Capitol News
April 7, 2019
The Michigan Legislature was on spring recess for two weeks in late March and early April giving Governor Whitmer extra time to travel the state and pitch her proposed budget and policy priorities.
FY 20 BUDGET UPDATE
Since the roll-out of her proposed 45 cent gas tax increase, Governor Whitmer has coaxed support from local government associations though they tend to dislike her new distribution formula. The governor’s proposed formula would put 70 percent of the roughly $2.137 billion in new money to state roads — interstates, U.S. routes and M routes — and 27 percent to local roads. The current Act 51 formula is 39 percent state, 39 percent counties and 22 percent cities. But the entire transportation funding mix would be 55 percent state and 45 percent local. Importantly, Business Leaders for Michigan representing large employers in Michigan, and the Detroit Chamber of Commerce have supported the proposal.
Bad Roads Costly — A report released March 12 from the national transportation group TRIP based on Federal Highway Administration data showed Michigan’s decaying roads result in $4.6 billion additional vehicle operations costs per year for state motorists or $646 per driver. That is an increase from its last analysis that showed the average per driver cost at $562. Whitmer has called this a hidden tax on road disrepair.
Budget Schedule — Unlike the last eight years, the Republican-led Legislature has not announced a schedule for producing a budget by mid- to late June to enable schools and local governments to know their revenue before their fiscal years begin on July 1. During Governor Snyder’s administration, appropriations subcommittees typically reported budget bills to the full appropriations committees in their respective chambers in March with some of the larger, more complex budgets reporting in April. At this writing only two department budgets have been through one chamber and are scheduled for hearing in the other chamber. One reason is that the Republican majority does not agree with Whitmer’s proposed 45 cents per gallon increase to the gasoline tax to raise more road funding, and they oppose raising the Corporate Income Tax to capture 1.75 percent more revenue from S-corporations, LLCs and proprietorships to offset her proposal to repeal the pension tax (restore retirement income exemptions). However, they have not yet proposed their own plan to address revenue issues.
Governor Whitmer has urged the Legislature to complete budgets in June and not wait until September as it did during Jennifer Granholm’s administration. There were two state government shut-downs during her 8 years in office.
PENSION TAX UPDATE
HB 4006, the bill to end the pension tax by December 31, 2018, sponsored by Rep. Joe Bellino (R-Monroe) is still in the Michigan House Ways and Means Committee awaiting a hearing. It is likely to move in concert with budget negotiations as its passage would force appropriators to find $330 million in the budget to make up for the loss of revenues, increasing by roughly $15 million each year as more people retire according to the House Fiscal Agency.
The administration projects Whitmer’s retirement income tax repeal proposal would save close to 425,000 households $800 on average each year, and 600,000 households would pay no state income tax on their retirement income. It would cost the state an estimated $259 million in the 2020 fiscal year, which starts Oct. 1, and $355 million in 2021, according to Treasury. Bellino’s bill differs from Whitmer’s proposal in part because it would not continue the $20,000 and $40,000 tax deductions on all income for seniors 67 and older. The Treasury officials said Bellino’s bill would increase taxes by an average of $650 on an estimated 38,000 households as a result of ending those deductions. From testimony in the hearings, it is clear that some legislators want to treat public and private retirement income the same, a change from the pre-2012 tax law which exempted from taxation all public pension income and up to about $50,000 (indexed yearly) in private retirement income.
At a Detroit Chamber of Commerce presentation on March 14, the Governor acknowledged that business interests do not like her proposal to finance repeal of the pension tax with an expanded base of those affected by the Michigan Corporate Income Tax. She paired the two because Governor Snyder paid for business tax reductions by increasing personal income taxes.
As reported by Gongwer News Service, she said to the audience “If you don’t like that part of the budget, you can be against that part of the budget,” she said. “The gas tax is the linchpin to do all of the things in the budget we have to get done. So, if you disagree with me on this particular of the plan, I am okay with that. We can have this discussion. But the crux of solving … the skills gap, the education issues and fixing the damn roads is in the gas tax.” After the event when speaking to reporters, Ms. Whitmer defended her comments on the business tax change, saying she is not abandoning her proposal to repeal the pension tax. “I think that pension tax relief is really important for seniors who had the rules changed on them,” she said. “I’m trying to give seniors relief, and that is why I built this into the budget. Because I know when the gas tax goes up it will be hard for a lot of people."
AUTO NO-FAULT INSURANCE
MCCA Increase — Just when the Michigan Legislature is gearing up to tackle Michigan’s already expensive auto no-fault insurance conundrum, the Michigan Catastrophic Claims Association (a state-created consortium of private insurers) announced on March 27 a nearly 15 percent increase in the annual assessment from the current $196 to $220 beginning July 1, 2019. It is highest rate the MCCA has ever charged in the more than 40-year history of the state’s no-fault auto insurance system. In response, the Governor has ordered the Department of Insurance and Financial Services to audit the MCCA to determine whether the fee increase is warranted.
MCCA officials said the increase was the result of increasing claims and increasing costs for those claims. Under the state’s no-fault law, the MCCA reimburses automobile insurers for any medical claims totaling more than $580,000. The officials said the number of those claims increased 47 percent from 2014 to 2018. In addition, they said, medical costs continue to outpace inflation and the association is still working to recover from investment losses in recent years that would have offset some of those costs.
The new fee includes $177 to cover anticipated new claims and $43 toward the MCCA’s estimated $3.9 billion deficit for past claims. Officials said the deficit represents about $510 per vehicle currently on the road. The MCCA said the majority of its claims, 57 percent, were for attendant care. That service cost $683 million in 2018 out of $1.2 billion in total claims.
97 Percent Zip Codes Unaffordable — The announced increase comes on the heels of a new report from the University of Michigan Poverty Solutions program. Michigan has the most expensive automobile insurance in the United States, with an estimated annual premium of $2,610, almost double the national average. With an average annual premium of $5,414, Detroiters face the most expensive car insurance rates in the country.
The U-M study found only 3 percent of Michigan ZIP codes have insurance rates below the 2 percent median annual income threshold the U.S. Department of Treasury Insurance Office defines as affordable car insurance.
- In nearly every Detroit ZIP code, the average rates represent between 12 and 36 percent of residents’ pre-tax income.
- Royal Oak, Farmington Hills, and Livonia face rates above the affordability threshold, but these range from 2.1 to 4 percent of area median household income.
- In Pontiac and Flint, in contrast, rates vary between 8 and 24 percent of median income.
- Saginaw and Ypsilanti’s rates are 4 to 12 percent of the area’s median household income.
The only affordable ZIP Codes in Michigan are in more affluent communities:
- In Southeast Michigan, Dexter, Birmingham, Bloomfield Hills, and parts of Ann Arbor have affordable rates, in part, due to higher household incomes in those area.
- Williamston and DeWitt, two cities outside of Lansing, meet the affordability threshold.
Michigan’s high rates mean more people drive without insurance (20 percent statewide and near 60 percent in Detroit compared to 13 percent nationally) or don’t drive.
Claims Higher — The average cost per claim is dramatically higher in Michigan than in other states. In 2013, the average cost per auto accident claim in Michigan was over $75,000—more than five times the figure in the next highest state. New Jersey, also a no-fault state, was the next highest with an average cost of $13,600. With unlimited protection and no regulations on medical fees, the system is a prime target for lawsuits, with Personal Injury Protection-related first-party lawsuits now making up two thirds of all lawsuits in the state. Large settlements resulting from these suits contribute to Michigan’s high auto insurance rates.
Solutions — The recommendations in the report include allowing choices other than unlimited medical coverage, imposing fee schedules on medical services and removing rate elements not related to driving (such as credit scores). The Michigan Senate Insurance and Banking Committee and the Michigan House Select Committee On Reducing Auto Insurance Rates have held hearings over the last two months featuring the major players in the auto insurance market. OTHER NEWS
Elder Abuse Task Force — Attorney General Dana Nessel was joined by Supreme Court Justice Richard Bernstein, Rep. Brian Elder (D-Bay City) and many other advocacy groups on March 25 in announcing the Michigan Elder Abuse Task Force that will seek to strengthen the state’s protection of older adults. Nessel said it is estimated that at least 73,000 older adults in Michigan are victims of elder abuse with one of every 10 likely to become a victim of abuse that can include physical abuse, financial exploitation, emotional abuse and neglect.
The task force will seek to require professional guardians to become certified, change the accounting form filed annually and require a judge to sign an attestation that they read it and adopt a standard investigation form for vulnerable adult investigations. The task force will also review the process for emergency petitions for guardianship or conservatorship to require a full hearing, develop statutory basic rights for the family of the ward, review process of guardian removal for the ward, limit the number of wards per guardian and require reporting from financial institutions on suspected exploitation. The task force will hold hearings around the state starting Friday, June 14, in Kent County. Individuals can also anonymously report suspected elder abuse at 1-800-24-ABUSE (2873) or online at www.mi.gov/elderabuse.
New Caro Hospital Nixed — The Whitmer administration announced on March 13 that it would interrupt plans for the construction of a new state psychiatric hospital in Caro to replace the aging Caro Center in Tuscola County in the Thumb area. The difficulty of recruiting and retaining staff and that only 30 percent of patients are from within 75 miles of the facility were cited in the explanation of the decision to seek outside consultation to review the proposed Caro Center project. A safe and affordable water supply is another issue. Local legislators are not happy with the announcement.
COs Lose Appeal — Corrections Officers have lost a challenge to the 2012 reclassification of 2,415 Resident Unit Officers and 57 Corrections Medical Unit Officer positions to Corrections Officers, resulting in pay cuts for those employees. The Michigan Supreme Court recently denied the COs appeal of a lower court ruling. The question before the court was not the merits of the change in job classifications but the appropriate standard of review for a Civil Service Commission decision. When an agency holds an evidentiary hearing, it must use a substantial evidence test. However, the CSC did not hold a hearing in this case but considered it a technical staff decision, so it used an authorized by law test.
SOS Benson Creates Election Commission — Secretary of State Jocelyn Benson announced on March 21 a commission of 18 local and national experts on elections and cybersecurity to ensure secure elections in Michigan. The Election Security Commission will convene in early April, hold hearings throughout the state and prepare recommendations for the SOS and the Bureau of Elections by the end of the year. David Becker, executive director of the nonprofit Center for Election Innovation and Research, and J. Alex Halderman, professor of computer science and engineering at the University of Michigan, were named co-chairs of the commission. Matthew Masterson, senior cybersecurity advisor with the U.S. Department of Homeland Security, will serve as a non-voting liaison to the commission.
Redistricting Update — Voters Not Politicians, the ballot committee sponsoring the successful Ballot Proposal 2018-2 to establish an Independent Redistricting Commission in Michigan to end partisan gerrymandering, is now holding Democracy Reform Town Halls across the state to keep the public informed about the progress on implementing Proposal 2 and to determine interest in other democracy projects such as campaign finance reform. See www.votersnotpoliticians.com for more information.
Secretary of State Benson has launched a new Web site to provide the public with information about redistricting. See www.redistrictingmichigan.org. Those interested in becoming one of the 13 paid Commissioners can begin applying in late 2019 and the commission membership will be finalized in September 2020. The commission will not begin the task of taking public input and beginning to draw the lines until the 2020 U.S. Census is released. It must complete its work and adopt its plan by November 1, 2020.
Minimum Wage/Paid Sick Leave — Michigan’s new minimum wage and paid sick leave laws became effective March 29. The Michigan Supreme Court said on April 4 that it will consider the Legislature’s request for an advisory opinion on whether the Legislature is allowed to adopt and later change citizen initiatives in the same two-year legislative term. The high court will hear oral arguments on July 17. Whether the court issues an advisory opinion or takes a pass will be decided after arguments are heard. Meanwhile, the Governor’s request for an Attorney General formal opinion on the legality of the legislative maneuver is on hold.
Line 5 Tunnel — Attorney General Dana Nessel said in an opinion a law passed hurriedly during 2018 Lame Duck creating an authority to oversee construction of a tunnel to house controversial Line 5 in the Straits of Mackinac was unconstitutional. She held that the law enacted late last year violated the title-object clause of the Constitution which is to ensure lawmakers do not enact legislation that exceeds the scope of what the title of a bill states. Enbridge Energy, which owns Line 5, has said it is committed to working with Governor Gretchen Whitmer’s administration on a path forward. Mike Nystrom, chair of the Mackinac Straits Corridor Authority, said he doesn’t see the authority challenging the opinion in court as an option. It is also unclear if the Legislature could have standing in a case, or if its Republican leaders would bring one.
Audits Find Satisfactory State Retirement Systems — The Office of the Auditor General recently reported no concerns in its audits and financial reports on internal control, compliance and other matters on the Michigan State Employees’ Retirement System.
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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