Around the Dome

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

October 2005

STATE BUDGET WORK COMPLETED FOR FY 2005-06

After much negotiation, hand-wringing, and red ink, the process of completing the 2005-06 state budget reached its final stage Friday. Governor Granholm’s signature of the remaining major elements of the new year’s budget completed the process on the final day of the old fiscal year.

House Speaker DeRoche and Senate Majority Leader Sikkema each made statements taking credit for the balanced budget. They stated the budget was balanced without any major fee or tax increases, which was a major departure from last year’s budget.

However, there still remain a few small budget items such as funding the state’s building construction budget as well as finishing a supplemental bill appropriating money to keep open three State Police posts whose funds were not included in the new budget.

In signing the bill, the Governor made several line-item vetoes of projects and programs the legislature had sought to fund. One of the more contentious items in the budget was the Governor’s veto of funding for the Michigan Youth Correctional Facility in Baldwin. The facility is the largest employer in the state’s poorest county.

Among other vetoes were 25 road projects funded in the Department of Transportation budget. In that budget, Granholm line-item vetoed 25 individual road projects specified in the budget by legislators worth $23.2 million. She stated that the projects themselves were not bad, but the process of funding them directly in the MDOT budget was, and decisions on such projects should be made by transportation and engineering professionals within MDOT.

A majority of the vetoed project money was to be spent in southeast Michigan such as rebuilding the Wixom/I-96 interchange at a price of $10 million.

The state omnibus budget, which totals some $17.3 billion, less than $7 billion in general funds, also includes the budgets for community colleges, higher education, the Departments of Community Health, Education, Environmental Quality and Natural Resources along with Corrections.

Community Health is the giant in that budget, totaling some $10.3 billion, $2.95 billion in general funds, and had no vetoes.

There were no vetoes in the Department of Labor and Economic Growth budget totaling $1.3 billion and which contains funding for the MEDC—a BOMA issue priority.

GOVERNOR/LEGISLATURE FOCUS ON JOBS AND SBT PACKAGE

The legislature and the Governor now turn their attention to passage of several bills creating an investment fund to create Michigan jobs. State leadership is focusing on a House plan securitizing over $1 billion in state tobacco settlement funds to invest in high tech, life sciences, alternative energy, and other areas with growth potential.

Although the plan, which grew out of Governor Granholm's initial proposal for a $2 billion bond issue, is envisioned as a way to provide a quick jobs boost, the first use of the money is not anticipated until some time early next year.

The plan would securitize about a third of the state's remaining $6.2 billion in tobacco settlement funds it is to receive over the next 20 years. Finance consultants differed on how many of the dollars would be required to reach the $1 billion mark, estimating the state will get anywhere from 50 cents to 70 cents on each tobacco settlement dollar.

If the state were to securitize at the proposed levels, the $280 million the state receives annually under the settlement would be reduced to about $175 million.

The package (HB 5047, 5048, HB 5109, HB 5108, HB 4972, HB 4973, SB 298, SB 359, and SB 521) creates the 21st Century Jobs Trust Fund within the Department of Treasury.

The money would be handed out in grants and loans under a new 19-member strategic economic investment board as well as a renamed Strategic Fund board.

Under the package, no more than 70 percent of the securitized funds could be used by the investment board; economic stimulus loans could eat up no more than 25 percent, and the venture capital program would be capped at 40 percent.

Further, companies receiving funds would have to abide by “measurable milestones” and clear objectives, and would be required to repay any public funds they received if they left the state within seven years.

Annual review of the contracts by the auditor general would be required and the legislation requires the board to work with a new compliance officer who would report to the Administrative Board, which is made up of representatives of the governor as well as the elected attorney general and secretary of state and the superintendent of public instruction. The compliance officer position is to be created in later legislation.

In an interesting twist, the House tie-barred the bills with the bills making revisions to the state’s single business tax structure. The Speaker has stated he views the jobs package and the SBT to be fundamentally linked and should be discussed in terms of the state’s entire economic and tax policies.

SBT/WPW UPDATE: As you may know, the House-passed SBT package now rests in the Senate where it awaits action in the Senate Finance Committee chaired by Senator Nancy Cassis. BOMA lobbyists have been actively working on the bills as they contain important changes to the property tax provisions for “additions and losses”—the so-called WPW provisions. BOMA continues to work diligently with the Senate by participating in workgroups and ensuring BOMA member interests are well-represented in this important debate.

It is expected that the Senate Finance Committee will take action on the bills in the next 2 weeks. BOMA lobbyists continue to fight against retroactive application of “additions” that would unfairly raise taxes for prior years. The bills making WPW changes are HB 5096 and 5097.

FORMER LEGISLATORS CALL FOR PROP A CHANGES

A group of 12 former legislators has proposed several changes to state K-12 funding as a result of Proposal A. Members of the group, comprised of 6 Democrats and 6 Republicans, were key players in the development of Prop A in 1994.

Along with Senate Minority Leader Bob Emerson, the group includes former Reps. Lynn Jondahl, James Agee, Don Gilmer, Maxine Berman, William Bryan, William Keith, Bill Bullard, Susan Grimes Munsell, Barbara Dobb, Glenn Oxender, and Ted Wallace.

Former State Rep. Lynn Jondahl is now head of an organization called Michigan Prospect. The group authorized an independent analysis of Proposal A that resulted in a 141-page report of how Prop A has worked since its adoption over 10 years ago.

Among the major changes they propose are eliminating the growing number of “categorical” funding areas in the state’s K-12 school aid budget and putting the money back into the foundation grant for students. At the time Proposal A was adopted, the state’s K-12 School Aid budget had some 30 different categorical funding areas, covering everything from transportation funding to financially-stressed municipal districts. One goal of Proposal A was to eliminate virtually all categoricals except for items like special education.

Since then, however, the number of categorical funding areas has ballooned to about a dozen which, according to the group, “has served to diminish the financial strength of the basic grant.”

Other changes in the proposal include:

• Changing the manner that pupil counts are conducted in school districts.
• Consider current year funding for schools based on the prior year’s pupil count which would help districts ease transitions to lower student populations.
• Greater flexibility in the use of enhancement millages currently allowed at the intermediate school district level.
• Examine ways to prevent the state’s wealthier districts from seeing a loss of funding in real dollar terms while not widening the gap in funding between rich and poor districts.
• Examine when state aid payments are made to help with school district cashflow.
• Deal with an unintended conflict that exists between the increase in assessed property values allowed by Proposal A and the requirements for a rollback in millages stipulated by the Headlee Amendment. In some older, so-called inner ring suburbs around Detroit, this has caused rollbacks that erase the benefit of increased property values on school finance.

LEGISLATURE CONTINUES TELECOMM ACT REVISIONS

This week, the House Tech and Energy Committee began deliberating its own plan for revising the Michigan Telecommunications Act. The MTA, last changed in 2000, is set to expire at the end of the year.

The Senate Energy and Tech Committee passed its own version of MTA revisions that now awaits action on the Senate floor.

There are still differences between the House and the Senate on the rewrite of the act. The House bill provides 100 calls as the basic plan while the Senate set the plan at 200 calls. SBC has argued that the increased number of calls over the size of its network would be more than it could handle without a rate increase. The company is pushing to cut the 200-call plan in the Senate version to 75 calls.

Many industry analysts agree the House bill is a change from the current act in that it favors incumbent providers such as SBC. Changes in federal law and the current state of competition necessitate certain changes that will likely lead to smaller competitors that lease services from other providers being unprotected by the MTA.

Those basing their business on leasing are being left out because imposing the regulation they ask could be untenable. Under the current act, UNE-P rates and retail rates are set by the Public Service Commission. The House bill anticipates only a range of rates set for the basic residential service, with all other service costs set by market forces.

The 2000 act also did not anticipate the growth in methods of carrying a telephone competition. Legislators assume competition over the next four years, when the proposed new act would expire, will come from new technology, not from finding cheaper ways to provide service duplicating that of the incumbent local phone companies.

Most important to BOMA members is the fact that the House plans to not extend the regulation of basic residential service, and the commensurate consumer protections in the act, to small business.

House committee chairman Mike Nofs feels there is enough competition for business lines and that any added regulation of those lines could stifle development and artificially raise rates.

Current plans call for reporting the bill on October 19, with it moving to the Senate the following week. It is expected that the Senate bill should be passed to the House for review by that time.

COX SETS LIMITS TO CHARGES LEVIED BY LOCAL GOVERNMENTS

Local governments cannot impose service fees outside of their jurisdictions, even when they have joint boards created to provide those services, Attorney General Mike Cox said in an opinion released this week.

AG Cox reviewed whether state law allows for a municipality to bill residents outside of its city or township limits for fire services provided outside its jurisdiction. In opinion No. 7180, the AG found that even though, in this case, a joint fire board was created and that board authorized the village to bill residents of three outside communities for "fire runs", an act from 1937 effectively states that each municipality would have to pass a fee ordinance individually.

“No provision of the Act authorizes one municipal legislative body to adopt a single fire service fee ordinance that would be effective outside its own territory and into the territories of the other participating municipalities through an agreement creating a joint fire board,” the opinion stated.

UTILITIES SEEK RATE INCREASES

Consumers Energy asked the Public Service Commission on Friday for permission to further raise its gas prices to accommodate expected rate increases resulting from that loss of supply.

Dan Bishop, spokesperson for the utility, said Consumers has asked to be able to charge 91.1 cents per 100 cubic feet beginning in January. Consumers currently charges 83.8 cents and had already been approved to increase rates to 87.3 cents beginning in November.

Consumers Energy stated they see a $35-per-month increase over last winter but that hurricane damage will likely force the increase to $40 to $50.

The MPSC will hold a special rate hearing next week to hear from all natural gas providers in the state regarding potential price increases this winter.

STATE CHAMBER PRESIDENT TO RETIRE

Jim Barrett, longtime head of the Michigan Chamber of Commerce, announced plans for his retirement as well as plans for his succession.
Jim set a retirement date for 2008 and will turn the direction of the Chamber over to Rich Studley. Mr. Studley is currently Senior VP for government affairs and has been with the group since 1981.

Mr. Barrett has been President of the State Chamber for over 20 years. His direction is widely recognized as the primary force behind the Chamber’s transition to one of the most influential organizations in Lansing.

The Chamber’s board also approved a comprehensive leadership transition plan.