State of Michigan has Credit Woes, Too
Tensions continue to grow in Michigan’s capitol of Lansing as Gov. Jennifer Granholm and the Legislature struggle to fix Michigan’s budget crisis while facing the threat of credit downgrade, which would make the borrowing money even more costly for Michigan.
"From a credit perspective, this is probably the most important legislative session in more than a decade," James Wiemken, managing director of Standard & Poor's Ratings Services, said in the report.
According to the report, 11 other states have overall credit ratings lower than Michigan's AA, including California and Wisconsin. AAA is the top rating. "Should the state delay acting on tax and budget reform measures, however, further rating deterioration is likely," the report said.
According to the Detroit News, the state borrows slightly more than $1 billion each year because of cash flow difficulties. Treasury officials said they can't estimate how much a credit downgrade would drive up borrowing costs.
The state's budget crisis is facing a deficit of more than $800 million in the current budget year, and a potential shortfall of $3 billion for the fiscal year that begins Oct. l. Granholm's budget proposed solution is a 2 percent tax on services, on everything from dry cleaning and lawn care to movie tickets and hair cuts.
The report says if Granholm's tax plan isn't adopted soon, big budget cuts would be necessary. "If such a large amount of cuts that late in the year is even possible, they aren't likely to be very palatable and they may not be sustainable. Cutting taxes or providing economic incentives for businesses is not going to create revenue to address the current shortfall," the report said.