Michigan is facing the prospect of more cities in receivership and school districts running out of money as state and local tax revenues plummet in the year ahead, House Fiscal Agency director Mitch Bean warned Thursday.

Nevertheless, economic development guru David Hollister said Michigan's economy is bubbling with young entrepreneurs starting up information technology companies and ignoring problems at the state Capitol.

"It's not all doom and gloom," said Hollister, of the Prima Civitas Foundation. Despite a 15.1 percent unemployment rate and falling tax revenues, getting the state back on its feet "isn't a hopeless battle."

Bean and Hollister joined Michigan State University economics professor Charles Ballard to take a look at what lies ahead for Michigan at a forum sponsored by the Michigan League for Human Services.

Bean said the state is facing falling property tax values, jobs and per-capita income, all of which have driven down state and local tax revenues.

"Most people agree there's a coming crisis in local government," Bean said, with more cities facing receivership as they deal with smaller state revenue sharing payments and less property tax revenue from declining home and commercial property values.

The state general fund has seen revenue drop from $9.8 billion in fiscal 2000 to $6.9 billion or less this fiscal year, which started Oct. 1. That means billions of dollars less for local governments to spend on police and fire protection, higher education and services such as mental health care.

Medicaid and corrections now account for half of general fund spending, crowding out "a lot of other things," Bean said. School aid revenue is expected to drop $1 billion from what it was two years ago, one reason school districts now are facing cuts of roughly $300 to $600 per student.

Ballard said Michigan could solve some of its budget woes by asking its wealthier citizens to pay higher income taxes through a graduated income tax. The state's wealthiest 5 percent now have nearly as much income as the bottom 50 percent, mirroring a national trend.

With it's 4.35 percent flat-rate tax, Michigan has one of the nation's highest tax rates on the working poor and one of the lowest on the wealthy, Ballard said.

Michigan voters would have to approve switching from a flat income tax to one graded according to income, and the issue faces opposition from business groups and others. But a statewide poll last year showed more than half of voters favor a graduated tax, said Ballard, who favors reducing or eliminating the state's main business tax and replacing it with the graduated income tax.