Second term (2007–2011)
The 2006 elections saw a return to power by the Democrats in the State House of Representatives and the retention of Republican control over the State Senate. The partisan division of power in Michigan's state government led to a showdown between Granholm and lawmakers over the FY 2008 state budget that resulted in a four-hour shutdown of nonessential state services in the early morning of October 1, 2007, until a budget was passed and signed. The budget cut services, froze state spending in areas such as the arts, increased the state income tax, and created a new set of service taxes on a variety of businesses, e.g. ski lifts and interior design and landscaping companies, to address a state budget shortfall. As a result of the controversial budget, some taxpayer and business advocates called for a recall campaign against Granholm and lawmakers who voted for the tax increases.
The budget crisis eventually led Standard & Poor's to downgrade Michigan's credit rating from AA to AA−. Additionally, the crisis contributed to sinking approval ratings for Granholm, which went from 43 percent in August 2007 to a low of 32 percent in December 2007. She had one of the lowest approval ratings for any governor in the United States.
In 2007 Granholm proposed and signed into law the No Worker Left Behind Act to provide two years of free training or community college for unemployed and displaced workers. Since its launch in August 2007, more than 130,000 people have enrolled in retraining. The program caps tuition assistance at $5000 per year for two years, or $10,000 per person, and covers retraining in high-demand occupations and emerging industries.
The Department of Energy, Labor, and Economic Growth reported back in October 2009 that 62,206 people had enrolled and that of the 34,355 who had completed training, 72% had found work or retained their positions and a further 18,000 were still in long-term or short-term training. 16% of all enrollees had withdrawn or failed to complete the training. As of July 2010, more than two years after the program was launched, 65,536 people were in training or involved in on-the-job training. Dropouts had been reduced to 13.1% of enrollments.
Granholm delivered her sixth State of the State address on January 29, 2008. The speech focused mainly on creating jobs in Michigan through bringing alternative energy companies to Michigan. Through passing a renewable portfolio standard, which would require that ten percent of Michigan's energy would come from renewable sources by 2015 and twenty-five percent by 2025, Granholm expected the alternative energy industry to emerge in Michigan. Since the passage of the standard, Mariah Power, Global Wind Systems, Cascade Swift Turbine, Great Lakes Turbine, and 38 other companies have announced new projects in Michigan. The solar and wind power industries now provide more than ten thousand jobs in Michigan.
Granholm also called in the speech for an incentive package to offer tax breaks to filmmakers who shoot in Michigan and use local crews in production. A package of bills offering film industry incentives was approved by both houses of the Michigan legislature and signed into law by Granholm on April 7, 2008.
Partly because of pressure from Granholm, Michigan's Democratic presidential primary was moved up to January 15, leading the Democratic National Committee to strip the Michigan Democratic Party of its delegates (Michigan historically had held its caucuses on February 9). Granholm has been named by some as a possible candidate for United States attorney general. She was the policy chair of the Democratic Governors Association.
On April 29, 2008, Granholm had emergency surgery to correct a health issue that stemmed from a 1993 accident. Because of the surgery, Granholm had to postpone a trip to Israel and Kuwait. She finally made the journey in November 2008 and signed a water technology partnership agreement with the Israeli government. In addition, she delivered the keynote address at an automotive event organized by the Michigan Israel Business Bridge and the Israel Export Institute.
In response to a May 14, 2008 resolution by the Detroit City Council that Granholm remove Detroit Mayor Kwame Kilpatrick from office because of eight and later ten felony counts against him, Granholm began an inquiry that culminated in a removal hearing on September 3, 2008. On September 3, Granholm outlined the legal basis for the hearings, arguments were made, and three witnesses were called. On the morning of September 4, Kilpatrick agreed to two plea deals in which he pleaded guilty to two counts of perjury and no contest one count of assaulting and obstructing a police officer in two separate cases. Both deals required his resignation. When the hearing reconvened later that day, Granholm said the hearing would be adjourned until September 22 as a result of the plea deals, and if Kilpatrick's resignation became effective before then the hearing would be cancelled.
In September 2008, Governor Granholm undertook the role of Republican vice presidential nominee Sarah Palin in a series of practice debates with Democratic vice presidential nominee Joe Biden.
With the election of Barack Obama as president, Granholm joined his economic advisory team, having had extensive experience running the Michigan economy, and there was speculation that she might join the Obama administration. On May 13, 2009, the Associated Press reported that President Obama was considering Granholm, among others, for possible appointment to the United States Supreme Court. Eventually Obama chose Sonia Sotomayor.
In 2010, Granholm was barred from seeking re-election due to Michigan's term limits law. Her governorship ended on January 1, 2011, when Republican Rick Snyder, who won the 2010 election, was sworn in.
