Dear Colleague:

Today, Budget Director Mary Lannoye is presenting my budget for Fiscal Year 2005 to the Michigan Legislature. This budget is more than just pages of columns and rows, more than just facts and figures, debits and credits. It is a roadmap guiding our state to the destination we all seek - a strong, healthy economy and a great quality of life.

This year, as every state employee knows, our revenues are projected to fall $1.3 billion short of our expenses. I thought you would want to know some of the main causes of this challenge:

1. Increased costs in the Family Independence Agency due to increased numbers of people in poverty;

2. Increased costs in the Department of Community Health due to increases in the Medicaid caseload caused by increased unemployment;

3. Increased costs in Department of Corrections due to "truth in sentencing" that keeps the back door closed while the front door remains open;

4. Increased payroll costs due to increases in health insurance costs, scheduled pay raises, and an increased contribution to the employee pension fund;

5. Decreased revenues from income, sales and estate taxes due to scheduled tax cuts and the continued sluggish economy; and

6. Decreased revenues from the Federal government (nearly a $700 million drop).

Mary Lannoye and our leadership have had to fix this seemingly impossible problem. I have been clear that I am willing to take the unpopular step of raising more revenue through tax increases, and the 2005 plan reflects that.

And I know you want to know how the 2005 budget may impact you. First and foremost, my plan this year is to protect the 4 percent raises that were negotiated and avoid having to ask for unpaid furlough days. I remain determined to phase out the need for concessions, and we will be working with your union representatives to find ways to achieve these savings. I look forward to a time when we no longer must look to employees to help us balance the budget, but for now, I can only express my deepest gratitude for all you do.

Two weeks ago, in the State of the State address, I set forth a seven-point plan that will allow our state to reverse the job losses we have experienced over the last three years and become an economic powerhouse in the 21st Century. My plan to grow Michigan's economy will create new tools for retaining the jobs we have today and bringing new jobs to our state. At the same time, my plan will strengthen our schools, make health care more available and affordable for our citizens, and protect our irreplaceable natural environment. Our state cannot afford to choose between strategies that will attract and retain jobs, and measures that would improve our quality of life - we must do both if Michigan is to win the competition for economic growth in this century.

My budget for the 2005 fiscal year reflects this critical balance. It makes necessary reductions in state spending without sacrificing the education of our children or the health of our most vulnerable citizens. It protects scheduled tax cuts - and avoids general tax increases - to make us more competitive in our efforts to attract and retain good businesses and good jobs.

While I have been your Governor for barely a year, this budget represents the fourth time we have confronted the need to reduce state spending because of the impact the national economic downturn has had on state revenues. Over this last year, I have traveled the length and breadth of Michigan to hear the thoughts of citizens - the ultimate stakeholders whom you and I serve - about how we should meet this challenge. Wherever I have gone, I have heard a consistent message - eliminate inefficiency wherever you can find it, and when you must cut important programs, don't sacrifice Michigan's future. Find ways to maintain the quality of life that makes Michigan a great place to live, work and do business.

Guided by those principles, we eliminated almost $3 billion in deficits in 2003. We did it by waging war on waste, a war that will continue everyday that I am your Governor. We tapped your creative power to find ways to do more with less. We asked local units of government and our colleges and universities to do what every Michigan family does when times get tough - tighten their belts. And we have asked people, most notably you, to make sacrifices so that the things that matter most to us in Michigan could survive this economic storm. Last year it was my strong position that further cuts, through layoffs in our already tight work force, would both be detrimental to you and to the quality of your work. I am proud that we took that stand, and it was supported by you and by the leaders of our unions.

If we had chosen to close the budget gap through general tax increases - a nearly impossible scenario given the need for legislative and/or voter approval - we would be creating a huge disincentive to new job creation in Michigan. And, on the other hand, if we were to make deep cuts in education, in health care and environmental protection, we would repel the very people and investment we must attract to our state.

The budget I submit to the Legislature today - in the continuing economic storm about us - takes us closer to the vision we seek: the most attractive state in the country to live, work, and grow a business. Through your continued commitment to public service, even at a time when you are quite literally being asked to do more for less, I hope you appreciate the great good you are doing for the future prospects of this state. I appreciate your public service more than I can express. As always, I am proud and honored to serve with you during these remarkable times.

Sincerely,
Jennifer M. Granholm
Governor