Office of Legislative Affairs

Legislative Update

For the week of August 10, 2009 . . .

GAP GROWS AS BUDGET TALKS DRAG ON - Preliminary figures compiled by the Senate Fiscal Agency (SFA) indicate July's revenues will come in by as much as $50 million below expectations, with the added revenue shortage only adding to the problems facing legislative leaders and the Granholm Administration in their efforts to resolve the state's budget.  The projected revenue amount is some 10 percent below the monies the state realized in July 2008.  According to an SFA spokesperson, revenues-which will be finalized this week -are now between $130 million and $170 million below the revenue forecast established at the May Revenue Estimating Conference.

As the budget gap grew, Governor Granholm was rumored to have suggested increases in the state's sin taxes, specifically those levied on beer and perhaps tobacco, as a method of bridging the gap between forecast revenues and predicted spending.  While nothing official has been released on her proposal, rumors are circulating that the Governor has proposed doubling the tax on each 12-ounce bottle or can to a total of 3.8 cents.  They also noted Ms. Granholm had suggested boosting the Liquor Tax as part of her Executive Budget proposal. Conversely, observers noted the state's Tobacco Tax-currently $2 per pack-is among the nation's highest and was last increased in 2004.  If the rumor is true that a tax increase is on the table in the budget talks, it is unknown at this time what increase the Governor might propose.

The budget talks-and related rumors-have again led Senate Majority Leader Mike Bishop to call on the Governor to publicly disclose her proposals.  Mr. Bishop has long complained the Administration has failed to explain how they intended to fund their version of the budget-noting the Senate had done so by approving a spending plan that shaved $1.2 billion in spending from the budget.  Mr. Bishop, who refused to comment on what, if any, proposals the Governor had made by saying they were her suggestions and she should be the one to reveal them, argued it was incumbent on Ms. Granholm to divulge her revenue enhancement plans to permit the public and interest groups to begin weighing the alternatives.  However, a gubernatorial spokesperson-arguing there was no need for a public discussion if legislative leaders rejected the options out of hand-said the Governor preferred to keep the information private until such time as they were officially going to be part of the budget's solution.  Unlike earlier budget deliberations, both sides indicated they still expected to resolve the spending plan in time for it to be in place to start the new fiscal year.

SFA DIRECTOR SAYS TAX SYSTEM NEEDS ADJUSTING - As the budget talks continue, Senate Fiscal Agency Director Gary Olson said the state's revenue problems are largely due to a failing tax system-and not a rapidly contracting economy, although that factor is not helping the situation.  According to Mr. Olson, the state's tax base, "especially the Sales Tax," is not growing with the economy at all," a situation he said would have to be addressed at some point by the Michigan Legislature.   To defend his allegation, Mr. Olson pointed to the 1979 Headlee Revenue Limit-which capped state revenues at no more than 9.94 percent of personal income-and its recent performance.  Mr. Olson noted in 1998-99 and 1999-2000 the state was slightly over the limit, but since that time the state has fallen below the cap with the 2007-08 Fiscal Year coming in at $4.7 billion below the limit.  He said the state is predicted to fall $7.5 billion below the revenue limit in the current fiscal year.  Thus, if personal income shrinks on a dollar basis, so does the revenue collected by the treasury, and, conversely, if personal income grows on a dollar basis, and the state's percentage share remains static, then Treasury's income will grow as well.  For 2009, Mr. Olson said the percent of personal income being collected by the state is 7.3 percent-which means revenues are declining much faster than income.  That Mr. Olson said is a "concern."

MICHIGAN CHARGED BY BATTERY GRANTS - The efforts of Governor Jennifer Granholm and her Administration to make Michigan a Mecca for alternative energy production products came to fruition as the federal government announced Michigan-based firms would receive some $1.3 billion-out of a total of $2.4 billion-in federal research and development grants to create new batteries for vehicular use.  Officials said they hoped the grants would translate into as many as 40,000 new jobs for the state's struggling economy over the next 11 years while saying the money would help "kick-start a promising automotive future for Michigan."  Granholm Administration officials had set their sights on placing the state in a position to receive a lion's share of the grant money and had worked diligently and aggressively to create state aid to attract and locate advanced battery companies in the state.  Last week's announcement by Vice President Joe Biden was a validation of all those efforts they said.  Granholm said she had hoped Michigan would receive at least two of the allocated designations, with anything beyond that number being "manna from heaven."  In total, state firms and universities were awarded 15 grants, with the largest single award-$299 million-going to Johnson Controls for the production of nickel-cobalt-metal battery cells and packs.  Other major grant recipients included A123 Systems for $249.1 million, General Motors for $241.4 million, KD ABG for $161 million, Compact Power for $151.4 million, Chrysler LLC for $70 million and Ford for $62.7 million.

POTENTIAL HEALTH PLANS PROLIFERATE - With the proposal of House Speaker Andy Dillon to consolidate all the public workers in Michigan under one comprehensive health care plan still generating the most activity, other health care plans are now percolating to the surface.  House Appropriations Committee Chair George Cushingberry, Jr. announced he had a plan that he claimed would save the state budget some $2 billion while addressing both the problem of uncompensated health care and access to treatment.  He said he was releasing his plan as part of the on-going budget negotiations, but admitted the projected savings would be achieved over an unspecified period of time.  Mr. Cushingberry is proposing the development of a universal health care system which, he said, would ease the burden of hospitals having to provide $500 million in unreimbursed health care annually.  He argued that would, in turn, lower insurance costs and how much the state has to spend on health care programs.  Charging there should be a way to combine programs and improve efficiency, he also proposed the elimination of state grants and suggests the state return to a fee-for-service model that would link administration of mental and physical health care payments.  Mr. Cushingberry noted the state's Medicaid system still utilizes a fee-for-service component for residents who are ineligible for HMO coverage or who reside where HMO coverage is unavailable, but other officials noted the state has moved away from the fee system because HMOs have provided a higher level of care.  However, most parties involved in the health care debate, noting they had not seen any concrete proposal or language, declined to comment on the Cushingberry Plan.

Meanwhile, Representative Gary McDowell, chair of the House Appropriations Community Health Subcommittee, and Senator Roger Kahn, chair of the Senate Appropriations Community Health Subcommittee are reportedly continuing their work to develop a proposal that would levy a tax on physicians-more commonly known as the Quality Assurance Assessment Program (QAAP).  The use of a QAAP allows Michigan to obtain more Medicaid monies from the federal government and increase provider reimbursements while freeing General Fund monies for other purposes.  Michigan currently has a QAAP for community mental health providers, HMOs, hospitals and nursing homes and the creation of a physician QAAP could allow the state to increase its Medicaid funding by as much as $500 million with those funds directed toward physicians who accept Medicaid patients.  While unfamiliar with the Cushingberry proposal, Mr. McDowell did admit the plan could contemplate the use of both the physician QAAP monies and grant funding as "seed money" to initially finance a universal health care program.

Finally, Speaker Dillon stated interested parties would have until August 12th to comment on his proposal to place all public sector employees under one health care plan.  Noting it was "essential we bring all groups to the table" while developing a plan to cover the estimated 400,000 public employees in Michigan, Mr. Dillon said "we all share the same goals of using state money efficiently while providing public employees with good health care and keeping police, firefighters and teachers on the job."  The offer to work together toward a common goal was quickly met by a letter signed by the leaders of 13 unions telling Michigan legislators they were opposed to the Dillon Plan.  They noted they had not been approached concerning the plan and indicated they would not negotiate on legislative policy which they believe to be inherently incorrect from the outset.  Speaking about their communication, the union leaders said the Dillon Plan was "not salvageable" and required a "do-over" and challenged the Speaker to produce the documentation he has been using to predict his plan would generate some $900 million in savings-an achievement they charged simply meant the planned loss of the quality of benefits negotiated during contract talks.  They also charged the plan carried an "inherent contradiction" for the Speaker to propose a "single portfolio of health care plans" while contending he wants to preserve collective bargaining. Saying they feel "Michigan should not be instituting major changes" when it makes more sense to "see what happens," they urged the Speaker to delay any further action on his plan at this time and allow the national health care debate to play out.

54,000 CLEAN JOBS POSSIBLE - A new study conducted by the Center for American Progress and the Political Economy Research Institute (PERI) at the University of Massachusetts-Amherst contends the federal stimulus and clean energy legislation could generate up to 54,000 jobs in Michigan.  That number would be in addition to the nearly 23,000 jobs that already exist in the state according to a recent Pew study.  The PERI analysis predicts the energy programs will create some 1.7 million jobs nationally.  The PERI study also found that Michigan could realize a net increase of roughly $4.8 billion in investment revenue in addition to the new jobs.  PERI's analysis of the data also predicts clean energy investments in Michigan will create 16.7 jobs for every $1 million spent-while comparable spending on fossil fuels generates just 5.3 jobs.

ODDS AND ENDS - With speakers noting the State Library and Museum was initially dedicated as a "lasting legacy, a gift to later generations," opponents of Governor Granholm's decision to eliminate the Department of History, Arts & Libraries blasted the action at a rally last week attended by some 300 persons while two House members assured the crowd they would work to ensure the collection is not dispersed throughout the state.....Michigan's top 150 political action committees saw total contributions drop by 13 percent when compared to the same period in 2005 and 2007-indicating the recession has finally impacted political spending-according to a study released by the Michigan Campaign Finance Network.....the Michigan Production Alliance has announced it will hold a rally in Lansing on the morning of August 18th in support of the state's film tax credit, long a target of several key legislators.....Secretary of State Terri Land has announced enhanced driver's licenses and state identification cards are now available at 119 of the department's 146 branch offices.....although California officials say they are still weeks away from making a decision about transferring some of their inmates east, Governor Granholm said her concerns over homeland security issues make her opposed to using Michigan's soon-to-be-closed prisons for housing detainees currently being held at the Guantanamo Bay, Cuba naval prison.....Governor Granholm has announced her two-year-old No Worker Left Behind program, designed to provide $5,000 in college tuition annually to 100,000  displaced workers, will achieve its goal by September....Representative Rick Jones, a long-time critic of the new State Police headquarters building, will offer legislation requiring the Michigan Legislature to vote on all major state lease and rental agreements.....saying "many people will face daunting hardships" and the unemployment rate has not yet peaked, a new Comerica Bank publication joins the chorus of financial institutions claiming the national recession is over while predicting the recovery will be faster than most other forecasts.