Michigan Senate Republicans proposed a budget plan Tuesday that would save the state between $2.24 billion and $2.6 billion, said Senate Majority Leader Mike Bishop, R-Rochester. The savings would be made with government reforms and cuts, including a 5 percent pay cut to all state employees, including MSU faculty and staff.

“The Michigan economy requires huge and immediate attention to the size of our government and the cost of our government,” Bishop said. “We have to stop treating the symptoms and treat the disease itself, and we believe that is the cost of government.”

The public servant pay cut would save an estimated $1.2 billion, Bishop said.

State Rep. Joan Bauer, D-Lansing, held a town hall meeting Tuesday night to address Michigan’s budget crisis and said raising revenue is the only long-term budget solution.

“We absolutely have to raise revenue in some way in our state,” she said.

Bauer, who chairs the Higher Education Appropriations Committee, said because higher education was so drastically cut in the 2010 fiscal year budget, the only remaining area to cut is need-based grants.

“Our financial aid already we went from $140 million to $80 million,” Bauer said. “Next year, if there is no money left in higher education, the only place you can maybe still cut is more financial aid.”

She said she wants to close tax loopholes, extend the sales tax to services and raise taxes to generate revenue for important services including universities and college scholarships.

However, Bishop said the Senate won’t pass any tax increases.

“Raising taxes when Michigan families and job providers are struggling is wrong,” Bishop said. “The people want a more efficient government that spends less money.”

Bishop’s plan also would save as much as $500 million in Medicaid costs by cutting optional services such as dental and chiropractic and eliminating some Medicaid recipients, such as 18-21 year olds. The plan also would reduces the number of state departments from 15 to 11 with an undetermined savings.

But if the state passes a 2011 fiscal year budget without new revenue sources, it would start the next fiscal year about $500 million in debt, said Mitch Bean, director of the House Fiscal Agency.

A viable long-term solution for Michigan’s budget crisis would include both new revenue sources and reforms, MSU economics professor Charles Ballard said.

“We have to do structural reforms all over the place and find new revenue,” he said.

If not, there will be a state budget crisis every year, Ballard said.

“The point I keep emphasizing is that because of structural defects in our tax system, (it) collects a smaller percentage of our economy year after year,” he said. “Those kind of cuts might get us through one budget year and then because of the erosion on the tax side you’d be back to another budget crisis.”