Around the Dome

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

April 15, 2003

TAX LOOPHOLE PACKAGE INTRODUCED

A package of 20 bills was formally introduced in the House this week that officially begins legislative action on Governor Granholm's proposed "tax loophole" closing proposal. (Please refer to SKA alert dated March 6). Ms. Granholm's $129 million in new revenue from closing so-called "tax loopholes" was sharply criticized at a Senate Finance Committee meeting last week.

However, after reviewing comments and criticisms from businesses about its proposed tax loophole closing measures, the Granholm administration has decided to withdraw one proposal dealing with the Single Business Tax. The proposal would have closed a $10 million loophole dealing with consolidated filings under the SBT.

The bills introduced are HB 4556 to HB 4576, and all were referred to the House Tax Policy Committee. Meanwhile, the Senate Finance Committee has scheduled a hearing for Wednesday, April 30 on the tax implications of the governor's budget recommendations. 

TWO REPUBLICANS CALL FOR INCOME TAX CUT DELAY

Reps. Doug Hart (R-Rockford) and Mike Pumford (R-Newaygo) will introduce a bill to delay the scheduled 0.1 cut in the state income tax until January 1, 2006. The tax cut is scheduled for 2004 and should be delayed to help with tough budget times according to the Reps.

The income tax rate will fall to 3.9 percent January 1 as the final part of a five-year, 0.5 percent reduction in the income tax enacted in 1999. The legislation also would cut an additional 0.1 percent from the income tax over three years from 2008-2010.

The plan is estimated to save $130 million for the 2003-04 fiscal year (which has a projected $1.57 billion shortfall) and $270 million for the 2004-05 fiscal year. Matt Resch, spokesperson for House Speaker Rick Johnson (R-LeRoy), said the Hart-Pumford plan is one of several being floated by members of the House Republican caucus. But Mr. Resch said it appears unlikely that Republicans would back a delay in the tax cut, viewing it as a promise that needs to be kept.

LEGISLATURE FOCUSES ON SCHOOLS

The state legislature has spent the past few weeks intensely focused on the K-12 education system. Recent bills have ranged from dealing with the school aid budget to boosting school flexibility to allowing schools to save money. This week, the House of Representatives passed HB 4401, the school aid bill on a near party-line vote. The $12.5 billion budget was criticized by Ms. Granholm and Democratic representatives as fiscally irresponsible while GOP House leaders responded that Ms. Granholm's budget was based on poor fiscal assumptions such as saving $200 million through public employee union concessions—a proposal at which the unions are balking.

The budget maintains the current $6,700 minimum per pupil funding grant while it also cuts adult education spending by over 60%. A Republican amendment shifted $8.5 million in funding from prisons education/vocational programs to soften the adult education cut.

Also, a package has been introduced in the Senate aimed at boosting school flexibility and allowing schools to save money. The bills include a measure that would end the state's 180-day school year requirement in favor of a minimum instructional hours requirement, scrap the state's Education YES! accreditation plan, end the state's requirement that districts pay for teacher professional development, eliminate restrictions on the use of at-risk and school readiness funds, and eliminate the state's "Education YES!" accreditation plan. More legislation will be introduced in the future that will deal with savings in transportation and custodial costs as well as boosting the number of charter schools in the state.

DETROIT AUGUST SCHOOL ELECTION WINS BIG IN SENATE

Senate Majority Leader Ken Sikkema (R-Wyoming) denied to reporters that politics were a motivating factor for the vote, but said that any political benefit would be "a side benefit for the Republican Party." The bill requires Detroit officials hold an election on whether the school reform board should continue or be replaced with an elected board in August. Currently, the election is scheduled to take place in November 2004.

Detroit Mayor Kwame Kilpatrick is officially neutral on the bill, though some Democrats have said he leans against it.

MDOT MOVING UP MAINTENANCE, RECONSTRUCTION PROJECTS

The Department of Transportation will move up 400 miles of state highway reconstruction projects to this summer from 2004 projects under a proposal unveiled by the Department this week. The department would use new federal funds as well as a new bond sale to pay for the first installment of the Preserve First program.

The pushed-up programs are estimated to cost $180 million and MDOT Director Jeff said that was a first installment of a proposed $350 million to $400 million highway repair program. Under the new program, entitled Preserve First, the department will delay nearly all new construction projects until the state has enough money to bring 90 percent of all state highways to good condition by 2007.

In 2001, 78 percent of state highways were in good condition. Final numbers for 2002 have not yet been determined. Director Jeff said new construction projects already underway would be completed. The department will also complete the projects under former Governor John Engler's Build Michigan programs for which bonds have already been issued, about $240 million worth of construction.

GOP AIMS TO PROTECT MERIT AWARD SCHOLARSHIPS

Funding from the national tobacco settlement now paying for the college scholarship program would stay with the scholarship program under a budget approved Wednesday by the Republican-led House Appropriations Committee.

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