Office of Legislative Affairs

Legislative Update

For the week of October 12, 2009 . . .

BUDGET DEBATES—AND PROCESS—CONTINUE – With a continuation budget for General Fund spending in place, the budget debates continued between lawmakers and the Granholm Administration.  In reality, the continuation budget has, at this point, not served to provide time to resolve outstanding issues but only served to delay the inevitable when it expires at month’s end.

Last week saw the rhetoric between Governor Granholm and Senate Majority Leader Mike Bishop intensify.  The Senate held six budgets—spending plans with which the Governor had indicated she had problems that she would likely resolve with her veto pen—pending motions to reconsider the vote by which the Upper Chamber had granted Immediate Effect.  The Governor urged Senate Republicans to transmit the bills to her desk, but Mr. Bishop replied she should first tell him what her objections were to the bills.  He also noted Ms. Granholm said she could not sign the measures without first having time to read their content—something he charged she should be doing now so she can convey her objections.  That response led Senate Minority Leader Mike Prus to argue the action was nothing more than “playing chicken” while charging Senate Republicans were afraid to stand up for what they fought for during the budget debates as Democratic efforts to move the bills during Senate session were defeated on party-line votes.

Meanwhile, the Senate Fiscal Agency released a new report saying if the state adopts a budget along the lines approved last week, it would enter the 2011 Fiscal Year with a potential General Fund deficit of nearly $783 million.  The memo also noted to keep the General Fund deficit at that level, the state would be forced to maintain the $842 million in General Fund reductions the full-year budget for the current fiscal year proposes to implement—reductions largely opposed by Governor Granholm.  The report notes the proposed 2010 Fiscal Year budget would use over $1 billion in federal stimulus monies—funding that would not be available in the following fiscal year.  The SFA report predicts General Fund revenues will improve in the 2011 Fiscal Year, but it also notes the expected $8 billion in anticipated General Fund revenues will be faced with expected General Fund spending of some $10 billion.  Finally, the report noted that if the shortage was eliminated solely by reductions in spending, those cuts would equal 9.7 percent of the 2010 Fiscal Year General Fund appropriations.

As legislative sessions began, House Democrats picked up the revenue gauntlet and began voting on measures to raise new revenues which they argued were essential—but not sufficient—to restore critical funding for such programs as local police and fire protection, college scholarships, and health care for seniors and low-income residents.  While Governor Granholm argued her party was embracing “limited” revenue enhancement proposals while fighting to prevent “Michigan not becoming Mississippi,” House Republicans—contending the populace cannot absorb new taxes during the economic collapse—stood firm in their opposition to the revenue proposals.  Despite holding an 11-hour session, the House only moved three measures forward to an uncertain future in the Senate.  The three measures would impose a 3-percent tax on physicians, freeze the personal Income Tax exemption at the 2008 level, and a reduction of some Michigan Business Tax credits.  The proposed tax on physicians would generate an estimated $300 million—with supporters arguing the program would allow the state to leverage an additional $525 million in federal Medicaid monies and enhance reimbursement levels—while retaining the 2008 personal exemption level would save the state $55 million in potential tax refunds.  As to adjusting MBT credits, House Democrats said their plan would raise $116 million if approved, but while the Majority Caucus said it has specific targets in mind for the adjustments, they sent the Senate a shell bill to initiate talks on the issue.

Reaction to the activity was mixed.  Governor Granholm, saying the House action was “a step toward resolving the problem” and that she was grateful for it, also said there was “more work to do” as the “House doesn’t go as far as I would want to go.”  She also stressed, in response to Republican reminders she said she would not raise taxes again after the 2007 budget debacle, that the tax increases being sought by the House were not general tax increases.  Conversely, Senate Majority Leader Mike Bishop, while not immediately dismissing the measures, questioned why using a patchwork approach to fixing the budget was the proper way to go.  Mr. Bishop, stressing he was not automatically anti-tax while saying there was “no appetite in the Senate for tax increases,” also noted not one of his members had approached him saying they supported the approach, which he equated to applying band-aids when a sound public policy approach to the underlying fiscal problems is needed.  Likewise, Senate Minority Leader Mike Prusi, while noting many of the measures tracked with a list of likely revenue sources his caucus had developed, said his members would first have to discuss the issues before he could say his caucus would embrace them wholeheartedly.  He also said some of his members would prefer to contemplate a more comprehensive tax reform plan.

LEGISLATURE OKAYS SCHOOL AID BUDGET – With Senate leaders saying a deal had been struck some 36 hours before it came to fruition, the Michigan Legislature approved the School Aid budget—the final spending plan needed to complete the 2010 Fiscal Year budget.  While the bill’s passage led Senate Majority Leader Mike Bishop to declare the budget process was complete, it was also clear not everyone agreed with that assessment.  The budget, held up more than a week as legislators dealt with the thorny issue of cuts that effectively reduce a school’s payment by $165 per pupil.  The Senate’s initial budget proposal called for a per pupil cut of $218, a number which Governor Granholm and House Democrats refused to accept.  The new budget reduces K-12 school spending by 2.9 percent when compared to allocations authorized for the prior fiscal year and the monies are dependent on $100 million in funding upon which lawmakers have yet to agree.  Senate Republicans have suggested using the monies realized from freezing the Earned Income Tax Credit (EITC) and reducing the Film Tax Credit, but House Democrats indicated they were less than enthused about that idea, with House Speaker Andy Dillon saying he opposed using EITC monies to fund education.

CEO’S PUSH FOR ACTION ON PLAN – Continued legislative attention on the budget has, according to officials with Business Leaders for Michigan, complicated their efforts to engage the body in discussions on their proposed turn-around plan for the state.  The newly created statewide group, formed out of the former Detroit Renaissance organization, has generated a plan for their vision on how Michigan could, and should, reform its tax structure and overall operations.  The plan includes suggestions such as reducing the business tax, eliminating the personal property tax and limiting the salaries and benefits of state employees.  While numerous legislators have expressed interest in initiating discussions on the proposal, Business officials readily admit those efforts—in the short term at least—have been swamped by the focus on resolving the budget.  Business officials say Governor Granholm, Senate Majority Leader Mike Bishop and House Speaker Andy Dillon have all expressed interest in the plan, but the state’s financial situation has prevented any serious discussions.  At this point, the officials say, talks have focused on initial strategy, with lawmakers offering to have bills drafted while the organization is contemplating either having the measures drafted by an outside law firm or holding meetings with interested legislators.  They remain optimistic some portion of their plan could still be enacted yet this year, once the budget debates are concluded.

GOV MERGES D.N.R, D.E.Q. – Governor Granholm has issued Executive Orders merging the Departments of Environmental Quality (DEQ) and Natural Resources (DNR) into the Department of Natural Resources and Environment.  The merger, which takes effect January 16, 2010, unless rejected within 60 days by the Michigan Legislature, has been predicted to save the state up to $1.5 million through efficiencies and the reduction of duplication of efforts between the two departments.  The orders expand the duties of the Natural Resources Commission, but strips the new Commission’s authority to appoint the new department’s director, moving that right—along with the authority to select the new Commission’s chair—to the Executive Office.  The order also impacts the authority of the Agriculture Commission in the same way, but the order does not—as many had feared—include the Department of Agriculture in the overall merger.  Agriculture officials said Director Don Koivisto would remain in place for the foreseeable future, but the Governor had no comment regarding the future of DNR Director Becky Humphries or DEQ Director Steven Chester under the merger.

ODDS AND ENDS – With advocates for both sides of the issue holding press conferences outside their chamber, the Michigan Supreme Court  began taking testimony on whether the credit scores of policy holders or applicants should be used by insurers to set coverage rates…..as earlier announced and seeking to save some $600,000 this fiscal year, the Department of Agriculture has now closed its Detroit, Escanaba, Grand Rapids, Lansing, Saginaw, St. Joseph, and Traverse City regional offices—along with the Marquette district office—with staff in those locations now working from home…..saying greater oversight could save the state millions in improperly paid assistance monies, House Republicans announced they would offer legislation achieving that goal with regard to the state’s Bridge Card system…..the Senate began moving a package of legislation that would require the Department of Human Services to work with the state’s utilities to identify customers eligible for assistance programs…..speaking at the Midwestern Governors Association meeting, Governor Jennifer Granholm said the Midwest could become the nation’s clean energy center to the benefit of the economies of all the states in the region…..following the conclusion of the department’s December 1st hearing on the issue, the Department of Environmental Quality will accept comments on its proposal to approve the permits necessary to reopen the Upper Peninsula’s Humboldt Mill that would process ore from the Kennecott mine….the Michigan Economic Growth Authority approved the grants required to convert the Wixom Ford auto plant into the nation’s largest corporate renewable energy complex….. according to the National Conference of State Legislatures, despite the infusion of federal stimulus money for programs nationwide, several states have also taken action to raise additional monies for transportation projects by either raising their gasoline tax, increasing automotive registration fees or entering partnerships with private sector entities on transportation projects…..led by a 4.2 percent decline in the region’s auto sector and facing a continued weak economy, the Chicago Federal Reserve Bank said the manufacturing index in the Midwest during August dropped by 0.3 percent to land at 80.4…..public comments on a proposed high-speed rail line linking Pontiac and Chicago—which may be mailed or faxed to the department—will be accepted by the Department of Transportation until October 20th…… saying the state retains the ability to make debt service payments with or without a final budget in place, Standard & Poor’s has announced Michigan’s credit rating will remain unchanged.