Governor Says Michigan Is Debt-Free but Controversy Remains on Methods

Gov. James J. Blanchard declared the state solvent for the first time in a decade Friday.

“Today marks the end of a decade of deficit and is proof positive that we have begun a new era in Michigan,” Blanchard said. “We are in a new era of financial stability and responsible government, an era of economic growth and opportunity; an era of progress and prosperity toward jobs.”

However, the methods used to reach that goal continue to be a source of political contention.

The temporary 38% income tax increase the Democratic governor prescribed to cure Michigan’s fiscal ills cost his party control of the state Senate and continues to preoccupy the Legislature. It promises to be an issue in next fall’s gubernatorial campaign.

Shortly after taking office in January, 1983, the Blanchard Administration reported the recession-ravaged state had an operating deficit of $900 million and an accounting debt of $800 million that had been accumulating since 1975.

The Legislature raised the income tax rate to 6.35%, and 0.25% is earmarked for retiring the accounting debt.

One year later, recall efforts sparked by the tax hike toppled Democratic state senators in two suburban Detroit districts and handed control of the Legislature’s upper chamber to the Republicans.

The tax rate now stands at 5.35%. The debt retirement surcharge will expire Dec. 1, reducing the rate to 5.1%.

Blanchard noted that elimination of the accumulated debt has resulted in improved credit ratings, which have cut borrowing costs by more than $100 million.