Around the Dome

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

July 2005

WORK CONTINUES ON BUSINESS TAX PROPOSAL

Over the past several weeks, BOMA has been steadily at work advocating the interests of our members to state legislative leaders as they examine changes to Michigan’s business tax structure.

As reported in the July 1 Lansing Update and then again on July 14, the House Republicans have released their alternative to the Governor’s changes to the Single Business Tax. Passed last week from the House Tax Policy Committee, the GOP plan calls for the following:

• Single Business Tax credit for manufacturers equal to 25 percent of their personal property burden with a 10 percent credit for all other businesses except utilities.
• Changes the SBT formula to base it 100 percent on sales.
• Phases out the cost of providing health insurance as part of the way the SBT is calculated.
• Reduce the SBT rate gradually - if state revenues rise - from 1.9 percent to 1.7 percent.

Governor Jennifer Granholm proposed a plan that would cut the Single Business Tax rate from 1.9 percent to 1.2 percent, change the tax’s formula to base it 100 percent on sales, provide a 35 percent credit to manufacturers on personal property taxes paid, end some current credits like those for unincorporated companies, and create a 2 percent tax on insurance companies’ premiums.

The GOP leadership has balked at the Governor’s plan and are now working to find compromise.

Of most concern to the business community and BOMA members are plans to find replacement revenue to pay for the tax cuts. Several options have been placed on table including closing certain tax exemptions and securitizing the state’s portion of the tobacco settlement.

There are several tax exemptions being discussed including elimination of the ‘additions and losses’ section of the property tax code. The Governor has proposed eliminating losses entirely. However, BOMA lobbyists Del Chenault and Steve Scofes have met diligently with the legislative leadership responsible for the proposal and are working to protect the losses section.

We have met several times with Rep. Fulton Sheen (Chair, House Tax Policy), Sen. Nancy Cassis (Chair, Senate Finance Committee), and Speaker Craig DeRoche, and have offered several changes to this section of the law protecting BOMA members’ interests.

Discussions on the plan are expected to last well into the fall as the legislature continues to work out details of the plan. BOMA has been asked by legislative leaders, and will continue to be, one of the lead associations working to assemble the plan. Meetings of the House/Senate Task Force working on the plan will continue to meet over the summer recess with plans to pass a plan in the fall.

STATE BUDGET PROCESS CONTINUES

The state budget process continues to churn as the GOP legislative leadership and Governor Granholm continue to discuss their differences in budget priorities. The House and Senate have passed their own versions of a balanced budget that differ from the Governor’s budget proposal in several areas.

Of most concern to the Governor are GOP plans calling for co-payments for Medicaid patients, differences in planned funding increases to K-12 schools, closure of certain state police posts and state prisons in the UP, and continuation of the Merit Award scholarships.

The Governor has recently stated she expected negotiations to last throughout the summer with the final passage of the budget to come close to the September 30 deadline. The new budget year begins October 1.

The Senate budget bills are SB 264, SB 266, SB 267, SB 268, SB 269, SB 270, SB 271, SB 272, SB 273, SB 274, SB 275, SB 276, SB 277, SB 278, SB 279, SB 280, and SB 281.

The House passed an omnibus budget bill in HB 4831.

STATE SUPREME COURT SUPPORTS INJURED WORKERS

The State Supreme Court recently ruled that lawsuits by construction workers injured in common work areas cannot be dismissed on the basis that such injuries resulted from "open and obvious" hazards.

The ruling was striking because it featured rare unanimity by the court on an issue that typically divides it.

The case (Ghaffari v. Turner Construction et al.) began when Louis Ghaffari fell while working at the construction site of the IMAX movie theater at The Henry Ford in Dearborn. Mr. Ghaffari tripped on pipes left on the floor of a storage area that he alleged had served as a passageway.

A Wayne Circuit judge dismissed the case as requested by the defendants, citing past Supreme Court rulings stating “open and obvious” hazards are not grounds for litigation. The Court of Appeals upheld the lower court ruling.

But in a unanimous ruling written by Justice Stephen Markman, the Supreme Court held that construction sites contain distinct hazards in work areas and to apply the “open and obvious” precedent set in past injury cases would essentially deprive these workers of any ability for financial recovery from an injury.

The court reversed the rulings of the Court of Appeals and lower court on whether the case against Turner Construction could proceed. It remanded to the Court of Appeals the question of whether certain subcontractors named in the suit have ownership of the pipes on which Mr. Ghaffari slipped.

DMB DIRECTOR NAMED NEW AG DIRECTOR

Last week, the State Agriculture Commission named current DMB Director Mitch Irwin as the new Director of the Department of Agriculture. Mr. Irwin was the Governor’s choice for the post even though three other candidates applied for the post.

Among the qualities preferred by the Commission and the Governor were Mr. Irwin’s experience working with agricultural groups to produce economic benefits. The Governor is hoping for increased economic growth in Michigan’s agri-business.

Mr. Irwin was a state Senator from the UP from 1979-1990. He also worked with economic develop groups converting the Kincheloe Air Force Base to civilian use and more recently in overseeing agriculture issues on the governor’s transition team.

Current Ag Director Dan Wyant announced his resignation two weeks ago. He will pursue a private sector position running a private trust.

LEGISLATURE TO TACKLE TEACHER HEALTH CARE

Long a ‘holy grail’ for the Michigan Education Association, the state legislature has announced plans to begin exploring alternatives to the teacher health insurance pool known as MESSA (Michigan Education Special Services Administration).

Some experts have stated the state could save as much as $281 million, as much as $165 a pupil, if it were to adopt a centralized system for purchasing and providing health insurance for teachers, a report prepared for the Legislative Council concludes.

The report has said a statewide pool of health insurance benefits for teachers would save anywhere from $146 million to $281 million for the state and local school districts, while potentially improving benefits for as many as 90 percent of the state’s public school teachers.

The study found that the average cost of health insurance for teachers in the state was $11,362 a year. Some 48 percent of all teachers have a fee for service insurance system - compared to 8 percent of all public employees - and for those workers the average cost of insurance is $12,349 annually.

In comparison, Mr. Sikkema said the average cost for state employees is $9,212, and for Senate members and employees, $8,893.

The study said if no changes are made to the plans that exist now, except that they are administered under one statewide system, then savings could be $146 million a year.

If the state offered a preferred provider plan along with fee for service plans and health maintenance organizations, then the savings could total $155 million a year, the report said.

The group recommended, however, the state offer no fee for service system, creating instead a PPO and several HMOs. The total savings would be $281 million, and the study said 73 percent of the state's teachers would see an improvement in benefits.

The report also recommended that the Michigan Public School Employees Retirement System administer the system.

Hearings are set to begin the end of July.

CAMPAIGN SEASON STARTS EARLY

The so-called ‘silly season’ has started early this year as the campaign for Governor has witnessed some early salvos. The Michigan State Republican party began a series of statewide radio ads last week asserting Michigan will not see economic improvement as long as Democratic Governor Jennifer Granholm is living “in a state of denial”. Gov. Granholm called it a “travesty” that Republicans would spend money on attack ads instead of working with her administration.

Not to be left out, the Democratic Party responded with charges that Republican gubernatorial candidate Dick DeVos moved jobs from Michigan to China while head of the Amway corporation.

Further, Rep. Rick Baxter hit a nerve with the Governor when he authored an editorial in the Wall Street Journal criticizing her economic proposals. The Governor responded by in The Detroit News, calling Baxter's remarks “treasonous” and that he “should be removed from office” because his remarks “damage the state.”

Mr. Baxter said he was “shocked” that Ms. Granholm responded with a “personal attack.” He said he expected the Governor would respond with a policy-oriented defense of her plan.

“Advocating tax cuts and disagreeing with the governor - I didn't know that was grounds for treason,” he said.

The Wall Street Journal then editorialized on its own, calling the Governor’s actions a “Howard Dean-like temporary loss of sanity.” The editorial also recalled the Boston Tea Party and suggested that, as a native Canadian, “maybe she missed this American history.”

To cap off the month, Rocker Ted Nugent has begun rumblings he may run for the GOP nomination for Governor. He has told a Texas newspaper he will make a decision in the next few weeks.

Only 16 more months until the election.