Around the Dome

by Del Chenault, Senior Vice President, Government Affairs
Scofes & Associates Consulting, Inc. (S&A)

February 2004

GOP LEADERS ANNOUNCE 2004 AGENDA
This week, Senate Majority Leader Ken Sikkema (R-Wyoming) announced the Senate Republican agenda for 2004. The broad list of priorities includes many issues such as business development, education, and health care. However, the issue likely to see the most attention this year is economic development and job growth. As reported in earlier BOMA reports, the state has been stung by plant closings and large job losses in the manufacturing sector. In fact, since 2000, Michigan has lost over 167,000 manufacturing jobs. According to the U.S. Department of Labor, Michigan led the nation in job losses in December with 33,000 compared to just 14,000 in Ohio which finished second. Michigan’s unemployment level ranks the highest in the nation.

Legislative leaders are now focusing on creating jobs in high growth sectors such as research and engineering since few of the lost manufacturing jobs are expected to ever return the state. The Senate and House Republicans will unveil later a more detailed program to help boost development of new companies in the state. The plan is likely to also focus on attracting venture capital to help fund new enterprises. Mr. Sikkema also acknowledged that like 2003, much of the focus on the upcoming agenda will be keeping the current and upcoming 2004-05 budget balanced in the face of an expected $1.3 billion deficit for this fiscal year (see related story below). Republicans are expected to focus on keeping the budget balanced through cutting. 

Of most importance to BOMA members, the Majority Leader indicated that the GOP would not support any increases in the sales tax or new services taxes if those taxes are deemed to not promote business and job growth. 
Other highlights of the agenda include the following:

• Promoting local education reform by getting communities more involved in local schools. Leaders are putting together proposals to encourage local residents to get involved in improving local schools. 

• Trying a test project to include mental health parity in health insurance among state workers. 

• Enacting legislation to allow individuals to put untaxed income into health savings accounts. Unlike medical savings accounts, health savings could be carried forward tax-free and would allow for contributions from employers. This may allow smaller companies that can not afford health insurance for employees to provide some assistance to their workers. 

• Restoration of the 17 road projects blocked by the Governor in last year’s budget. Many of the projects are deemed to provide economic benefits as they are located in high growth areas.

PRESIDENT’S BUDGET CUTS COULD GROW MICHIGAN DEFICIT
This week, President Bush delivered his 2004-05 budget to Congress. The proposal contained many funding changes and cuts, much of which would adversely affect Michigan’s already large deficit for the coming fiscal year. One of the largest problems comes in the President’s proposal to eliminate the so-called ‘upper payment limit’ program in the Medicaid budget. The program was actually developed between the federal government and Michigan under former Governor John Engler. This year the program totaled $1.6 billion, of which Michigan received at least $300 million. 
State officials now worry that if the ‘upper payment limit’ program is eliminated, Michigan’s Medicaid deficit will grow from the current $550 million to over $850 million. Michigan’s overall budget deficit could grow to over $1.3 billion. State officials also are worried about other proposals in the president's proposed budget, such as proposed transportation funding, According to the President’s budget, the federal program would be $100 billion less over six years than that proposed by Congressional Republicans. This would mean less road funding to all state’s including Michigan. 

The Governor’s budget will be presented to joint sessions of the House and Senate Appropriations committees on February 12. 

LEGISLATURE READIES CHANGES TO MEGA PROGRAM 
The state legislature is fast-tracking bills making changes to the MEGA program. The Michigan Economic Growth Authority is the state’s major job retention and job attraction tool operated by tax exemptions and incentives. The changes are necessary to address the looming loss of over 800 jobs by the shutdown of two Federal Mogul plants in Greenville and St. Johns. The company has alerted the state that the plants may close and jobs moved out of country to meet rising employment costs. 

The state is still stinging after failed attempts to avoid the closing of the Electrolux plant in Greenville last month costing 2700 jobs that moved to Mexico. In that deal, the state moved to provide Electrolux $119 million in tax savings largely through MEGA grants.

However, in order to make a similar proposal to Federal Mogul, officials will have to enact changes to the MEGA rules in order for the company to qualify for tax incentives. The Michigan Economic Growth Authority, in existence since 1995 and reauthorized in 2003, has strict requirements over how a particular business is eligible for the tax breaks and incentives it can offer. Businesses must have a certain number of jobs and investment pledged to qualify for the incentives. 

The proposed legislation will loosen those requirements and put more authority in the hands of the MEGA board to make the necessary decisions to respond to situations quickly. 

SENATE PANEL BEGINS HEARINGS ON STATE ELECTRICAL CHOICE LAW
Last week, the Senate Tech and Energy Committee began a series of hearings on the state’s law that provides customer choice in electric service. Originally enacted in 2000, the law has been responsible for lowering the electric bills of hundreds of commercial and industrial customers across the state. 

Many BOMA members have taken advantage of the law and now use alternative energy suppliers, or AESs. Savings among AESs can be up to 30% lower than rates charged by DTE. The hearings come as DTE begins an effort to revise the law by restricting the choice option to customers who use at least 1 megawatt of power a day. Further, DTE officials have acknowledged concerns about the law-particularly in competitors "cherry picking" the most desirable customers DTE claims this practice will mean huge price jumps in two years when a statutory cap is lifted and hope the Legislature addresses the issues soon. 

The Senate committee took testimony from the Public Service Commission who acknowledged that the choice law (PA 141) is largely working. The law has seen Michigan’s power margin rise to 18% of capacity and the construction of a number of new power plants. 

The MPSC also issued a report this week on the state of electrical competition in Michigan. The report indicated that PA 141 needs more time to fully impact the electric market, especially among residential customers. The report indicated the number of electric customers served by an alternative power supplier grew by 70 percent in the past year. The commission also found that twice as many alternative suppliers, eight, are actually serving customers in Consumers Energy territory, and half again as many, 18, in Detroit Edison territory. 

AESs now serve about 13,000 customers using 2,728 megawatts of power. 

Also this week, a group of school, business and energy groups announced a new coalition to fight changes to PA 141. The Customer Choice Coalition said the law is working just fine and expressed concern that changes would deny their members of the benefits of using alternative energy suppliers with cheaper rates. DTE Energy responded that the law is not working and should be revised "in the near future" before Michigan faces a "California-type" crisis of huge electric rate increases and blackouts. 

As hearings continue, Committee Chairman Patterson said the hearings will examine the impact of the entire act on energy availability in the retail market, particularly the progress toward meeting objectives of customer choice and reliability.

INCOME TAX CAP BILL DISCUSSED IN COMMITTEE
The House Tax Policy Committee began discussions Wednesday on HJR T that would constitutionally cap the income tax rate at 3.9%. The resolution is in response to the intense negotiations at the end of the year with the Governor over whether to roll back the scheduled cut in the income tax rate. The legislature ultimately agreed to a 6 month pause in the rollback to July 1. The bill’s sponsor, Rep. Leon Drolet said proposed constitutional amendment is needed to protect taxpayers in the state. He argued that without the provision there would be nothing to protect residents from the Legislature again pausing the reduction that would take the statutory rate to 3.9 percent in July. 

During the committee hearing economist Patrick Anderson, who had been part of the successful Headlee Amendment campaign, said studies show that cutting and limiting taxes help in developing jobs. He said increasing the state's income tax from 3.9 percent back up to 4 percent permanently would cost the state 3,000 jobs. 

However, some legislators, including majority Republicans, argued the amendment was not needed because political pressure would keep taxes at what voters considered reasonable levels. Other argued that the proposal also raises the concern that voters will adopt the amendment to end what they perceive as a high tax burden without considering the consequences of removing the flexibility the Legislature may need to address future budgetary needs. 

The proposal will likely move on a slow track as the State Treasurer Jay Reising finishes a study on the state’s overall tax structure. The study is likely to be the basis for a larger discussion of any changes or increases to individual tax rates.

BOMA’S KEY STATE LEGISLATIVE ISSUES—
FEBRUARY UPDATE

The BOMA Governmental Affairs Committee reviewed and discussed major issues facing its membership in the state legislature. The GAC chose the following issues to be lobbied and monitored by BOMA lobbyists Steve Scofes and Del Chenault.

Service Taxes—BOMA strongly opposes any type of new service taxes in Michigan. As reported above, State Treasurer Jay Reising is currently undertaking a thorough examination of the state’s tax structure. The study will likely lead to a larger discussion of any new taxes on business or services. The Governor will present her budget to the legislature on February 12 at which time it is expected she will not propose any new service taxes.

SBT—BOMA supports efforts to further reduce the SBT in Michigan or maintain the tax at its current level. The package of bills which will exempt health care costs from the SBT was signed into law by Governor Granholm as Public Act 240.

MOLD—BOMA promotes high standards to protect the health and safety of building occupants. However, BOMA opposes state initiatives to write model building codes and standards regulating mold and moisture. BOMA lobbyists continue to monitor current legislative packages seen as hostile to BOMA interests and already introduced. At this time, no committee hearings are currently scheduled on those bills. BOMA lobbyists met with House Speaker Johnson regarding this issue and he indicated his support to work with BOMA to address the group’s concerns.

UTILITY DEREGULATION—S&A lobbyists are following a proposed package of bills being pushed by DTE that would rescind electric deregulation passed in 2000 under PA 141. DTE’s plan would effectively end competition and electrical choice for all customers using under 1 megawatt. Further, the bills would allow DTE to charge class specific transition charges which would greatly increase rates for commercial customers. BOMA lobbyists have entered into a coalition of electrical users that hope to preserve the current law allowing electrical choice and to oppose the DTE changes. As reported above, the Senate Tech and Energy committee has begun a series of informational hearings on the affect of Michigan’s electric choice law, PA 141. More hearings are expected over the next few weeks.

LAND USE—BOMA encourages the use of the Brownfield law for redevelopment of urban areas and adaptive re-use of obsolete building. The Governor announced several initiatives related to the Land Use Council Report. The Senate also held its first hearing on the report with no planned action on the Governor’s recommendations. No new updates at this time.

MEDC FUNDING CUTS—BOMA Michigan is opposed to efforts to reduce or eliminate funding for the MEDC. As reported above, the legislature is readying bills making changes to the Michigan Economic Growth Authority, the major tax incentive body for the state, to retain jobs in the state. The Governor will present the Executive budget to the legislature on February 12 which will set the bar for MEDC funding. BOMA lobbyists will update the members as to any changes in funding to this budget.