October Legislative Report

After several years of debate and a highly unsuccessful ballot proposal, the Michigan Legislature has passed a plan to address transportation funding.  The House and Senate have created a plan that Governor Snyder has agreed to sign that will phase in increases to transportation funding over the next several years.  However, the plan also contains a policy that could spell long term problems for the state’s General Fund.  See the article below for more information.
 
The Legislature is also working on a number of other issues that it hopes to address before the end of the year, including an update of Michigan’s energy policy, reforms to the Detroit Public School System, and changes to the state’s parole system.
 
House Passes Plan to Fix Roads, but at what Cost?
 
Earlier this year, Michigan voters overwhelmingly defeated Proposal 1 – a ballot initiative created by the Michigan Legislature aimed at providing additional funding for road repair, public transportation, and public schools.  The proposal was complex, confusing, and contained a tax increase of over $1 billion when fully phased in.  When Proposal 1 was defeated, it sent a clear message to state lawmakers:

•  Don’t rely on voters to come up with a solution;
• Don’t raise taxes;
• If you do raise taxes, offset them with cuts;
• Focus only on fixing roads.

It is debatable whether every voter who voted against Proposal 1 did so for the above reasons, but those are certainly the messages that a great many legislators heard.  Based on that, Governor Snyder and leaders from the Michigan House and Senate have worked for the past several months to try and find a common-ground solution.  As of early October, it seemed like the effort was failing with House and Senate leaders sniping at each other over a failure to move forward.  However, in late October, the House suddenly put forth a proposal that may be the foundation of a final agreement.  The Senate adopted the plan with a few modifications, and the House concurred with the Senate changes on November 3.  As of this writing, Governor Snyder has indicated his intent to sign the bills into law.
 
There is only one problem.  At best, this solution to fix Michigan’s roads will have a significant negative impact on other state-funded programs.  At worst, it has the potential to set the state up for a perpetual budget crisis.
 
The House plan will add an additional $1.2 billion for road construction and maintenance (with about $60 million of that amount being used for public transit).  Half of that $1.2 billion will come from new revenues in the form of an increase in the Motor Fuel Tax of 7.6 cents per gallon and a hike in auto registration fees of approximately 20%.  The remaining $600 million will come by shifting that amount from other General Fund expenditures.  In addition, the plan offsets the tax increase by increasing the Homestead Property Tax Exemption.  With just these pieces in place, the General Fund (or the approximately $10 billion annual amount that is unrestricted) will have to be cut by $800 million when this plan is fully phased in.
 
Proponents claim that approximately $400 million was already shifted to roads from the General Fund in the current year budget that began October 1, and that it should not be difficult to find another $400 million.  Even if this were true, there is one last piece of the puzzle in the plan passed by the House that will make balancing future budgets extremely difficult.
 
Added in to the road funding plan was a bill that will restrict future Income Tax revenues.  Senate Bill 414 creates a formula by which the Michigan Income Tax will be automatically rolled-back in any year in which increases to General Fund revenues outpace inflation by a certain amount set by a formula created in the bill.  This would be a similar mechanism to the “Taxpayer Bill of Rights” law passed in Colorado in 1992.  After that state saw massive cuts to state support of higher education and (ironically) road maintenance, voters approved a ballot measure placing the law on hold in 2005. 
 
With the passage of  SB 414 as part of the road funding package, Michigan could soon find itself in the same fiscal bind that Colorado faced.  The House Fiscal Agency estimates that if such a formula had been in place over the past two budget years (years when the economy was pulling out of the Great Recession), it would have mandated a cut in the 2016 Michigan Income Tax from 4.25% to 3.92%.  The effect of this would have been a General Fund revenue reduction of nearly $680 million.  Moreover, Senate Bill 414 has no mechanism to allow for the Michigan Income Tax to come back up during a decline in the economy.  This “ratchet-effect” would prevent the tax rate from increasing to offset economic downturns, and would create perpetual budget difficulties in the future.
 
This plan to fix the roads should – once it is fully phased in – allow an additional $1.2 billion annually to be dedicated to road construction and maintenance.  The problem is that it also has the capability of requiring massive cuts in other areas in order to fix our roads and bridges.  Once the initial shift in funds from the General Fund to roads is absorbed, the regular growth in the economy would eventually make up for those cuts.  However, as SB 414 becomes law along with the rest of the package, those cuts would never be restored, and there is a great likelihood that more would be necessary in the future. 
 
Paul should make out fine.  Peter?  Maybe not so much.
 
Grand Rapids Veterans Home Faces Staffing Questions
 
Recent allegations of understaffing at the Grand Rapids Veterans Home have led to a call for legislative hearings on the issue.  This week, during a hearing before the House Military and Veterans Affairs Appropriations Subcommittee, representatives from AFSCME stated that the home has been chronically understaffed.  A recent report by the television station WZZM also alleged that the private contractor responsible for staffing at the home – J2S – has frequently understaffed the home by up to 12 staff per day. 
 
After the debacle following the contracting out of food service in Michigan prisons, the staffing issues at the Veterans Home are another black eye for pro-privatization advocates in the Legislature and administration.  Representative Henry Yanez (D-Sterling Heights), a member of the committee, spoke of an instance where he visited the Grand Rapids Veterans Home incognito and was able to walk around the home without being challenged.  He said that this spoke very poorly to security and safety at the home. 
 
The committee also had several questions about a plan to reduce the occupancy of rooms at the home from 4 beds to 2 or even 1.  A spokesperson for the home stated that the plan was designed to better conform to the standard of care for long-term care facilities, but members of the committee expressed concern that it would reduce the number of veterans who could be served by the facility.
 
Future hearings on issues related to the Grand Rapids Veterans Home are expected in the next few months.