget. I have faith that our great universities and colleges will continue to determine how they can work more efficiently to fulfill their critical functions.
  
• The same painful analysis applies to revenue sharing to local units of government which will see an additional 3% cut in discretionary payments this year. We know and hope that those local units will try and preserve police and fire safety first, and then pause those programs or services that may be important but not vital. We will ensure fairness by distributing the cut to revenue sharing equally among the units of government.

And there were other tough choices to make.

• We have preserved the Merit Scholarship in full for those students who were promised it this year, but we will reduce the scholarship to $500 in 2004 and beyond. The Merit Scholarship is very important, but it is not vital. Most would agree that it is not a core function of government (because prior to three years ago, it did not even exist).
  
• We cut money from the Life Sciences Corridor, but were still able to preserve $20 million for this important economic development tool.
  
• In order to keep the full funding for K-12 education, we had to cut a portion of the funding for adult education. But the good news is that even with that cut, we are still in the top quarter of states in funding adult education.

All tough choices, because they are all important programs. But if we keep them, we will have to cut K-12 education, or police, or health care. I hope you agree with our priorities.

Mary Lannoye will explain the budget in detail. She will explain that we closed some obscure tax loopholes and raised some fees to achieve approximately $200 million in additional revenue. She will tell you that we did not raise general fund taxes. But while she talks of specifics, I exhort you all to keep in mind the global picture of the budget we have presented.

Our fiscal pie has been shrinking, not growing. There is no will to add to the filling; we can only change the size of the pieces. So our budget calls on us to recognize that government cannot do it alone. We must partner. While the budget limits our spending to our available revenue, it cannot and should not limit our dreams.

We have no time to wait for the budget crisis to pass. We cannot afford to wait for a few years to get the job done – it may be too late when it comes to the developing brain of a child born today or the family farm forever lost to a strip mall. So, as you know, we are creating unique public-private partnerships that tap the citizen patriotism and philanthropic spirit that abounds in our state.

To make this budget work for the people of Michigan, we also need to develop a new kind of partnership in state government, one that can bridge the differences that too often divide us. When I traveled across Michigan on my budget tour over the last month, I was struck by how rarely partisanship came up as we discussed our budget crisis and how to solve it. The citizens of Michigan don’t want us to resolve this crisis as members of two bickering parties; they want us to find common ground as leaders of one Michigan. These are not Democratic schools or Republican schools; they belong to all of us. Democrats and Republicans have a stake in providing health care. Democrats and Republicans have a stake in creating jobs. Democrats and Republicans want our communities and our children to be safe. This budget reflects our common ground.

I thank you for this opportunity to speak with you, and now I look forward to hearing the best budget director in the country, maybe the Western Hemisphere, Mary Lannoye, present her overview of our budget and answer your questions. Thank you.