Around the Dome

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

September, 2003

PACKAGE EXPECTED MAKING CHANGES TO SMALL BUSINESS TAX
This fall, legislation is expected to be introduced allowing companies to deduct the cost of health insurance from their single business tax liability. According to some GOP legislators, a key benefit of the package is that it would promote the ability of companies to offer health insurance to their workers.

Lawmakers have talked about and introduced legislation exempting health care insurance premiums from the base of the SBT, but none have passed the legislature.

The phase-out of the SBT has been delayed because the slow economy has reduced the state's balance in the Budget Stabilization Fund, but at some point the phase-out will resume.

Being pushed by Sen. Nancy Cassis (R-Novi), the bill has not yet been assigned bill numbers. Hearings on the legislation are expected in the fall.

EFFORTS TO EXTEND TERM LIMITS KILLED IN THE STATE HOUSE
Plans to make changes to the state's term limits statute was dealt a setback recently when the House postponed action during its recent special session on a proposed constitutional amendment.

The issue was the subject of an hour and a half long GOP caucus and a relatively brief Democratic caucus following House session, which drew 102 members to the one-day session.

The proposal aimed to extend to 12 years the length of time State Representatives and State Senators can serve in the legislator. Currently, state law limits legislators to three 2-year terms for State Representatives and two 4-year terms for State Senators.

Legislators on both sides of the aisle agreed enough votes to pass the amendment were likely. However, House GOP leadership decided to postpone placing the issue on the ballot due to time constraints in meeting deadlines related to the November elections. Municipal elections are scheduled in much of the state but it would have required a special election in about half of the precincts for a term limits proposal to go before voters.

Speaker Johnson has not ruled out a special election in the spring.

Some Democrats expressed concerns in moving the package that extending term limits would help solidify the current Republican majority. Rep. Gary Woronchak (R-Dearborn), who has been a primary backer of the bill, called Wednesday's inaction "a major setback." The move to extend term limits was given a major boost by Governor Granholm's public support of an extension.

The Governor said she supports term limits and the 8-year limit on her office, but believes the legislative limits of 6 years for the House and 8 for the Senate are too short.

The proposal amending the state constitution requires a two-thirds majority in order to be placed on the ballot. Thirty-six House members who are subject to current term limits would be forced out of office as of December 31, 2004.

STATE REVENUES LESS THAN EXPECTED, COULD SPARK FUTHER CUTS
Michigan's July tax revenues were down significantly from the year before, according to figures from the Senate Fiscal Agency. The final quarter will require a major boost in tax collections for the state to reach its revenue projections for the 2002-03 fiscal year.

July revenues totaled $1.56 billion, down 9.3 percent from July 2002 or about twice as much as state officials expected. Virtually every major tax the state collects netted less in July than it did in July 2002, according to the figures. Only the tobacco tax, which was increased a year ago, raised more money last month than it did in July 2002.

With now three-quarters of the revenue collection year history, SFA Senior Economist Jay Wortley said that in the last 3 months revenue collections for the state would have to top 2002 collections by 16.4 percent for the state to reach the Revenue Estimating Conference's expected revenues for the fiscal year.

However, despite the lower than expected revenue collections, budget officials say the 2002-03 budget should be fine. But the revenue figures could have a negative effect on the 2003-04 fiscal year.

Because the 2002-03 general fund budget had a balance of $360 million built in, that should cover any revenue shortfalls during the final quarter of the fiscal year, both Senate Fiscal Agency Director Gary Olson and House Fiscal Agency Director Mitch Bean said.

While the state's fiscal year for appropriations begins October 1, it accrues revenues through October for the previous fiscal year. So, for tax collection purposes, the 2003-04 fiscal year begins in November.

Still, even if revenues fall short for the remainder of the fiscal year, the current general fund budget has enough cushion to forestall any budget actions for the remainder of the fiscal year.

The 2003-04 general fund budget now has projected a $146 million surplus—with half going to the Budget Stabilization Fund and half to a new school aid stabilization fund—and any revenues less than expected for the new fiscal year could affect that final balance.

There is essentially nothing the state can do now to cut the 2002-03 budget during its remaining full month if revenues drop so drastically that the $360 million cushion does not cover any shortfall, officials said. Any additional shortfalls would have to be handled out of the 2003-04 fiscal year.

ADMINISTRATION TO STUDY SBT, MAY LEAD TO CHANGES
Governor Jennifer Granholm said Treasurer Jay Rising is conducting a study of the state's single business tax which could lead to the state changing the tax first adopted in 1975.

Governor Granholm said she wanted to determine if the SBT was hampering business development. There is no deadline for Rising to complete his review of the tax; and in conducting the review, he will need to look at how other states levy similar business taxes.

Following legislation passed in 1999, the SBT was being phased out at .1% a year until that phase-out was halted with the current economic slowdown and the state's Budget Stabilization Fund dropping below $250 million in reserves.

Even if the phase-out of the tax rate is never restarted, current law directs the tax to end following 2009.

What Rising is doing could lead to a whole new business tax for the state, Granholm said.

However, Governor Granholm also said she is hesitant to support legislation that would take health care costs out of the base of the single business tax. Preliminary estimates are that such a provision could cost the state $100 million.

With companies now saying health care costs are among their biggest concerns, pressure is building to pass legislation that would take the cost of providing health care out of the tax.

The Michigan Manufacturers Association said the legislation would help companies control the rising cost of health care, and they were echoed in their support by the Small Business Association of Michigan.

NEW MEDC LEADER TO BE NAMED THIS MONTH
Governor Jennifer Granholm will offer late next week her recommendation for a new Michigan Economic Development Corporation CEO.

Governor Granholm has stated recently that the executive order making changes to the MEDC and the state's regulation and promotion of business are currently in its final stages of review. The executive order consolidating the departments of Career Development and Consumer and Industry Services into a new Department of Labor and Economic Growth has been drafted and will be issued in early September.

The MEDC has been led this year by acting CEO Sabrina Keeley, who agreed to remain at the agency during the transition from the former Engler administration. Keeley recently announced she would be leaving the MEDC after September 19. Keeley is taking over as president of the Ann Arbor Chamber of Commerce.

The MEDC executive committee met Wednesday and will meet next Wednesday and Thursday to interview finalists. Governor Granholm said that Michigan's manufacturing sector will be a prime focus for the MEDC and its new CEO.

As for the department reorganization, which is much anticipated in the business community, Governor Granholm said she is letting legislative leaders review the draft before issuing it. The Legislature has 60 days after the issuing of an executive order to reject it.

GOVERNOR ANNOUNCES FALL AGENDA
Governor Granholm announced two major initiatives her administration will pursue in the upcoming fall legislative agenda. In conjunction with legislative Democrats, the Governor will pursue legislation to limit the amount of Canadian trash coming into Michigan.

Because legislators on both sides of the aisle also have legislation to act on that issue, Governor Granholm said she expects to see something in law this fall.

The Governor also announced she will continue her agenda of bringing a new focus to manufacturing in Michigan and the nation. Governor Granholm has recently made a push for such a focus through the National Governors Association and has indicated her support of President Bush's announcement of naming a federal Manufacturing Czar.

She also will push for legislation revitalizing Michigan's urban centers, a primary focus of the Michigan Land Use Leadership Council Report will be a top priority. Details of such an initiative remain murky at this point.

APPOINTMENTS BY THE GOVERNOR
BOARD OF REAL ESTATE BROKERS AND SALESPERSONS: Brian Huggler of Lansing succeeds Laurie Bush to represent real estate brokers and salespersons and Kyrian Nwagwu of Lathrup Village succeeds Edward Marsilje in representing the general public for terms expiring June 30, 2007. Senate confirmation is required.

BOMA'S KEY STATE LEGISLATIVE ISSUES
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. The recently enacted budget did NOT include any new service taxes even though many fees and taxes were enacted to help offset the state's $1.8 billion budget shortfall.

SBT—BOMA supports efforts to further reduce the SBT in Michigan or maintain the tax at its current level. As indicated in the above report, the legislature has announced a package of bills which will exempt health care costs from the SBT. Further, State Treasurer Jay Rising is undertaking a thorough examination of the SBT and will make recommendations to the Governor toward creating a new small business tax structure in the near future.

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. GAC Chairman Bruce Babiarz and BOMA lobbyists Steve Scofes and Del Chenault have discussed writing a package of bills addressing the mold issue. 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.

UTILITY DEREGULATION—The PSC has announced it will begin a series of hearings to investigate the recent electrical blackout in Michigan. PSC leaders have indicated they will look at all potential causes including the state's attempts at electric deregulation.

Also, Attorney General Mike Cox has been asked by the Public Service Commission to intervene before the Federal Energy Regulatory Commission to prevent the chance that electric transmission rates could "pancake" through the state. Last month the federal agency set up a docket to review the reasonableness of so-called "through and out" rates set by seven electric companies that are not members of regional transmission systems.

"Through and out" rates are charged when a Michigan utility purchases electricity that travels through the service area of other utilities that charge for the transmission through their system. The fear is that transmission rates could mount as a result of travelling through several systems.

Urban Sprawl/Smart Growth—BOMA encourages the use of the Brownfield law for redevelopment of urban areas and adaptive reuse of obsolete buildings. The Michigan Land Use Council released its report this month. The Governor has already indicated the recommendations contained in the report will be a high priority for her fall legislative agenda. BOMA lobbyists are closely monitoring developments and are meeting with legislative leaders.

MEDC FUNDING CUTS—BOMA Michigan is opposed to efforts to reduce or eliminate funding for the MEDC. The recently enacted MEDC budget, initially targeted for a 12 percent cut by Democratic Governor Jennifer Granholm and even larger cuts by the Republican-controlled Legislature, wound up avoiding any reduction to its general fund programming, even scoring a small 0.3 percent increase.

BROWNFIELD TAX EXTENSION—BOMA applauds the Michigan legislature for extending the Brownfield Tax Credit last year through 2008. This is the type of tax law that will spark urban development and curtail suburban sprawl. We encourage the state to invest more in Brownfield development as future funding allows.

Read previous Around the Dome reports

The "Around the Dome" newsletter is written monthly by BOMA's Michigan lobbying firm Scofes-Kindsvatter & Associates (SKA) for BOMA members to be aware of key issues in Lansing. In addition, SKA is monitoring top issues identified by the Government Affairs Committee. If you have comments on the newsletter or BOMA issues, please direct them to GAC Chair Bruce Babiarz at bruce.babiarz@bartonmalow.com or Cynthia Andary of BOMA staff. We welcome your comments and questions on BOMA advocacy issues.