Capitol News

March 5, 2017

February saw the introduction of the Governor’s budget proposal and a major effort to roll back the income tax.

GOVERNOR’S BUDGET

On February 8 the Governor proposed his $56.3 billion Fiscal Year 2017-18 budget to the joint Senate and House Appropriations Committees. Of this total, $10.1 billion is in general fund dollars, an increase of 1.75 percent compared to fiscal year 2017. The remainder is federal dollars.

He proposed small increases in a number of program areas, but the largest increases went to education. A $128 million increase for K-12 education is proposed, with increases of $50 to $100 per student, along with an additional $50 for students in high school to cover increased costs of education at that level. An additional $150 million is proposed for at-risk children. Higher education will see a $36.6 million increase that will bring the state funding total to the public four-year universities to $1.5 billion. Snyder called for the universities to limit their tuition increases to 4.8 percent for 2017. He also called for a 10 percent increase in the state’s Tuition Incentive Program. Snyder proposes using $72 million a year in Tobacco Settlement Funds for 10 years to help pay off the accumulated debt of the former Detroit Public School System.

If adopted, there would be $110 million for construction of a new state mental health hospital to replace the aging Caro facility. $45 million would be directed to mental health direct care worker pay increases. $48.8 million is proposed for Flint’s water crisis recovery. Another State Trooper school is proposed, more conservation officers, higher childcare provider rates, expanding the Healthy Kids dental program to all counties and adding $40.9 million for skilled training programs.

The budget proposes adding $260 million to the Budget Stabilization Fund to make a total of $1 billion. The BSF was just a few million dollars when he came into office in 2011.

ASSUMED RATE OF RETURN LOWERED

Importantly, Snyder also called in his 2017-18 budget for the state to lower the assumed rate of return on pension investments from 8 percent to 7.5 percent, which would result in more state payments into the pension systems, including the State Employee Retirement System. According to the Governor this more conservative assumption will require additional state investments into the retirement systems in future years to assure that available pension funds are sufficient to pay the benefits that have been earned. With this change, the Governor says the unfunded accrued pension liability can be eliminated entirely by the year 2038.

In related action, both the Michigan State Retirement Board and the Michigan School Employee Retirement Board approved the recommendation at their quarterly meetings.

RETIREE BENEFITS TASK FORCE

Governor Rick Snyder on February 6 appointed a 20-person task force, including four legislators, labor, management, and subject matter experts, to address problems with pension and health care costs facing local governments statewide. The Task Force on Responsible Retirement Reform for Local Government will look at the 334 local units of government in Michigan that provide either retiree health care, a retiree defined benefit pension plan, or both. The total unfunded liability for healthcare is estimated at approximately $10 billion, while the total unfunded pension liability is estimated to be around $4 billion.

The task force has been directed by Gov. Snyder to provide recommendations on pension and health care reforms in the spring of this year. Snyder’s office had led a workgroup on the issue at various points in the last 18 months, but in December, the governor declared he wanted to assemble a new one with a broader membership.

Local government workers, especially police officers and firefighters, were angered after House Republicans during Lame Duck session unveiled a plan that would have cut local government retirement benefits. That plan was quickly shelved amid an outcry.

INCOME TAX CUTS

In 2007 during the Granholm administration, the combined effect of the auto industry downturn and national recession meant reduced state revenues and required increasing the income tax and massive budget cuts to keep state government afloat. At that time a promise was made to reduce the tax rate to 3.9 percent, but this reduction was halted in 2011 with Governor Snyder’s tax overhaul.

The first bill introduced this year in the House was House Bill 4001, which, as introduced, would have reduced the income tax from the current 4.25 percent to 3.9 percent effective Jan. 1, 2018, and further reduce the income tax by 0.1 percent annually until the income tax was eliminated. The income tax produces over 40 percent of the state’s revenues so this would have meant a severe cut in state revenues and consequently state programs.

HB 4001 was voted out of the Tax Policy Committee by a 7-4 vote along party lines. However, it did not have the support to pass the House. On February 22, it was amended to be a reduction from the current 4.25 percent to 3.9 percent over the next four years. This would be a $1 billion cut to the state budget. That version didn’t have the votes to pass either.

On February 23, after 12 hours of negotiations and arm-twisting (at 1 a.m.), a new version of the bill would have reduced the income tax from 4.25 percent to 4.15 percent in 2018, and 4.05 percent in 2019. Then it would continue to reduce by 0.1 percent any year that the budget stabilization fund had a balance of $1 billion or more, until it hit 3.9 percent.

However, this bill failed on a 52-55 vote. Twelve Republicans joined all but one Democrat to defeat the bill. Because Michigan’s income tax is a flat tax, it would have provided about $7 per month tax relief to middle-class families, but thousands of dollars in tax relief to the wealthiest Michigan taxpayers. During debate, it was stated that two-thirds of the tax cut would go to the wealthiest 20 percent of Michigan residents.

An amendment was offered during legislative debate that would have allowed the income tax reduction only for people making less than $70,000 per year, but it was defeated.

The immediate fall out in the House Republican Caucus was that Speaker of the House Tom Leonard (R-DeWitt Township) removed one of the 12 dissident Republicans from a committee chair position and pulled from committee agendas long-sought legislation sponsored by some of them. Many stories surfaced of retaliatory actions and disharmony in the House Republican caucus.

SCHOOL CLOSURES DELAYED

Each year, schools in the bottom 5 percent of all public schools in Michigan are identified as Priority Schools and monitored for turnaround in subsequent years.  State law requires that schools identified in the bottom 5 percent of all schools write plans and receive support services. Schools are eligible to leave Priority School status if they meet three exit criteria after four years of implementing redesign plans. Earlier this year, 79 schools exited the priority list.

To have more control over implementation of the law, the Governor transferred the School Reform Office from the Michigan Department of Education to the Michigan Department of Technology, Management and Budget in 2015. In January this year the School Reform Office issued letters to 38 schools and their parents notifying them of imminent closure due to failure to improve under the state law guidelines.

Twenty-four of the schools on the bottom 5 percent list are in the Detroit Public Schools Community District if the schools in the Education Achievement Authority (which will revert to the Detroit district) are included. There are three from Benton Harbor Area Schools, one from East Detroit Public Schools, two from the Kalamazoo Public Schools, two from the Pontiac City School District, two from the School District of the City of Saginaw, one from the Bridgeport-Spaulding Community School District, one from the School District of the City of River Rouge, one from the Muskegon Heights Public School Academy System and the Michigan Technical Academy (the lone charter school on the list).

Under the law, the School Reform Office has a 30- to 45-day window to evaluate whether the 38 schools should be closed or whether doing so would create a hardship due to the lack of a quality public school alternatives for the children at the closed school. Among the factors that could prevent closing a school is not having a quality alternative within a reasonable distance.

Detroit Mayor Duggan called for the Governor to stop the closures while the charter school advocate organization called for their immediate implementation. Legislators, parents, and educators all had opinions on the matter at heated Michigan Senate Education Committee hearings and communications with legislators. The Democratic Congressional delegation urged against closure. The State Board of Education passed a resolution opposing the closures.

In the end the Governor halted the process. Superintendent of Public Instruction Brian Whiston with the Governor’s approval spelled out for the first time in a letter to affected districts a process to avoid closure for 18 months while working with a series of partners to improve the school or schools in the district. Meanwhile bills have been introduced to change the school evaluation and closure process. The school closure crisis seems to be averted for now.

BILL UPDATES

As reported last month, bills to modify or eliminate the pension tax are HB 4052, 4055, 4083, 4092, 4132, 4159, and SB 41. Newly added to this growing list are HB 4182, 4183, and 4188. It is possible that in the great debates over reducing the income tax that some of the ideas in these bills might make some progress in this session.

New HB 4280 would give surviving spouses the age of their deceased spouse for the purpose of age bracket determination for the pension tax.

New HB 4264 would increase the personal exemption from the current $4,000 to $6,000.

Senator Rick Jones’ (R-Grand Ledge) bill to clarify the definition of surviving spouse in relation to funeral representative passed the Senate on February 14 and has been reported out of House Committee to the House floor for final action, which is expected.

A new bill to exempt senior citizens from vehicle registration fee increases, SB 71, is sponsored by Sen. Jim Ananich (D-Flint). Sen. Coleman Young (D-Detroit, also running for Mayor of Detroit) wants to give those 75 and better free parking in SB 208.

Senate Joint Resolution E sponsored by Sen. Dave Robertson (R-Grand Blanc) proposes a constitutional amendment to increase the number of state jobs exempt from the classified service from the current 6 per department to one percent of the state workforce. Right now that would increase the number of unclassified positions from just over 100 to over 400. The resolution would have to be approved by 2/3 of both houses to be put on the ballot for voters to approve or reject the amendment.

FEDERAL NEWS

Watch for introduction of bills to repeal the Affordable Care Act (Obamacare) and replace or reform major aspects of it in Congress during the next weeks and months. Total repeal would eliminate some of the program expansions and cost savings in Medicare that the ACA established. Communicate with your member of Congress about these matters at their community meetings or by emailing, calling or sending a postcard (not a letter) to them. Find your Member of Congress contact information at www.house.gov/representatives/.

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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