The Michigan Daily

Vol. XCII, No. 5S

Ann Arbor, Michigan-Tuesday, May 11, 1982

Ten Cents

Sixteen Pages

'may lose
$21 million
if Milli ken's
tax hike fails

A crushing blow
Bricks and mortar tumble to the ground as a mighty crane demolishes the
Economics Building yesterday morning. See story on Page 9.
British bomb Falklands-;
prepare for invasion

From staff and wire reports
The University faces a $21 million cut
if the state legislature fails to approve
Gov. William Milliken's proposed tax
increase, according to figures released
by the governor's office yesterday.
Such a cut's impact would be
"devastating . . . far beyond anything
else we've experienced so far," Univer-
sity President Harold Shapiro said last
night.
THE LEGISLATURE worked late in-
to the night on thetemporary tax in-
crease, which will raise the income tax
rate from 4.6 percent to 5.6 percent.
Without the' tax hike, Milliken will
have to pare $326 million from the state
budget in order to balance it-as
required by the state constitution-by
Sept. 30.
A $326 million draft budget-cutting
executive order-presented to the
legislature yesterday as an alternative
to the tax increase-would trim $87
million from higher education, in-
cluding $21 million from the Univer-
sity.
THE GOVERNOR called that alter-
native "devastating and unthinkable,"
but without the $300 million tax in-
crease, he will be left without other op-
tions.
The legislative action came less than
a day before state budget officials were
set to meet with representatives, of
Moody's Investors Service of New York
to plead with the ,influential analyst
firm to drop its decision to sink the
state's bond and note rating to the
lowest level in the nation.
Three of the state's top private finan-
cial advisers warned that if the notes go
down that far, Michigan will be able to
sell only $150 million of its anticipated
$500 million note sale this fall.
REPRESENTING Solomon Bros.,
Merrill-Lynch and First- Michigan
Corp., the analysts warned it could take
several years for Michigan's bond
ratings to improve after they have been
dropped that far. They also warned that
Moody's is "tired of promises" about
state budget cuts and probably would
not accept the promised budget cuts as
a reason to maintain the state's current
rating.
If the bond rating is dropped, funding
for the University's Replacement
Hospital Project would not be affected
until March, 1983, University officials
said.

NMapiro
... cuts would devastate 'U'
"It would have no immediate effect,
but if the situation continued, it.could
affect the State Building Authority's
ability to sell its bonds next year, which
in turn would affect the hospital," said
University Vice President for State
Relations Richard Kennedy.
THE GOVERNOR said there is no
hope of reversing Moody's verdict
unless the state has put its fiscal house
in order through a tax increase.
"We're going to be lower than Puerto
Rico if the credit rating declines," state
Budget Director Gerald Miller told a
special meeting of the House and
Senate appropriations committees
yesterday.
The meeting was called to hear Miller
explain a draft budget-cutting
executive order slashing an additional
$326 million from the state's budget this
year. Approval of the order would bring
to $904 million the amount of money cut
from Michigan's 1981-82 spending.
ADMINISTRATION officials warned,
however, that approval df the order-
which could not legally occur until
Thursday-would come too late to save
the state's rating from sinking to a level
where it could be impossible to sell $500
million in short-term notes this fall.
"We would be held up to national
ridicule and would suffer a seriously
damaged image throughout this
nation," Milliken said in a letter
delivered to all the legislators.
"We would be seen as a government
in disarray and would-suffer serious
damage in our attempts to attract new
employers to Michigan."

By The Associated Press
British warships bombarded Argen-
tine positions on the Falkland Islands
again yesterday in battle action that
correspondents aboard the Royal Navy
task force called a prelude to invasion.
Brian Hanrahan of the British Broad-
casting Corp. reported from the air-
craft carrier Hermes that a group of
ships was detached from the war fleet
to shell targets near the Falklands
capital of Stanley.
"SINCE THE surface action group
returned to the main force, no other
engagements have been recorded
today," he added.
At the United Nations in New York,
British Ambassador Sir Anthony Par-
sons said Secretary-General Javier
Perez de Cuellar's efforts to arrange
Anglo-Argentine peace talks had

reached "the heart of the matter."
"I believe the next 24 hours will be
pretty crucial," he said in an interview
with London's Independent Television
News. ITN said the U.N. talks were
"teetering on the brink of total failure."
PRESIDENT Reagan, during a
question-answer session with students
at a Chicago high school, said there was
"some legitimacy" to, Argentina's
claim to the Falklands, but the Argen-
tines "must not be allowed to succeed"
in taking over the islands by armed for-
ce.
He urged that the Argentine troops
who seized the Falklands April 2 be
replaced by a U.N. peacekeeping force
while a settlement is negotiated.
Informed British military sources
said the requisitioned liner canberra
See FALKLANDS, Page 9