Around the Dome

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

December 2003

GOVERNOR PRESENTS EXECUTIVE ORDER CUTS TO LEGISLATURE
A large majority of the legislative agenda since the Thanksgiving break has centered on balancing the current budget estimated to be at least $835 million in the red. This week, the Governor and legislative leaders struck a deal on the budget that culminated in the Governor presenting an Executive Order containing over $379.8 million in cuts.

Highlights of the budget deal include a 6-month pause in the scheduled income tax cut set to take effect January 1, 2004, to July 1. The pause is estimated to save $77 million in state general fund revenues. The revenue will be split between higher education, revenue sharing to municipalities, and the K-12 per pupil grant to lessen the severity of cuts originally proposed to those budgets.

Also, legislative leaders and the Administration struck a deal on further cuts to the Small Business Tax, a break many GOP leaders see as an economic stimulus tool (see following related story.)

However, details of the budget agreement, and how it was struck, continue to cause strife between the two Chambers and the Governor's office. House Majority Republicans complained Wednesday that they were left out of much of the budget negotiations and that they had major problems with any pause in the scheduled income tax cut.

Many House Republicans continue to support further cuts to raise the $77 million that the income tax pause would generate. The Speaker has indicated that he will allow a vote on the matter but many remain skeptical that votes exist now to pass it. The Senate has already passed the "income tax rollback" legislation.

Driving the issue is the fact that many House members are concerned about enacting these cuts during an election year. House members must face the voters every two years whereas Senators run every four.

Also, many groups have begun an intensive lobbying effort calling the rollback a tax hike and holding meetings with GOP legislators to encourage them to hold the line on the tax cut.

All total, the Granholm administration said it resolved 63% of the general fund deficit with cuts—mostly from higher education and local government revenue sharing, 24% with new revenue, and 13% through accounting changes.

Several bills will be needed to fully implement the budget-balancing package. Besides the income tax bill, legislation is needed to cut the budgets of the Legislature and judiciary by about $1 million each, and to make a $63 million accounting shift with the Michigan Merit Award (a move that would not affect the awards themselves).

GRANHOLM SHARPLY CRITICIZES HOUSE GOP
Following the House GOP's resistance to enact the income tax rollback proposal, Governor Granholm criticized efforts by the GOP-controlled House to seek further budget cuts instead of passing a 6-month delay in the income tax cut.

The Governor called the House members "out of touch" and said the issue could spark a democratic takeover of the chamber in the November elections. Further, the Governor has claimed she opposes House Republican plans to find further cuts in the state budget.

Granholm said such sentiment ignores the reduction in the state workforce by 7,600 over the past 3 years and the barrage of news stories on lackluster inspections of child care, problems in Friend of the Court, and the unemployed being unable to collect their benefit checks because of a lack of workers.

But House Republican spokesperson Matt Resch said there are sensible areas to find $77 million in cuts—a preferable move to taking money away from taxpayers.

Republicans control the House 63-47 and have gained 11 seats over the last three elections, but Granholm said the Democrats have traction in part because of the House GOP position on the budget.

The House GOP has stated they will work this week to draft a list of further cuts to generate the additional $77 million.

STATE FISCAL EXPERTS CLAIM STATE REVENUES STILL LAG
The Senate and House Fiscal Agencies reported this week that Michigan still lags behind the national economic recovery and that the growth in the national economy has not produced any measurable revenue growth for the state budget. The national economy grew by an estimated 8.1% last quarter while state revenues remain about the same as 2002 levels.

Heads of the two agencies reported that November revenues were below 2002 levels but did not provide the agencies reason to adjust figures from the October revenue estimating conference.

Income and sales tax revenues are essentially even from 2002 revenue while the largest drop has come in the Small Business Tax which is down about $28 million as estimated quarterly payments were the weakest since January.

DEAL STRUCK ON SMALL BUSINESS TAX
As part of the budget balancing agreement, GOP legislative leaders and the Administration struck a deal to move parts of the SBT cut package recently, an issue that has been long identified as a priority by the BOMA Government Affairs Committee.

The BOMA Government Affairs Committee approved a position paper supporting the bills and was delivered to Senate leaders by BOMA lobbyists at the committee hearing approving the package.

Over 2 years, beginning in 2005, under Senate bills 672 and 673, businesses will be able to eliminate the "add-back" of the costs of health care insurance into their SBT base. The add-back would be reduced 20% in the first year and 40% in the second and final year.

Initially, the bills were part of a 5-bill package to completely eliminate the add-back but Governor Jennifer Granholm opposed the total elimination, saying it could cost the state between $100 million and $200 million when fully implemented.

Proponents of the bills, including BOMA, said the changes will encourage more companies to offer health insurance to their workers.

The bills now move to the House Tax Policy committee for action next week.

LEGISLATURE CONTINUES FOCUS ON ECONOMIC STIMULUS
Over the past few weeks, the House and Senate have continued a flurry of activity on several bills aimed at providing a boost to the state's economy. The bills focus on a variety of different solutions from tax cuts to business investment for start-up companies. Recently, the House Commerce Committee approved a 6-bill economic development package that included Senate-passed versions of venture capital bills and aid for the tool and die industry.

SB 834, SB 835, and SB 836 create the Michigan Early Stage Venture Capital Corporation that would use guaranteed returns or tax credits to attract investment funds for new high tech and biotechnology firms.

HB 5243 and SB 825, part of a larger original package to aid the tool and die industry, would allow creation of up to 20 tool and die renaissance recovery zones with complete tax abatements for up to 15 years.

The committee also approved SB 833 that doubles, to $200 million, the amount of Great Lakes Water Quality bonds the state may sell in a single year.

The legislature also approved a bill creating a Manufacturing Czar within the Michigan Economic Development Corporation. The newly created position would focus solely on aiding Michigan's manufacturing companies as well as creating a positive environment for further manufacturing investment.

Lastly, the legislature approved bills extending the Michigan Economic Growth Authority through 2009. M.E.G.A. is the state's primary job creation tool responsible for extending long-term tax credits to those companies locating in Michigan and creating at least 250 new jobs.

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. No new fees were enacted by the Governor as part of the recent budget balancing EO.

SBT—BOMA supports efforts to further reduce the SBT in Michigan or maintain the tax at its current level. The package of bills that will exempt health care costs from the SBT cleared the Senate and now move to the House for action.

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.

UTILITY DEREGULATION—SK&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 that would greatly increase rates for commercial customers.

BOMA lobbyists have entered into a coalition of electrical users that hope to preserve the current law allowing electrical choice and to oppose the DTE changes. A meeting is planned for December 16 to discuss specific action items.

URBAN SPRAWL/SMART GROWTH—BOMA encourages the use of the Brownfield law for redevelopment of urban areas and adaptive re-use of obsolete building. As mentioned previously, 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 previously, the legislature passed bills reauthorizing the Michigan Economic Growth Authority, the major tax incentive body for the state economic development efforts through 2009.

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. The legislature has passed a 2-bill package that targets an additional $75 million for brownfield redevelopment efforts as well as creating the Clean Michigan Initiative revolving loan fund for use by local governments to ready brownfield sites for development.

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.