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Friday Declared Michigan Solvency Day

November 8, 1985

LANSING, Mich. (AP) _ An emergency income tax increase enacted after Michigan was forced to turn to Japanese banks for financial help has returned this auto-producing state to financial health, says Gov. James Blanchard.

Blanchard dubbed today ″Solvency Day″ to mark paying off the last of a 10-year-old state deficit.

″I will be able to certify as governor of the great state of Michigan that our state’s entire $1.7 billion deficit is paid in full,″ he said at a news conference Thursday.

″I will be able to say the four words that couldn’t be said in this state since 1975: ’Our books are balanced.‴

The deficit was built up by ″voodoo bookkeeping,″ accounting procedures designed to hide a budget deficit outlawed by the Michigan Constitution, Blanchard said.

Months before the Democrat took office in January 1983, Michigan had the worst credit rating of any state. It turned to a consortium of five Japanese banks to guarantee $500 million in school aid borrowing when American banks refused to lend the money without a co-signer.

One of Blanchard’s first actions was to delay paying $600 million in state school aid to local public school districts, said state Treasurer Robert Bowman.

″We were bankrupt. We just couldn’t afford it,″ Bowman said. ″We ... would have had payless paydays in February (1983) had we not started to defer.″

More than $800 million of the debt was accumulated, while $900 million more was operating debt, Blanchard said.

″At that time, we could have laid off every single state employee and still not paid off our debt,″ he said.

Blanchard won legislative support for a temporary increase in the state income tax rate, from 4.6 percent to 6.35 percent, effective in January 1983.

The rate is now 5.35 percent and will become 5.1 percent on Dec. 1, when a 0.25 percent surcharge used to pay the deficit is lifted. The $175 million tax cut will provide annual savings of about $47.50 for an average family of four.

But state Republicans saw other reasons for the improvement.

″Our state has risen from its status as a debtor primarily because of President Reagan’s economic policies,″ said GOP Party Chairman Spencer Abraham.

State Sen. Norman Shinkle, a Lambertville Republican, said he will attempt to roll back the rate to 4.6 percent on Nov. 11, instead of next May as the governor proposes.

Blanchard said Michigan isn’t ready yet because the budget for the fiscal year that began Oct. 1 includes money from the current 5.1 percent rate.

Blanchard blamed members of both parties and the administration of former Republican Gov. William Milliken for the deficit, but defended Milliken for an attempt to increase taxes, which failed.

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