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The Associated Press January 13, 2012, 5:53PM ET

Recovering economy helps stabilize Michigan budget

A gradually recovering economy is helping stabilize Michigan's long-suffering state budget, even leaving a surplus that could be spent over the next year or two, state officials said Friday.

State budget director John Nixon said there's an unanticipated surplus of $457 million left over from the fiscal year that ended Sept. 30. Proposals for spending part of the surplus are expected when Republican Gov. Rick Snyder's administration rolls out its next budget plan Feb. 9.

There will be competition for the money. Democrats want the cash to offset some recent cuts to public education funding, while Republicans who hold the majority in the Legislature say much of it should be put in savings or used to pay off long-term financial obligations. Some Republican leaders are hesitant to acknowledge there's any extra money available, saying the state must remain cautious with its spending in an uncertain economic environment.

"The bottom line here is we've stopped dying, but we're not dancing yet," said Rep. Chuck Moss, a Republican from Birmingham and chairman of the House Appropriations Committee. "We've got a recovery going. It's an anemic recovery, by historical standards very, very weak."

Michigan Treasurer Andy Dillon and directors of the House and Senate fiscal agencies met Friday to estimate how much revenue the state will take in this fiscal year and next fiscal year. After a decade of deficits, Michigan is expected to head into the next budget year on relatively solid footing. But revenue growth to the state will be restrained, in part because of business tax cuts that kicked in this month.

Forecasters expect the state to collect about $9 billion for its general fund this fiscal year, up about 2.5 percent from last fiscal year. The general fund is expected to stay flat in the 2013 fiscal year.

The state's school aid fund is expected to collect nearly $10.8 billion this fiscal year, down about 4 percent from last fiscal year. Revenues to the school aid fund are expected to increase by 2.7 percent in the 2013 fiscal year. Nixon said that overall the state will have about $633 million of "new, ongoing revenue" as it plans the next budget cycle.

The overall combined surplus from last fiscal year tops $1 billion, but only on paper. Much of it was anticipated and committed for spending in the current fiscal year.

The portion that isn't committed should go to schools, said Rep. Richard Hammel, leader of the House Democrats. Education funding was cut for the current fiscal year. Democrats say the reductions weren't necessary and were pushed through by Republicans to finance the business tax cut.

"While this surplus cannot come close to restoring all that was lost, there should be no question that every penny of this surplus money should go back to schools to restore some of the money taken last year," Hammel said in a statement.

Social service agencies say the surplus should be used to increase an income tax credit for low-income workers or to restore some welfare reductions. Other groups called for restoring health care-related cuts.

Analysts project that vehicle sales will increase in the next couple of years, which would provide a boost to Michigan's auto-dependent economy. The state's unemployment rate is expected to continue to improve in 2012.

There's still concern about the economy and the federal government's ability to fund some state-level programs. The National Conference of State Legislatures is telling states to brace for reductions in federal money in some program areas.

But overall, the outlook was rosy compared to similar revenue conferences over the past decade.

"Now that the darkest days are in the books, much of today's news is positive," University of Michigan economist George Fulton said.

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