Doug Rothwell remembers when Michigan was known for prosperity and economic growth, and he dreams of the day when it could be again. But he says that may take 10 years. And that’s his best-case scenario.

Rothwell is the head of Business Leaders for Michigan, which is promoting a major overhaul of state government that is intended to transform the state’s economy and create new jobs. Whether you subscribe to his plan, or one of several others being talked about these days, you have to be disappointed - and Rothwell is - with the budget that Gov. Jennifer Granholm has proposed in her final year in office.

At a time when Michigan needs fundamental, structural change in Lansing, the governor has proposed a budget that relies too much on higher taxes and federal stimulus money, and not enough on the kinds of hard reforms that are desperately needed to turn Michigan’s economy around.

That is why we cannot support the governor’s spending plan, even though it includes a very attractive promise to protect our local governments and schools from additional cuts in state spending. As painful as it is to see the city of Ann Arbor talking about laying off 19 firefighters and cutting 17 positions in the Police Department, the budget distress being felt here and across Michigan is a direct result of our economic woes, and that pain will only continue until the state makes fundamental changes to position itself for a recovery.

Granholm’s primary solution for avoiding further cuts to education and local government is to reduce the state sales tax from 6 percent to 5.5 percent, but expand it to cover many consumer services, a move that would generate some $550 million in additional revenue. The idea of taxing services is hardly radical, and most other states already do.

But even a group like Business Leaders for Michigan, which has been pushing a tax reform plan very similar to what Granhom proposes, has said it cannot support the governor’s budget because tax reform will only help Michigan back to prosperity if it’s accompanied by significant reforms in government spending.

By most measures, Michigan is leading the nation in economic distress, yet it continues to spend as though it were still prosperous. Here is just one example: the average total compensation for state employees in Michigan is $17,000 more than the private-sector average. Senate Republicans estimate that having state employees pay 20 percent of their health-care premiums - which is the norm in the private sector - would save $68.8 million a year.

We say this not to pick on state employees, but to point out that the state continues to maintain salaries and benefit levels that are not based on the economic realities that private businesses have had to accept. Nor has government been willing to enact other necessary reforms that could save money. For instance, the Center for Michigan has estimated that local governments could save $250 million by sharing services, and that school districts could save $300 million by doing the same. Yet even as cities and local schools face deep budget cuts, there’s been little real movement toward consolidations or shared services.

At a time when Michigan residents are hurting economically, it’s not fair to ask them to pay higher taxes while the state remains unwilling to bring its spending in line with the private sector or other state governments. Even more important, higher taxes not accompanied by structural reform in spending will move Michigan further from economic recovery, not closer.

State lawmakers face painful decisions in the coming budget, and those decisions should be shaped by some coherent plan for reinventing Michigan to create a climate that attracts new business and creates new jobs. The governor’s budget proposal falls short of that.

The worst thing that could happen would be an election-year stalemate that results in important budget decisions being deferred. Uncertainty over whether the state is or isn’t going to expand the sales tax to consumer services would leave businesses unwilling to make investments in Michigan, further stalling our economy.

Our hope is that the projected $2 billion deficit facing the state - coupled with the level of anger and frustration being expressed by taxpayers - will compel lawmakers to act boldly on broad-based reforms aimed at both tax policy and spending. We believe voters will respond to lawmakers who are willing to make unpopular but necessary decisions, and anything less will leave Michigan mired in economic misery for years to come.

(This editorial was published in today's newspaper and reflects the opinion of the Editorial Board of AnnArbor.com.)