Around the Dome

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

March 2004

LEGISLATURE BEGINS WORK ON FY 2004-05 BUDGET

At the start of this month, the legislature officially began the annual budget process with the introduction of various bills appropriating state money. Committees in the House and Senate began a series of public hearings taking testimony on the Governor’s budget recommendations.
As outlined in the February issue of Around the Dome, the Governor’s budget proposal aims to shore up a state budget $1.3 billion in the red. The Governor’s budget balancing proposal includes new taxes on cigarettes and liquor to bring in an estimated $400 million in new tax revenue. The remainder of the deficit is to be addressed through revenue shifts and various cuts in state services.

At this time, the most controversial aspect of the Governor’s budget is the proposal to raise cigarette taxes 75 cents to $2.00. The tax raise is being criticized by some legislators as an attempt to balance the budget on the backs of the poor and blue collar workers. The hike would make Michigan’s cigarette tax the highest in the nation.

However, just as work is beginning on next year’s budget, the Senate Appropriations committee passed a series of bills enacting the Governor’s December Executive Order cuts aimed at balancing the current fiscal year’s books.

The bills make funding changes and cuts to various programs including paying Michigan Merit Award winners based on the state fiscal year and not the academic year. The shift to October will save the state $63 million in the 2003-04 fiscal year.

Another bill would a new deferred retirement option plan-for State Police troopers. The program could save the state more than $3 million in general funds.

Also approved was a bill which shortens the state's current escheats period on property for demutualized insurance companies from five years to two years, which could boost state revenues by $15 million.

Also reported was a bill taking $12 million payment from the Commercial Mobile Radio System emergency telephone fund to help pay the debt service on state bonds issued for construction of the State Police communications towers.

The bills now move to the full Senate where they will likely see action next week before being sent to the House.

SENATE COMMITTEE BEGINS HEARINGS ON TELECOMM ACT

The Senate Technology and Energy Committee began hearings on necessary changes to the state’s Telecommunications Act. Among the first to testify was Public Service Commissioner Robert Nelson. He told the committee that technology needs to keep improving but the Public Service Commission needs to have the authority to provide consumer protection under those changes. 

The state’s Telecommunications Act expires in 2005. Past changes to the act in 1995 and 2000 were some of the most complicated and heavily lobbied issues in recent memory. 

Mr. Nelson said the current act and its predecessors have led to strong local service competition in the state, with some 25 percent of the lines in SBC's territory now controlled by competitors.

The Commissioner voiced concern that new technology on the horizon could also sidestep the commission's current authority to protect customers. For instance, Voice over Internet protocol (VOIP) allows customers to connect telephone calls using any Internet connection, not necessarily requiring a local telephone line.

Without the phone line, the commission does not have authority to ensure quality of service or to protect customers from slamming, cramming or other billing concerns.

And he recommended that any changes to the Telecommunications Act also consider some enforcement authority on those issues for wireless service and Internet connections. He said a growing number of calls from the public concern billing or service concerns in those services, but he said the only response commission staff can give at this point is they do not regulate those services and so cannot help resolve the concern.

Action on the telecommunications act is expected to take many months to reach final form.

RESIDENTS SUPPORT NEW TAXES ON CIGARETTES AND LIQUOR

A recent statewide survey of 600 Michigan residents indicates that a majority support Governor Jennifer Granholm's proposals to boost the state's cigarette and liquor taxes.

The survey showed that 60 percent of those asked would back increasing the state cigarette tax by 75 cents a pack as Ms. Granholm proposed. Of that, 41 percent strongly supported it, and 19 percent somewhat supported it. 

The proposal was opposed by 36 percent of those surveyed, the rest were undecided.

Support for the increase was nearly universal among generations, political identity, gender, and geographic regions. The only area it did not get a majority was in outer Wayne County, where 46 percent supported it and 47 percent opposed it. But even in Detroit, the proposal was supported by 60 percent of those polled.

Support for a liquor tax increase was even stronger, with 68 percent favoring it, 41 percent strongly and 27 percent somewhat. It was opposed by just 30 percent of those polled. Interestingly, some of the strongest support for an increase came from men under 40, a group more likely to drink than others, of whom 80% indicated support. 

GRANHOLM ANNOUNCES NATIONAL MANUFACTURING PLAN

While attending this month’s National Governor’s Association meeting in Washington DC, Governor Granholm announced a plan to push a national manufacturing strategy. She will be joined in the effort by Democratic Governors Ed Rendell of Pennsylvania and Jim Doyle of Wisconsin. The states combined have lost over a quarter million manufacturing jobs in the past two years.

The Governor’s will host a manufacturing summit in April in Washington DC. Among the topics expected to be discussed are enforcement of trade regulations to improve competitiveness; assistance for workforce training and technical assistance for small/medium businesses; pension/health care costs; simplification of customs procedures and facilities at U.S.-Canadian borders; and an energy policy.

DRAIN CODE CHANGES AGAIN REACH SENATE FLOOR

At over 262 pages, SB 217 aims to make massive changes to the state’s drain code. The bill’s sponsor, Sen. Van Woerkom admits the bills still need plenty of work and that the bills are likely to face many amendments.

Among the changes the bill would make:

• makes it easier to request a new drainage district but makes a more deliberate process to have it implemented.

• provide for a single petition, signed by at least 10 landowners, or half of the potential landowners within the district if less than 10, to establish the district and authorize construction of a drain. Current law requires separate petitions for each activity.

• expands the board of determination to five members and requires it to conduct a public hearing before it finds whether the proposed drain is practical and another before it finds whether the drain is necessary. The current law requires only a hearing on necessity.

• double the amount of money required to be available for drain maintenance to $5,000 per mile and allows the drain commissioner to levy up to $2,500 per mile on properties within the district if the fund falls below that level. And the bill increases to $5,000 per mile for county drains and $10,000 per mile on inter-county drains the amount that may be spent on maintenance without a petition from residents to have the work done.

• allows a single landowner to petition for an unclaimed drain to be added to a drainage district. 

• prohibits local drain commissioners from enforcing state and federal water quality laws. Under the bill, the drain commissioner would have to pass the finding onto the Department of Environmental Quality for enforcement actions

The bill is being opposed by various environmental groups who argue that the bill does not constitute the wisest stewardship of water resources by basing action on county lines rather than on watershed borders.

G.O.P. ECONOMIC STIMULUS BILL FACES OPPOSITION

The House Tax Policy Committee took action on the key component of the GOP job creation plan—the immediate exemption on the first $10,000 worth of inventory from the personal property tax. Upon its unveiling, GOP leadership hailed the proposal as key to making Michigan more attractive to companies and businesses.

However, the proposal was met with surprising opposition from fellow GOP legislators who worried over the proposals impact on local governments which also collect the tax. The proposed exemption was instead spread out over three years beginning in 2005 with a $3,000 exemption, $6,000 in 2006 and $10,000 in 2007. One committee Republican, Rep. Gary Woronchak of Dearborn, even said the bill would "surely cost jobs before it gains any."

Cities, counties, townships and villages are opposing the bill because of the revenue they would lose. The Senate Fiscal Agency estimates that the revenue loss would be $51 million-$27 million from the state and $24 million from local governments.

However, the Granholm administration estimates a $125 million revenue loss-$55 million from state's school aid fund and $70 million from local governments. The Department of Treasury estimates an average tax savings of approximately $540 per business once the $10,000 level is reached. 

Proponents of the proposal called it a necessary tool as part of the state’s overall strategy to retain jobs.

Business groups said they could accept the three-year phase-in although they prefer an immediate $10,000 exemption. 

PSC ALLOWS EDISON RATE INCREASE

The Public Service Commission agreed to increase electric rates in Detroit Edison territory as well as to provide revenue to the Low Income and Energy Efficiency Fund. While the commission said the rate increase was minimal, business groups said it was sufficient to push more manufacturing jobs out of state.

The order would provide Edison with $248.4 million additional annual revenue, including $40 million a year for the fund that provides grants to assist low-income families in paying utility bills and making their homes more energy efficient. Because rates are still frozen for residential customers until 2006 and for small commercial customers until 2005, the funding comes from a 3.9 percent increase on large commercial customers and a 2.3 percent increase on industrial customers.

The Low-Income Fund had been covered by excess securitization savings, the money Edison saved by refinancing certain of its investments as part of the market restructuring, but the commission found the utility had now exhausted any excess savings. It therefore also allowed Edison to begin levying a transition charge on customers leaving its service for a competitor of .4 cent per kilowatt hour to cover the utility's costs of altering its systems to accommodate customer choice.

With a 0.1 cent per kilowatt hour increase in the transmission charge, the cost of delivering the power from a competitive generator to its customer, for open access customers and other fee increases, the total cost for seeking an alternative supplier rises to as much as 1.5 cents per kilowatt hour.

But the order also imposed the maximum fine of $15,300 for over-collecting by 3 cents per kilowatt hour its power supply costs for the past year.

PSC Chair Peter Lark said the rate increases were insignificant considering all customers received a 5 percent rate cut in 2000 under the restructuring act (PA 141, 2000). He noted that commercial rates were 2 percent below 1993 levels, Edison's last rate case, and industrial rates were 5 percent below.

But business customers argued that logic does not take into account electric rates in other states, many of which are lower and falling.

MANDATORY ELECTRONIC TAX FILING BILLS PASS SENATE

A bill mandating electronic filing of tax returns passed the Senate this week. The bill would require all tax preparers filing on behalf of citizens to file the forms electronically. However, the bill fell short of votes to give immediate effect meaning it would not take effect until around April 2005, missing this year’s tax season. It is uncertain if the bill will be signed by the Governor.

Last June, as part of a budget cutting plan that trimmed $2.7 million from Treasury, the state notified tax preparers that any filing more than 200 returns would have to do so electronically. Any taxpayer, according to Treasury officials, can ask that the preparer turn over the return to the taxpayer who then will file the return by mail.

Treasury officials said they are trying to encourage electronic filing to save overall costs. The requirement was made only to preparers, not individuals, and groups helping individuals do taxes as part of a charitable activity do not have to file returns electronically.

The department also did not hire nearly 300 temporary workers this year to process paper returns as part of the budget cut.

Sen. Nancy Cassis (R-Novi), chair of the Finance Committee, said the money is not needed when an audit showed the department failed to collect some $120 million in taxes owed the state. Besides, she said, the intent of the bill is to ensure that taxpayers not be forced into electronic filing.

Of importance to BOMA members, the Senate held off action on a second bill, HB 5440 that would mandate electronic filing of business tax returns.

TRANSPORTATION STARTS POTHOLE HOTLINE

Just in time for spring….drivers who discover large potholes along Michigan highways can now vent their frustration directly to the Department of Transportation.

The department announced a new pothole hotline to collect reports of sections of highway needing repair. Reports can be made to 1-888-296-4546 or from the department's Web site at www.michigan.gov/mdot. 

BOMA’S KEY STATE LEGISLATIVE ISSUES—
MARCH 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 in February, 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 did not propose any new service taxes as part of her FY 2004-05 budget proposal sent to the legislature in February.

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. The GOP legislature is now moving a package of bills that would exempt the first $10,000 in inventory from the personal property tax (see related story above).

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. BOMA’s Legislative Action Subcommittee is researching this issue and will be drafting proposed Legislation that would promote BOMA’s position on this controversial issue.

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. DTE has began airing public service messages in hopes of convincing Michigan citizens to support turning back key provisions of Michigan’s electrical choice program. BOMA Govt. Affairs Committee is exploring supporting the Michigan Electrical Choice Coalition whose goal is to preserve cost-saving measures in the electrical choice program.

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’s Executive budget presented to the legislature on February 12 held MEDC funding with an 8% increase over current fiscal year levels.