There's a lot going on in Lansing these days. In an effort to keep up with all the latest Legislative news, we've excerpted articles from MIRS Capitol Capsule, Gongwer and MASA's Legislative Update (thanks to Brad Biladeau) to keep you abreast of things.
Sept. 18 Legislative Update from Tom White
There continues to be some hopeful signs that a deal may develop, but so far it hasn’t come to fruition. On Sept. 18, it was reported that the Republicans may be willing to go as far as 4.3% for the income tax from the current 3.9%. MIRS, a Capitol newsletter, said that Michigan Republican Party Chairman Saul Anuzis put out a press release calling the report, “erroneous.” However, a number of media outlets have said that the Senate Republican Caucus was open to a tax increase. The question is how much.
The Democrats had proposed going to 4.6% for the income tax and at that, there would need to be additional tax revenues in order to simply maintain spending at 2006-07 levels. So the Republican willingness to raise the income tax to 4.3% wouldn’t get us back to the state’s current spending level; additionally they may attach strings that are unacceptable to the Democrats.
Below are some articles from Gongwer, another Capitol newsletter, that provides you background on what’s been happening.
In these articles Gov. Jennifer Granholm has indicated that she would veto a continuation budget – because it would only allow Legislators the opportunity to, “… keep kicking the can down the street,” instead of making the difficult decisions that face them. Given the timing of passing revenue bills it will be difficult to get an agreement past both houses before October unless they act quickly. It seems feasible that the Governor might sign a continuation budget in some circumstance…i.e. if there’s an agreement between the parties that’s pending in one or both houses of the legislature. But if there’s no legislative agreement, we will face a government shutdown in October.
FY '08-Minus 13: Senate Passes Continuation, Granholm Will Veto It Without Taxes (Gongwer Sept. 17, 2007)
The party lines were set on Monday, Sept. 17 on the issue of a continuation budget for 2007-08, with the Senate passing two bills creating a one-month continuation budget and Governor Jennifer Granholm saying she will veto such a budget unless a tax increase is passed as part of the proposal.
The state has been struggling for seven months to reach an agreement on the budget and allowing for a continuation budget simply "is kicking the can" down the road for a while longer, Ms. Granholm told reporters.
But her comments were more gracious than Senate Democrats, who trashed the attempts in SB 772 and SB 773 as giving up on any effort to reach a final agreement on the budget.
Both bills passed the Senate on 20-17 straight party line votes. Only Sen. Valde Garcia (R-Howell) was absent.
Senate Republicans said it was obvious that a continuation budget had to be passed to prevent the state from defaulting on its bond obligations. Even if an agreement were reached on Monday on the budget all provisions could not be in place in time for the October 1 start of the fiscal year.
Senate Majority Leader Mike Bishop (R-Rochester) said acting on the budget was the only responsible action. You can sit on your hands and do nothing and complain, which you have been very good at, or you can do something. This is not a partisan issue, this is about getting your job done," he said.
But Ms. Granholm was insistent that without a tax increase the continuation budget was a dead issue.
Under the bills, the state would operate for 30 days under continuation spending. SB 772 provides for gross revenues of $2.8 billion, of which $977.4 million are general fund. In effect, the bill allocations one-twelfth of the state's current expenditures to the budget.
The bill also creates a special joint legislative committee to advise the state budget director during the month.
SB 773 allows for payments of one-eleventh of state's school aid funds to public schools during the month.
Speaking to reporters after the Senate acted, Mr. Bishop said the chamber did what it had to do, and that he was tired of what Ms. Granholm said she would not do. It was time for her to say what she would do.
But in her press conference, Ms. Granholm called on all legislators to be willing to compromise, "to come to the middle" and agree to a solution that includes a tax increase. Simply cutting the state's budget will hurt its chances to build and invest, she said.
Asked if there was anyway the state could avoid default without some kind of budget structure in place, Ms. Granholm said, "We're not there yet" referring to the potential of default.
State's August Revenues Increase Over Year Before (Gongwer, Sept. 17, 2007)
For the second consecutive month Michigan taxes produced more revenue for the state than the same month the year before. Michigan revenues totaled $1.62 billion in August, according to figures released by the Senate Fiscal Agency, up by 1.5 percent from the year before.
For the 2006-07 fiscal year thus far, the state has raised $15.746 billion, down .7 percent from the year before, but in line with expectations for the year from the May Revenue Estimating Conference.
The August revenues marked only the third month in the 10 months collected thus far where revenues exceeded those from the year before. Though the 2006-07 fiscal year ends this month, revenues collected through October will accrue to the current year.
But the increased revenues was due mainly to increases in income tax and sales tax collections in August. Most the state's other taxes were down for the month compared to a year ago.
Even though the state leads the nation in unemployment, individuals who are working are continuing to see overall wage increases. For the month the tax raised $508.5 million, an increase of 5.9 percent compared to a year ago.
- For the year, the income tax has raised $5.165.8 million, up by 3.5 percent over 2005-06.
- The sales tax was up by 1.2 percent over August 2006, netting $575.8 million. The increase included $70.8 million in taxes raised from motor vehicle sales, a boost of 1.4 percent over the year before.
- For 2006-07, however, the sales tax has raised $5.455 billion, down 1.4 percent from the year before.
- Except for a 3.1 percent increase in the casino tax, netting $13.5 million -- $148.7 million for the year, up 4.6 percent - and a 12.3 percent increase in the oil and gas severance taxes, netting $6.4 million - although the tax is down by 23.6 percent for the year, netting $55.9 million - and a 26. 4 percent increase in the state's education property tax, raising $134.7 million - with an 11 percent increase for the year to $661.2 million - the news in revenue collections was all bad for the state.
- The Single Business Tax raised $82.9 million in August, down 15.9 percent from the year before. For the year, the tax has raised $1.455 billion, down 7.6 percent from the year before.
- The use tax raised $122 million, down 1.9 percent, in August and for the year has raised $1.144 billion, down by 1.6 percent.
- The tobacco tax raised $99.6 million in August, down 3.5 percent from the year before. For the year, it has raised $931.6 million, down 3.7 percent.
Olson Presents All Cut Options - Adds Fuel To Debate (MIRS-Sept. 11)
Senate Fiscal Agency (SFA) Director Gary OLSON told the Senate Appropriations Committee on Sept. 10 that the worst thing they could do is to do nothing.
"Defaulting on bonds is an option," Olson explained after noting that the state will need to make some $37 million in debt service payments in early October and without some sort of passed budget, there is no legal authority to make those payments. "But, it would take years if not decades [for the state] to recover."
Olson made his remarks while presenting cuts outlined by Senate Majority Leader Mike Bishop (R-Rochester). On Sept. 7, Bishop announced he was proposing $1 billion in cuts and spending reforms.
In that press release, the Senate Majority Leader promised that the SFA would also present other cut options to the Senators, which is exactly what Olson did.
Essentially, Olson began by explaining the following budget reality:
- That combined, lawmakers essentially punted on a $1.3 billion budget deficit from the current fiscal year by borrowing against the state's tobacco settlement dollars and other one-time fixes and borrowing gimmicks
- That $1.3 billion has now moved over into the Fiscal Year 2008 budget year column. However, added to that column to maintain the so-called "continued services" budget are economic increases for workers funding for rising caseloads and other items - meaning the budget hole grows to some $1.75 billion.
- To date, the House-passed budget bills have overspent the so-called "continuation budget" by $235 million. The Republican Senate-passed budgets have come in $176.2 million below the $10.08 billion General Fund continuation services budget.
- The SFA and the House Fiscal Agency have been doing research on continuation budgets and see no constitutional challenge to continuing the budget resolution for one-week, two weeks, one month or longer. However, he warned that the longer the state overspends into the fiscal year, the harder cuts are to make.
- That right now, revenue estimates are holding firm and that a continuation budget would be pegged to existing budget revenues.
Olson also outlined a series of cuts that could be used to further balance the budget (Bishop's plan brings the budget deficit down to $656.4 million). Included in those additional cut options are:
- Eliminating of statutory revenue sharing, saving $398.7 million
- Redirecting $75 million in 21st Century Jobs funds to the General Fund
- Cutting $25 million from the Healthy Michigan Fund
- Not pay the skipped higher education $138 million payment from the current year
- Cutting state aid to libraries by $12.1 million
- Cutting Fire Protection Grants by $10.9 million
- Cutting $77 million in School Aid Fund categorical spending
- Cutting $14 million in secondary road patrol grants from the State Police
- Eliminating Michigan Promotion Funding, saving $5 million
- Cutting Comprehensive Transportation Fund Grants (non-constitutional), saving $78 million
- Changing in state law to release prisoners earlier or change sentencing guidelines and the shuttering of three to four prison facilities
The list was long and clearly rattled some of the Democratic members on the panel.
At one point, under questioning by a Republican member, Olson gave the GOP at least some cover politically for a tax increase. He argued that statistically, there's not much impact on the state's economy by either raising or cutting the sales tax by one-penny.
"Yes, a tax increase or a tax reduction is going to take money out of someone's pocket or into someone's pocket, but it's also going to impact state and local government ability to deliver services," Olson added. "I think in an overall sense, and we've got to understand when we talk about tax increases at the state level it's a very small percentage of our state's economy."
Sen. Irma CLARK-COLEMAN (D-Detroit) asked, "If we move forward with the Bishop proposal, with all of these draconian cuts, what does this do to our bond rating?"
"What the rating agencies are looking for is the fundamental ability of state and local governments to pay their obligations," Olson added that it's because the state's used one-time spending solutions that its credit rating has been souring.
"I do believe if fundamental decisions are made to reduce spending that will not be detrimental to our bond rating," he added. "It may have other political fall out."
He then reminded Clark-Coleman and the other members present that such decisions are "decisions that you as elected officials, not me, not others, have to make to get to a fundamentally balanced budget."
Dems Pass Their MESSA Bill (MIRS-Sept.11)
House Democrats today moved through a school employee health care pooling bill that's supported by their political allies within the Michigan Education Special Services Association (MESSA) and MESSA alone.
A reworked and diluted version of SB 0418 moved along party lines in the House Education Committee this afternoon and then passed with seven Republican votes on the floor. The intention is to put the bill into a joint House-Senate conference committee so it can be a part of an ultimate budget solution.
On the Republican side, Reps. Dick BALL (R-Laingsburg), Jack BRANDENBURG (R-Harrison Twp.), Tom CASPERSON (R-Escanaba), Ed GAFFNEY (R-Grosse Pointe Park), Joe HUNE (R-Fowlerville), David LAW (R-Commerce Twp.) and Tory ROCCA (R-Sterling Heights) joined all present 57 Democrats in voting for the new version.
Under the House's version, school districts and other governmental units could still pool its employee health care coverage, but the public entities wouldn't have access to its own claims data and wouldn't be required to re-bid with insurance providers every three years.
The Senate version, supported by every other union and education association in town that's not associated with the Michigan Education Association (MEA), allowed every public pooling unit that provides coverage for at least 100 people to receive its group health history data.
The Senate bill also required any pool to seek new bids every three years in an effort to shop the market for the best insurance price possible.
The general concept is that MESSA, the state's largest third-party administrator that manages health care services for roughly half of the state's school districts, has small school districts under a barrel. While the district administrators could shop around for better health insurance quotes, they don't have the data to get accurate quotes.
Three years ago, a group of West Michigan school districts did pool together and shopped around for new health insurance without their claims history data. The result: this year, they were forced to stick their employees with a 21.6 percent increase.
Without these data or re-bidding provisions in the bill, AFL-CIO Business Manager Philip SCHLOOP, said the legislation does little to nothing to encourage more public entities to pool together to seek lower health insurance rate.
"By limiting access to information, you're not helping the system," Schloop told lawmakers.
But the Democrat-controlled committee, led by Chairman Tim MELTON (D-Auburn Hills), wasn't convinced that changing the school employee health care system - the flagship "reform" for the Republican-controlled Senate- would actually save anybody money. He told MIRS "reforming" health insurance is the equivalent of squeezing a balloon. The costs will still be the same. The only difference is that some school districts will be forced to pay more so others will pay less.
While Schloop projected a 6 percent savings, the only hard number provided in committee was $156 million, which was a rough estimate prepared by union officials only because they knew the question would be asked, Somalski said.
MESSA Executive Director Cynthia IRWIN hammered home the point that the alleged savings were nebulous. She theorized thatschool administrators were only supporting the bill because of the adversarial nature of the collective bargaining process and so some school administrators could use their relatively young and healthy teachers to "cherry pick" better insurance rates.
In talking about the alleged savings, Irwin said, "It's like moving the deck chairs around. I challenge you to find the savings in it. There are no savings."
MEA Win PAC Question In Court (MIRS-Sept. 11)
Public employers who deduct employees' voluntary contributions for political action committees (PAC) do not violate campaign finance laws despite an earlier decision by the Secretary of State, a circuit court judge has ruled.
In overturning a Nov. 20, 2006 declaratory ruling by Secretary of State Terri Lynn LAND, Ingham County Circuit Court Judge Thomas BROWN said that public bodies, including school districts, can deduct PAC contributions from employees' payroll checks as long as the costs of making the deductions are reimbursed by the PAC.
Michigan Education Association v Terri Lynn Land stems from a question involving payroll deduction for employees of the Gull Lake Community Schools. Though the Secretary of State and MEA have litigated for years regarding various requirements for payroll deduction of PACs, the 2006 ruling from Land was the first to claim such payroll deductions violated the Michigan Campaign Finance Act.
"Many public employees choose payroll deduction for their PAC contributions because it's a convenient way to donate," said Art PRZYBYLOWICZ, MEA general counsel. "This legal victory allows them to continue to do so, just as their colleagues in the private sector can."
Land has 21 days to appeal the decision
CMS is eliminating reimbursement activities for administrative services and most transportation activities (MASA-Legislative Update)
Late in the day on Friday, August 31, Centers for Medicare and Medicaid Services (CMS) placed on display at the
Office of the Federal Register a proposed rule (CMS-2287-P) regarding
Medicaid reimbursement for school-based administration and
transportation. Improper billing by school districts for administrative
costs and transportation services under the Medicaid program is a
longstanding concern of the Department of Health and Human Services
(HHS). Both HHS Office of the Inspector General (OIG) and the
Government Accountability Office (GAO) have identified these categories
of expenses as being susceptible to fraud, waste, and abuse.
As you know, Federal payment is available for the cost of
administrative activities "as found necessary by the Secretary for the
proper and efficient administration of the State plan." The proposed
rule would eliminate reimbursement under the Medicaid program for the
costs of certain administrative activities based on a Secretarial
finding that these activities are not necessary for the proper and
efficient administration of the State plan, nor do they meet the
definition of an optional transportation benefit. Based on these
determinations, under the proposed rule, Federal Medicaid payments
would no longer be available for administrative activities performed by
school employees or contractors, or anyone under the control of a
public or private educational institution, and transportation from home
to school and back for school-aged children.
The proposed rule will be published in the Federal Register on
September 7, 2007, with the public comment period ending on November 6.
If made permanent, the rule would be in effect for the 2008/09 school
year. Read the Notice of Proposed Rulemaking from the CMS
website. Download a "fact" sheet concerning the proposed rule.
Now What?
Opposition to the proposed rule will come from many groups and
individuals. With your help, we may be able to overcome this rule which would
eliminate federal reimbursement for school administrative services and
most transportation activities.