Capitol News

March 10, 2019

Highlights since our last report are the Governor’s budget presentation, hearings on pension tax repeal, and legislative committees finally beginning to move from orientation mode to hearings on actual bills.

FY 2020 BUDGET INTRODUCED

Governor Gretchen Whitmer and State Budget Director Chris Kolb outlined the Fiscal Year 2020 Executive Budget Recommendation to a joint session of the House and Senate Appropriations Committees on Tuesday, March 5. It featured $60.2 in overall spending, up 3.6 percent from the current fiscal year 2019 budget, with a General Fund total of $10.7 billion and a School Aid Fund total of $15.4 billion. The General Fund remains the same amount as 20 years ago, despite inflation.

Road Fix — Most noticed was a proposal to raise $2.5 billion in additional fuel taxes to fix the roads through a 45 cents a gallon tax hike in three 15 cent increases over 18 months, starting October 1, 2019 through October 1, 2020. The effect on low-income residents would be offset with an increase in the Earned Income Tax Credit from 6 percent to 12 percent of the federal EITC and elimination of the pension tax on retirement income. The 45-cent increase would bring Michigan’s gas tax to 71.3 cents a gallon, the highest in the nation. Pennsylvania is now the highest at 57.6 cents per gallon.

Michigan ranks near the bottom in the nation when it comes to the amount spent on highways per capita. The 2018 American Society of Civil Engineers report gave Michigan a D- on the condition of its roads. In 2015, Governor Snyder sought $1.2 billion in road funding through a gas tax and vehicle registration fee increases, but the money would not entirely be available until 2021. The proposed additional revenue will be allocated to the most highly travelled and commercially important roads, at both the state and local levels, rather than through the traditional Public Act 51 formula.

Although the Republican leadership in the House and Senate acknowledged that $2.5 billion was about the amount needed to bring the roads to 90 percent fixed, acquiring that money through a gas tax increase of 45 cents was noticeably criticized. The option of increasing the income tax from 4.25 to 5.3 percent, increasing the sales tax from 6 to 7.4 percent, or increasing the Corporate Income Tax from 6 to 19.5 percent to raise the same amount of money wasn’t popular either.

Education — The Governor proposes $15.4 billion for the state’s K-12 schools, with $507 million in additional investments for a weighted foundation allowance which translates to the biggest increase for school operations in a generation of students. This includes an increased foundation allowance of $235 million, which will provide additional resources of between $120 and $180 per pupil to fund basic classroom and operational expenses. The increase will also continue to close the equity gap between schools at the minimum and maximum foundation allowances, bringing the gap down to $478 per student.

Additional funding of $120 million is included for special education students, $102 million for at-risk economically disadvantaged students, and $50 million for career and technical education students. The budget recommendation also provides for an expansion of the Great Start Readiness Program in the amount of $85 million, making preschool programs available to more students across the state and improving the programs in place today. The budget plan also jumpstarts early literacy initiatives with an investment of $24.5 million to triple the number of state-funded literacy coaches in schools.

Public universities would be funded with General Fund rather than School Aid Fund revenue in the Governor’s proposed budget. This returns $500 million in School Aid Fund resources to address the funding needs in K-12 schools. Michigan colleges and universities would receive a 3 percent increase in funding under the budget recommendation, with tuition restraint set at 3.2 percent. In addition, $50 million is proposed in the current fiscal year and another $50 million next fiscal year for the creation of the Michigan Reconnect Program to provide opportunities for those seeking training or certification in specialized careers, offering eligible participants tuition-free training toward their certification or credentials.

Because cyber schools don’t require the same resources and funding level as a traditional school, the budget also calls for reducing the foundation allowance for cyber schools by 20 percent, something former Governor Snyder tried without success.

Water — The executive budget also addresses the immediate need for improved water and environmental infrastructure. $13.9 million in the General Fund will be dedicated to the Health and Human Services budget to enhance monitoring of and responsiveness to the human impacts of emerging public health threats, including contaminated drinking water.

A new supplemental budget request for the current fiscal year was introduced March 5, which includes $120 million to improve drinking water infrastructure. Funding initiatives include service line replacements, research and treatment for PFAS and other emerging contaminants, drinking water revolving fund loan forgiveness, watershed planning, and research to optimize water distribution systems. An additional $60 million from the School Aid Fund is set aside in the current fiscal year to install hydration stations in school building across the state, providing clean, filtered drinking water to students in those buildings.

Other Highlights — Other proposed budget items include:

  • Continued full funding of state employee pension obligations and a continued contribution toward reducing the unfunded liability for state employee retiree health care obligations.
  • $10.5 million General Fund to support a corrections officer academy with an expected graduating class of 408 to address higher than anticipated attrition.
  • $8.6 million General Fund to support a new trooper recruit school with the anticipation of graduating 50 new troopers, maintaining Michigan State Police enlisted strength at approximately 2,100.
  • $9.6 million General Fund to carry out functions related to the passage of proposal 2, which creates an independent citizen redistricting commission for state legislative and congressional districts, and proposal 3, which establishes several key voting rights.
  • $52.9 million General Fund for 14 information technology projects to improve government operations and services to residents of the state, including projects to improve tax systems, permitting activities related to clean air and water, licensing and inspection systems, and in-car video streaming for State Police troopers to enable real-time data sharing.
  • $4 million General Fund to support the expansion of the Double-Up Food Bucks program from 65 counties to all 83 Michigan counties. Double-Up Food Bucks is a program which provides a dollar for dollar match up to $20 per day for those on food assistance to purchase fresh fruits and vegetables produced by Michigan’s farmers.
  • $8.6 million General Fund for multiple investments in foster care and child welfare systems to protect Michigan’s most vulnerable children and keep them together with their parents when possible.
  • $4.5 million General Fund to support the purchase of 6,619 new electronic tether devices to improve the supervision of offenders for the Department of Corrections, as current tether devices will no longer function after this year.
  • $14.1 million General Fund for the Michigan Public Safety Communications System to enhance operation of the secure communications network utilized by the state’s first responders at both the state and local levels.
  • Revenue sharing increases of 3 percent for counties and for cities, villages, and townships. Including constitutional payments, total revenue sharing payments are projected to increase by over $40 million.
  • $2.3 million General Fund to continue testing and research on Chronic Wasting Disease in Michigan’s deer population.
  • $450,000 General Fund for the Judiciary to expand online dispute resolution services from 16 counties to all 83 counties.
  • $1.4 million General Fund for a three-year project to inventory hazardous materials pipelines that cross waterways in Michigan.
  • A $150 million deposit to the state’s Rainy Day Fund.

The budget plan also calls for nearly $100 million in reductions across all departments, creating savings that are better utilized to fund the core priorities listed above.

PENSION TAX REPEAL

Governor’s budget — The Governor’s budget plan also calls for the repeal of the pension tax imposed in 2012. The proposed deduction would take effect for tax year 2020. More than 400,000 Michigan households would each save $800 per year on average under the repeal. An estimated 600,000 senior households would pay no state income tax.

The Governor proposes to make up the lost revenue of $259 million in the 2019-20 fiscal year and $355 million in the 2020-21 fiscal year with expansion of those business categories that must pay the state’s Corporate Income Tax. Currently only C-corporations (large corporations) have to pay the 6 percent CIT. Under the Governor’s proposal, other businesses — S-corporations, Limited Liability Corporations, and proprietorships — would pay the 6 percent CIT with a credit received for what the owners paid in personal income tax, meaning the effective tax increase would be 1.75 percent to avoid creating a double taxation situation of being taxed on both personal and business income. Businesses with less than $50,000 in income would not pay the additional tax at all. The Whitmer administration is emphasizing that the actual impact on businesses’ bottom lines will be even less because they can deduct their state taxes from their federal tax liability.

The Department of Treasury estimates there are 250,000 entities filing as S-corporations, partnerships, and LLCs, but after the $50,000 exemption, there would be 150,000 paying the higher tax. Governor Whitmer dubbed her plan “pass-through tax parity.”

The pension tax repeal would restore an income tax exemption for public pension income regardless of age. It would return the $50,000 exemption that existed for private pensions and other retirement income from private-sector jobs. However, seniors who continue to work could exempt $20,000 in income for single filers or $40,000 for joint filers.

The proposal was panned by the Small Business Association of Michigan, the Michigan Chamber of Commerce, Michigan Restaurant and Lodging Association, and other business interests.

Legislative hearings — In advance of the budget presentation, the House Tax Policy Committee held two hearings in late February on HB 4006 sponsored by Rep. Joe Bellino (R-Monroe), sending it to the House Ways and Means Committee on a 14-1 vote. The National Federation of Independent Businesses and the Michigan Association of School Boards opposed the measure, the latter because it would reduce revenues to the School Aid Fund by $75 million each year.

Questions were raised about differentiating the exemption for an entire public pension versus the maximum $50,000 exemption for private pensions and private retirement income as configured under the Income Tax Act prior to the 2011 tax overhaul. It is obvious that amendments to the bill will be offered during further consideration of the bill in the House Ways and Means Committee.

Another bill to eliminate the pension tax, HB 4287 sponsored by Rep. Angela Witwer (D-Delta Township), was introduced on February 28 making a total of 4 bills repealing the pension tax.

OTHER BILLS

Auto no-fault insurance — The House Select Committee on Reducing Auto Insurance Rates held three hearings in February and early March to gain background on how auto insurance is organized in Michigan. The Department of Insurance and Financial Services and the Citizens Research Council gave presentations on the history and overview of Michigan’s unique auto no-fault insurance with unlimited medical benefits, the only one of its kind in the nation — and the most expensive. The Coalition Protecting Auto No-Fault presented testimony on how it sees the problem of high costs, advancing the proposition that a medical fee schedule would help control costs, and lengthening the time from one year to three years for filing litigation would cut down on legal costs.

Elder Abuse — An 8-bill bi-partisan package of bills to protect elderly vulnerable adults, HB 4255 — 60 and HB 4265, were introduced February 26. The package will address several areas to bolster protections for the senior community and empower others to help them. One bill in the package establishes criminal penalties for those who fraudulently obtain or attempt to obtain an elder adult’s money or property. Other bills in the package will define an elder adult as an individual aged 65 and older, and update relevant legislation to reflect the new definition as well as establishing criminal penalties for assaulting or restraining an elder adult.

Minimum Wage — Legislation reinstating the $12 per hour minimum wage initiated law passed by the Legislature last year before lame-duck changes gutted the proposal have been introduced. SB 168 and HB 4299 were sent to each chamber’s Government Operations Committee.

An opinion from Attorney General Dana Nessel on the legality of the Republican strategy to adopt the initiated acts to keep them off the statewide ballot and then amend them in the same legislative session is still pending. The Michigan Supreme Court could also intervene, as Republicans have asked the court to issue an opinion.

Editor’s note: Mary Pollock is the Lansing SERA Chapter and SERA Council’s Legislative Representative. She may be contacted at 1200 Prescott Drive, East Lansing, MI 48823-2446; Phone 517-351-7292; E-mail michigansera@comcast.net.

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