With the beginning of the new two-year legislative session, there are returning and fresh priorities. Having 57 percent of the House and 71 percent of the Senate, Republican legislators are in a good position to enact their initiatives without Democratic support. Democrats will be important only where the House and Senate Republicans split with their Governor, as they did on the Roads Fix at the end of last session and Medicaid expansion. There are a few issues gaining bi-partisan interest also.
Both the House and Senate Republican Caucuses have issued their legislative agendas for the 2015- 2016 legislative session. Since they claim to have implemented 80 percent of last session’s priorities, these road maps give a good indication of the direction that legislative action will take this year and next.
The Senate Republicans list 23 short and long-term goals. The long-term goals are repeal prevailing wage laws; promote tax reform and individual tax relief; reform Civil Service; safeguard personal property rights; reform school truancy laws; reform Auto No-Fault laws; reform energy policy; and reform Certificate of Need (medical facility, equipment, and program) laws.
The House Republicans issued a longer 20-page Action Plan calling for 78 legislative initiatives in six major action areas. Some of the policy changes they envision: repeal the1965 prevailing wage law; reform auto no-fault; cut the income tax; reinvent the Michigan Economic Development Corporation; create a charter school authorizer accreditation; review the state's long-standing transportation funding formula; reform film subsidies; maintain the state's investment in education; move new teachers into a mandatory 401(k) retirement system; expand school choice; pass the Michigan Religious Freedom Restoration Act; reform sentencing guidelines and parole; transition some elderly inmates to secure nursing homes; evaluate the state's criminal classification system; expand natural gas opportunities; allow energy companies to use out-of-state renewable energy to meet Michigan's Renewable Portfolio Standard; prohibit rules more stringent than the federal rules; improve school accountability systems; reform Civil Service; provide greater flexibility for individuals who want to become teachers; and eliminate local ordinances that hinder job creation.
Of particular concern to state employees is that both Republican Caucuses want to reform Civil Service. Since the Civil Service Commission is where our retiree health care benefits are housed, we will have to be vigilant about this aspect of the Legislature’s priority list.
State Revenues, Budget, SOS
At the January Coordinated Revenue Estimating Conference, it was estimated that although the economy is generally looking up, General Fund revenues are $324.6 million less than expected in the current Fiscal Year (FY) 2015 and $532.1 million less in FY ’16. The main reason is businesses are cashing in on tax credits they were awarded during the Engler and Granholm administrations to lure them to come to or stay in the state. The House Fiscal Agency said that some of the outstanding Michigan Economic Growth Authority tax credits would last until 2030.
School Aid Fund revenue is coming in slightly better than expected — $35.8 million for FY ’15 and $5.6 million for FY ’16 for a net hole in FY ’15 of $288.6 million and $526.5 million in FY ’16.
The Governor issued his FY 2016 budget on February 11 based on these revenue estimates. Adjustments and cuts to current state programs will be needed to balance the budget in this fiscal year and next, but there is no announcement yet about layoffs.
The Governor’s State of the State message was brief (47 minutes!) given his Achilles tendon injury and need to stand on one leg. He announced no huge initiatives like a new bridge to Canada or massive road funding needs, but emphasized improving and restructuring state government. Specifically he alluded to the need to combine the Departments of Community Health and Human Services so that the recipients of 145 existing government programs for childcare, health care and workforce development could better be used to give people access to the “The River of Opportunity.”
As a follow-up, the Governor issued Executive Order 2015-4 combining the two departments into the Department of Health and Human Services with current DCH Director Nick Lyon as the Director. The DHHS will come into existence 60 days after the EO on April 10. The order will also create a new Michigan Children's Services Agency within the new department and convert the current Office of Services to the Aging to the Aging and Adult Services Agency, which will coordinate all the services now provided the state's adults and elderly. The relatively new Autism Council will be moved to the new department, as will the State Child Abuse and Neglect Prevention Board. The licensing operations now within the Office of Children and Adult Services will be moved to the Department of Licensing and Regulatory Affairs from DCH.
The Governor did manage to insert in the SOS a two-minute “ad” in support of the May 5 statewide ballot proposal to raise the sales tax for more road funding. He said Michigan's roads and bridges are a public safety issue, with one in nine bridges being structurally deficient. He also said that the average Michigan family pays $132 more in vehicle repairs than the average Indiana family because our roads are so bad.
At the end of last session, the Legislature and Snyder agreed to put on the May 5 ballot a plan to ask voters to raise the sales tax from 6 to 7 percent that will raise $1.8 billion. $1.3 billion will go to state, county, and city/township roads, $300 million will go to schools, and the working poor will get a larger earned income tax credit to offset the regressive nature of the sales tax.
There is no back-up plan to fund the Roads Fix program if the ballot proposal fails. Senate Majority Leader Arlan Meekhof (R-West Olive) had a succinct statement about the situation: “Give me the list of 20 items that you're going to cut that is going to give me $1 billion every year and give me 56 votes (in the House), 20 votes (in the Senate) and a governor who will sign them all. That’s the piece that’s missing (from the No vote crowd).” House Minority Leader Tim Greimel (D-Auburn Hills) has stated “There is no clear Plan B if this ballot proposal fails this May, and there's a real risk House Republicans will go back to their plan from last December that pays for roads at the expense of schools.”
The Board of State Canvassers will finalize the100-word summary for the ballot later in February. The wording suggested by the Safe Roads Yes! Campaign (formerly Michigan Citizens for Better Roads and Schools) is:
“A PROPOSAL TO AMEND THE STATE CONSTITUTION TO INCREASE MAXIMUM SALES TAX RATE, ELIMINATE TAXES ON SALE/USE OF FUEL, DEDICATE SALES/USE TAX REVENUE, AND ENABLE INCREASED REVENUE DEDICATED FOR TRANSPORTATION PURPOSES
The proposed constitutional amendment would:
Meanwhile, there are at least five anti-Proposal 15-1 ballot committees already formed. The Coalition Against Higher Taxes and Special Interest Deals is led by former congressional candidate Paul Mitchell. Political strategist and former advisor to Governor Rick Snyder John Yob of Strategic National has created Citizens Against Middle Class Tax Increases. Other opposition groups are Protect MI Taxpayers, headed by Keith Allard, a former Republican House candidate; and Concerned Taxpayers of Michigan, headed by Republican and former State Representative Tom McMillin. The National Federation of Independent Businesses has decided to oppose the ballot measure.
The Michigan Townships Association, the Michigan Sheriffs Association, the Small Business Association of Michigan, the Business Leaders for Michigan, and the Detroit Chamber of Commerce have endorsed the proposal at this writing. House Speaker Kevin Cotter (R-Mt. Pleasant) has stated that the House Republican Caucus will not take a collective position on the proposal since one-third are new and did not have the benefit of the debate at the end of last session.
Anderson Economic Group CEO Patrick Anderson has stated that taxpayers who itemize their deductions on federal tax returns would no longer be able to write off their vehicle registration fees if Proposal 1 passes with an impact of $102 million in lost deductions. Lt. Governor. Brian Calley argues that even if Anderson is right, the Legislature would swiftly make the necessary charges to make vehicle registration fees tax deductible.
Pension Tax Update
Although progress on the pension tax legal challenge has had a recent setback (see February Chair Talk for more detail), more Republican legislators than ever appear to be supporting pension tax repeal. Freshman Rep. Tom Barrett (R-Potterville) introduced HB 4027, which would restore pension income tax exemptions eliminated in the 2011 income tax overhaul. Three other Republicans - Reps. John Bizon (R-Battle Creek), Holly Hughes (R-Montague) and Joe Graves (R-Argentine Twp.) are co-sponsors. Last session, three other Republicans who are still in the House sponsored or co-sponsored similar legislation: Reps. Pat Somerville (R-New Boston), Klint Kesto (R-Commerce Twp.) and Martin Howrylak (R-Troy). In addition, there are five current GOP House members who voted against the original tax overhaul legislation. Since there was no recorded vote on the pension tax in the House, it is unknown just why these five voted the way they did.
MIRS news service also reports that at least seven other freshman Republicans stated while on the campaign trail that they were opposed to, or at least saw problems with, the “pension tax.” So in total, according to the MIRS count, at least 18 House Republicans have taken public stances or legislative action against the 2011 removal of the pension income tax exemptions. If all the House Democrats (47) are opposed, it would only need 9 more votes to make a majority to pass repeal legislation.
The road block would be the Governor who has stated repeatedly that he believes it is a fairness issue. More people are being affected each passing year as they retire, thus producing more revenue for the state. People born before 1946 face no change on how their pension income is taxed. People born between 1946 and 1952 got exemptions for $20,000 of retirement income, or $40,000 if they jointly file. For people born after 1952, pension income is taxed fully under the law.
Newly introduced HB 4124 would fix the surviving spouse taxation problem with the pension tax. Currently the birth year for pension tax purposes is the birth year of the oldest of a married couple. When that person dies, the surviving spouse has to use their own birth year for pension tax purposes. The bill has a large number of both Democrats and Republicans as co-sponsors.
SB 23 sponsored by Sen. Rick Jones (R-Grand Ledge) and SB 30 sponsored by Sen. Dave Knezak (D-Dearborn Heights) similarly repeal the pension tax.
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