February 11, 2018
The two biggest stories around the capitol in January and early February were tax cuts, the FY 17-18 budget, and the MSU sexual assault scandal.
PROPOSED BUDGET RESTRAINED
At the January 11, 2018 Revenue Estimating Conference between the Michigan House, Senate, and the Governor’s Office of the Budget, the conferees projected small growth in state revenues for the next two years. For the 2018-19 fiscal year starting October 1, 2018, revenues to the state's two main funds will rise by 1.8 percent - just 0.3 percent in the General Fund and 2.9 percent in the School Aid Fund.
Consequently, Governor Rick Snyder’s proposed $56.8 billion budget (including a flat $10 billion General Fund) presented to the Legislature on February 7 contained only a 0.6 percent increase over what the state spent in FY 2018 with a few program changes. The change attracting the biggest headline was the $14 million proposal to switch prisoner food service from private contractors back to state civil servants, effectively admitting that the four-year privatization experiment was a bust.
Roads — The Governor proposes new funding for roads with an additional $175 million from lapsed, FY 2017 unused funds added to the revenue produced from fuel and vehicle registration fees added to the system in the 2015 road-funding plan. This will be an overall funding of more than $1 billion in 2018-19 fiscal year.
Education — Also proposed are $240 per pupil increase for students in the lowest funded schools with $120 per public increase for other schools This would total K-12 school funding at more than $12,000 a student and an increase of $312 million statewide. The proposed K-12 increase is twice as large as the version lawmakers approved last year. The Governor claimed this would be the largest increase in the state’s minimum foundation allowance in 15 years. The governor is also asking the Legislature to approve an extra $50 for each high school student who is enrolled in a career or technical training program. Public universities would see a 2 percent funding increase under his plan.
Like last year, the Governor proposed cutting funding for the charter cyber schools by $25 million, saying they should not receive more funding per pupil than traditional public schools. He also wants to decrease shared time funding for homeschooled children to attend elective courses and programs in the public schools by nearly $68 million. Both of these proposals were rejected by the Legislature last year.
Other proposals — A $7 million investment in Michigan’s rural hospitals and continued funding of campus sexual assault prevention programs at $600,000 was proposed. Closure of West Shoreline Correction Facility in Muskegon would save $18.8 million. He wants to put $20 million toward expanding broadband statewide and $7 million toward the state’s response to polyfluoroalkyl contamination. The Governor proposes creating an annual $5 water fee to fund infrastructure repairs and raise landfill fees to fund toxic waste site remediation. Snyder’s budget includes another $25 million to respond to the Flint water crisis by helping fund lead pipe replacement, support services and school nurses. Snyder is asking for $3.1 million to train and hire 50 new Michigan State Police troopers and another $3 million to support 80 new troopers in an “attrition school.” The Department of Corrections would receive $9.2 million to train over 350 corrections officers and fill vacancies. The Department of Natural Resources would get $1.5 million to fund 10 new conservation officers. Snyder’s budget would use $112 million of a one-time $280 million surplus for advance funding in the construction of new veteran homes in Grand Rapids and Detroit, along with continued infrastructure upgrades at the Michigan Capitol.
The House and Senate appropriations committees will develop their own versions of the budget in the coming months. Ultimately the budget bills must be approved by both chambers and signed by Gov. Rick Snyder to become law, usually in May or June ahead of the July 1 beginning of school districts’ budget year.
INCOME TAX CUTS?
The federal tax law changes passed last December eliminated the $4,000 per person personal exemptions in favor of significantly increasing the federal standard deduction. Since Michigan’s income tax law carried over federal personal exemptions to the state income tax, there would be a $1.5 billion increase in Michigan taxpayer liability (approximately $680 per person) without some change in the state income tax statute. There has therefore been a flurry of Michigan legislative activity to establish a Michigan income tax personal exemption.
At this writing, the Michigan House has overwhelmingly passed bills calling for a $4,800 personal exemption by 2021 (HB 5420, HB 5421) and a new senior tax credit (HB 5422). The Senate has passed bills setting the personal exemption at $5,000 by 2021 (SB 748, SB 749) and bringing back the child tax credit (SB 750).
Pension Tax Repeal — In floor debate on SB 748, Sen. David Knezak (D-Dearborn Heights) supported by Sen. Jim Ananich (D-Flint) attempted to amend the bill to add a repeal of the pension tax. The amendment garnered 17 votes, including all 10 Democrats in attendance and Senate Republicans Patrick Colbeck (Canton Township), Ken Horn (Frankenmuth), Joe Hune (Highland Park), Rick Jones (Grand Ledge), Marty Knollenberg (Troy), Tory Rocca (Sterling Heights), and Dale Zorn (Ida). Though the amendment failed because 20 votes were needed, the vote flushed out those willing to back up their vote where their campaign rhetoric has been.
Governor’s Position — Governor Snyder has proposed boosting the personal exemption to $4,500 by 2021, a bit more than it would have stood under the inflationary increases required by current law. He has also signaled his displeasure with broadening the tax changes to include either the senior or child tax credit.
Senior Tax Credit — HB 5422 would amend the Michigan Income Tax Act to allow an individual who was 62 years of age or older at the close of the tax year to claim a $100 credit for a single or joint return, or a $200 credit for a joint return if each spouse filing the return were 62 or older, for the 2018 tax year and each subsequent tax year. If enacted into law, HB 5422 would reduce General Fund revenue by approximately $200.4 million in fiscal year 2018-19. Due to changes in age demographics, the revenue loss would increase in future years, with the loss totaling $205.4 million in FY 2019-20 and $210.3 million in FY 2020-21 according to the House Fiscal Agency.
I testified on behalf of Michigan SERA at the January 24, 2018 hearing in the House Tax Policy Committee on HB 5422 saying that it was a down payment on repeal of the pension tax, at which point the Chair of the Committee gaveled me with the warning to stick to remarks about HB 5422. The National Federation of Independent Business, the Retired Detroit Police and Firefighters Association, the Michigan Chamber of Commerce, and the Michigan Freedom Fund put in cards supporting the bill. Michigan League for Public Policy and the Michigan Association of School Boards testified in opposition to the bill and the Middle Cities Education Association opposed the bill buy did not testify.
The House passed the bill 100 — 6, setting up the possibility of a veto override in that chamber if it were to survive the Senate and the Governor vetoed it. The House and Senate recently overrode the Governor’s veto of legislation speeding up the phase-out of applying the sales tax to the value of trade-ins when purchasing a new vehicle, proving it is willing to reject the Governor’s veto if circumstances are right. Since all six tax cut bills have seen overwhelming bipartisan support in the Legislature, a veto any of those bills might have the necessary two-thirds supermajority to override.
The Senate Finance Committee reported out HB 5422 unanimously on February 6 and it awaits further action in the Senate. The six tax cut bills will determine, in part, available state revenue and are therefore related to budget negotiations in the coming weeks and months.
OTHER BILL UPDATES
Property Tax Relief — HB 4905 to expand some property tax relief has passed the House and is awaiting Senate Finance Committee action. Currently under the principal residence property tax exemption law, an owner of property who previously occupied that property as a principal residence but now resides in a nursing home or assisted living facility can retain the Principal Residence Exemption if certain criteria are met. The individual must manifest an intent to return to the property by satisfying all of the following:
HB 4905 would remove the requirement that the property be “not occupied.” That is, the bill would allow an individual residing in a nursing home or assisted living facility to retain a PRE on the property, even if it were occupied, as long as the other criteria were met.
Additionally, the bill would expand the current exemption for individuals residing in a nursing home or assisted living facility to include individuals residing in a nursing home, assisted living facility, or “any other location,” if the individual is residing in that other location solely for purposes of convalescence. The criteria listed above would still apply.
The bill is understood to address a situation in which an individual, generally a senior, is residing in a nursing home or assisted living facility while at the same time an individual, perhaps a family member, is occupying the original property, potentially for purposes of maintenance or convenience. HB 4905 would allow the PRE to be maintained in this instance. This will also accommodate those who may not otherwise know of the PRE filing and rescission requirements.
Additionally, it is not uncommon for those with a prolonged illness or disability to reside with family members or friends when recovering from illness, not just a nursing home or assisted living facility.
Annuities — HB 5231 would amend the State Employees’ Retirement Act to provide annuity options for employees and retirees who are in the defined contribution (DC, 401(k)-style) retirement plans. The bill would require that one or more annuity provider(s) must be chosen through a competitive proposal process so that providers meet certain regulatory requirements. AIG and TIAA-CREF testified in favor of the bill because they would like to compete with Voya for state employee business. The Michigan Department of Treasury is neutral on the bill and studying it. Michigan SERA favors the concept but is studying the proposal further. The bill has been reported out of the House Financial Liability Reform Committee and is awaiting House floor consideration.
Senior Auto Insurance — SB 787 would modify Michigan’s Auto No-Fault Insurance law to allow residents over the age of 65 to choose a $50,000 benefit limit or no maximum limit (current law) and relieve them from the cost of contributing to the Catastrophic Claims fund among other provisions. The bill has been assigned to the Senate Insurance Committee. According to the bill sponsor, Sen. Rick Jones (R-Grand Ledge) “in Michigan, when drivers turn age 65 and go on Medicare, their auto insurance rates go up because Medicare does not coordinate with Michigan auto insurance. Michigan’s auto insurance law includes unlimited coverage for catastrophic injuries with no cap. The other 49 states all have a cap.”
SERA Recent News — If you are a SERA member, you are eligible to receive SERA Recent News, a periodic e-mail about breaking news and links to media stories of interest to state employees and retirees. Write to firstname.lastname@example.org, giving your name, email address, and chapter name.
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 email@example.com.
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