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Capitol Services Legislative Report

MAGE Legislative Report, July 2015
The Legislature has completed work on the 2016 budget and is preparing for a few months of “district work” during which time the House and Senate will be on their summer recess.  Although the Senate will return next week for a short session, and the House is due to return for one day in July, most observers do not expect much legislative action before fall. 
One of the issues the Legislature will debate further over the summer is that of road funding.  Both the House and Senate have now completed their own plans (see article below) and will work over the summer months to find common ground.  One thing both have in common however (that should be troubling for state employees) is that they rely heavily on future general fund revenues.  This means that both plans would likely require major cuts to existing state programs in order to shift those funds to road and bridge construction.  How that will impact various state departments is an open question. 
2016 Budget Completed – Maxey to Close its Doors
The Legislature has completed its work on the 2016 state and school aid budgets, and the Governor has now signed them into law.  One of the more major changes contained in the budget is the closure of the Maxey Boys Training School.  This facility has had its budget cut with regularity over the past decade, and there has been a push among some members of the Legislature to close it permanently.  Those legislators got their wish in the 2016 budget.
Individuals who had been sent to Maxey will now be shifted to private facilities either in Michigan or in neighboring states.  Proponents of closure argued that Maxey was more expensive to operate than private facilities and that the state could house adjudicated youth more cheaply elsewhere.  However, during the budget process concerns were raised that some of the youth at Maxey had emotional and behavioral issues that were very serious, and that private facilities may not have the capacity to house them.  Only time will tell.
The state also has decided to continue its relationship with Aramark, the company that provides food services to Michigan’s correctional institutions.  Despite the ongoing problems with food shortages, poor food quality, poor sanitation, and criminal activities committed by Aramark staff, the 2016 budget continues to maintain Aramark’s contract.  Aramark backers claim that the problems are improving, but recent reports of another case of maggots found in a food preparation area make those claims dubious.  The issue has gotten bad enough that two state legislators – Rep. John Kivela (D-Marquette) and Rep. Ed McBroom (R-Vulcan) – have proposed having local health departments inspect prison kitchens much the same way they inspect private restaurants. 
Below is a summary of major budgetary changes by department.
Agriculture and Rural Development
MDARD received an overall budget increase of 3%, much of which will go to food safety programs.  The budget authorizes 8 additional FTE’s in the food licensing area, primarily paid for by increased food safety fees.
MDOC received an overall budget reduction of 3%.  Much of the reduction stems from an end to one-time funding and a continuation of executive order budget cuts in the current 2014-15 budget year.  An additional $2 million in savings is projected from the closure of the Kinross facility and transfer of prisoners there to the Hiawatha facility.  Another major cut - $15 million – comes from a reduction in funding for clinical and mental health services.
MDE received an overall budget increase of 5%.  The increase stems primarily from additional funding for the Child Development and Care programs that help provide quality child care options for working families.  The budget also adds $2 million for educator evaluations.
Environmental Quality

MDEQ received an overall budget reduction of 6.2%.  The budget also calls for a reduction of 67.5 FTEs.  However, that FTE reduction is not expected to cause layoffs, since it comes from classified positions that are currently vacant.
General Government (includes Executive Office, Legislature, Legislative Auditor General and the Departments of Attorney General, Civil Rights, State, Technology Management and Budget, Treasury, and Talent and Economic Development)
Departments in the General Government category received a 4.3% increase in funding.  However, this overall increase is primarily reflective of the transfer of the Unemployment Agency to the Department of Talent and Economic Development.   
Health and Human Services

The Community Health portion of the DHHS received an overall budget increase of 8.4%.  The majority of this new funding stems from federal funding for Medicaid and the Healthy Michigan Plan.  The Human Services portion of the DHHS budget will see a 3.6% reduction in funds.  The bulk of that reduction stems from welfare caseload reductions.
Insurance and Financial Services

The DIFS budget remained nearly flat with a .2% reduction.
Licensing and Regulatory Affairs
LARA received an overall reduction in funding of 24.8%.  However, most of that stems from the transfer of the Unemployment Insurance Agency from LARA to the Department of Talent and Economic Development.
Military and Veterans Affairs
The Department of Military and Veterans Affairs received a nearly flat budget with a .9% reduction.
Natural Resources
MDNR received a 2.9% increase in next year’s budget.  Most of the increase comes from one-time funding for various forestry and infrastructure improvements.
State Police
MSP received a 4.3% reduction in funding.  Although a new trooper school and motor carrier school remain funded, various other one-time funding items such as those for local public safety and disaster assistance were removed.
The overall MDOT budget received an increase of 4.6%.  The increase stems mainly from increased general fund dollars put toward road and bridge maintenance. 
House and Senate Pass Competing Road Packages
Last week, the Senate announced its road funding plan, taking a different approach than the House plan passed in May upon the failure of Proposal 1.  Unlike the House Plan, the Senate voted to raise the wholesale tax on gasoline from its current 19 cents per gallon, to 34 cents per gallon by January 1st, 2017 while indexing the tax to inflation after that.  This will generate $800 million in new revenue for roads and other transportation services including public transportation.  The Senate plan also includes a $700 million earmark to come from the General Fund, shifting that money directly to roads and bridges and bypassing public transportation. 
The Senate plan would also:

Establish a complex formula to make the individual income tax adjustable; currently at 4.25%, the individual income tax rate would be adjusted down if the preceding year’s revenue increased at a rate greater than that of inflation. 

Require MDOT to seek warranties for roads and reduce administrative costs from 10% to 7%. 
Create a 50 year roads task force for the purpose of evaluating road construction materials and road quality. 
Both the House and Senate plans would increase registration fees on Hybrid and Electric vehicles, although at different rates, and establish parity between the wholesale tax on gasoline and diesel, again at different rates. The House plan would eliminate the Earned Income Tax Credit (EITC), which would generate an additional $120 million for roads, while the Senate plan does not.   The House plan would also cut $135 million from the Michigan Economic Development Corporation (MEDC) for roads while the Senate plan does not. 
Overall, the Senate plan would generate about $1.5 billion per year, with $822 million a year from new revenue, while the House plan would generate about $1 billion per year with only $118 million from new revenue.  The House and Senate will continue to have occasional session days over the summer to continue to work on this issue.