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Bridges4Kids LogoCigarette Tax Action: Will it Break Budget Logjam?
Gongwer News Service, June 22, 2004
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A sudden and surprising move on a cigarette tax increase compromise that led to passage in the Senate was praised by the administration of Governor Jennifer Granholm as a step in the right direction. Whether the action will help lead to quick resolution of the remaining issues to both balance the current 2003-04 budget and finish agreements on the 2004-05 budget remains an open question.

And the Senate's move to pass the new version of HB 5632 with the minimum needed votes (20-15) truly caught all sides off-guard, with the administration quickly sending Granholm chief of staff Rick Wiener and Budget Director Mary Lannoye to meet with Senate Democrats over the amendment from Sen. Michael Switalski (D-Roseville) that was approved.

Under the amendment, 100 percent of the revenue from the tax on cigarettes, which would be raised by 75 cents a pack to $2, would be allocated to the Medicaid Benefits Trust Fund for the remainder of the current fiscal year and for the 2004-05 fiscal year.

Beginning with the 2005-06 fiscal year, 75 percent of the tax revenues would be allocated to Medicaid with 25 percent allocated to the state's general fund. Republicans had hoped to require $35 million of the funding to go to Life Sciences Corridor funding, but that provision was not included.

Unlike the House version of the bill, the Senate version includes tax increases on other tobacco products, such as cigars and pipe tobacco, and does not allow retailers to capture the first few weeks of the inventory tax. Senate Majority Leader Ken Sikkema (R-Wyoming) said he could be willing to accept the inventory provision if the House insisted it be part of the mix.

The House version also allocated the bulk of the 2003-04 revenues to the general fund, and beginning with the 2004-05 fiscal year revenues would be largely split between the School Aid Fund and the Medicaid Trust Fund, with some revenues also going to the general fund, the Healthy Michigan Fund and some to Wayne County for indigent health care.

The House took no action Tuesday, but is likely to vote on the bill on Wednesday though what action it will take has not yet been decided.

Mr. Sikkema told reporters after the Senate acted that he applauded Mr. Switalski. "I think this is a fair way to go," he said.

In a press conference, Ms. Granholm said she still needed to study details, but that right now the measure looked good.

Ms. Granholm signaled she could sign the bill as passed by the Senate. She called movement on the cigarette tax the "first step in a journey of a thousand miles" and applauded the Senate for its action.

"I haven't seen the documents fully yet. I'd like to take a look at it," she said. "The concept sounds good."

But House Speaker Rick Johnson (R-LeRoy) said he was leaning towards moving the bill into joint House/Senate conference committee.

"It's got some good stuff. It's got some things I don't care for," Mr. Johnson said. "The part I don't like is, '06 I'm not going to be here."

Mr. Johnson said he supported the bill's emphasis on Medicaid and its removal of funding for the Healthy Michigan Fund, which he said should be dealt with separately from the tobacco tax increase.

Budget Director Mary Lannoye said the administration is still considering whether to urge the House to send the bill conference committee or accept the Senate-passed version as officials weigh the big picture of gaining support for the tax increase against the concern of not having money designated for Healthy Michigan. "We are disappointed that Healthy Michigan is not in the budget," she said.

Ms. Lannoye said the designation is grounded in part in political practicality: "Getting public support and legislative support for a tax increase of this size is tied to how you spend it."

But the clearance of the tax hike through both legislative chambers signals major movement in wrapping up work on the 2004 and 2005 budgets, Mr. Johnson said. "I was figuring it was going to be a long summer the way it looked yesterday, but with the movement in the Senate today, I think that's a good sign," he said.

Six majority Senate Republicans joined 14 Democrats in support of the bill: Mr. Sikkema, Majority Floor Leader Bev Hammerstrom of Temperance, Tom George of Portage, Bill Hardiman of Kentwood, Wayne Kuipers of Holland, and Gerald Van Woerkom of Norton Shores. Sen. Jim Barcia (D-Bay City) was the only Democrat to oppose the bill. Three senators - Sens. Shirley Johnson (R-Royal Oak), Laura Toy (R-Livonia) and Burton Leland (D-Detroit) - were excused.

Initially, the Senate thought it would act on a Republican proposal to dedicate the cigarette tax revenues to the Medicaid trust fund for the remainder of the current fiscal year, which should raise some $97 million, while beginning the 75/25 split between the Medicaid Trust Fund and general fund, with $35 million allocated for life sciences grants.

Ms. Granholm had proposed that the increase go only to the Medicaid fund.

Mr. Sikkema had characterized the original Senate GOP plan as a "more than fair proposal," and while Medicaid was an important part of the state's budget, "there are other needs in Michigan. There are other needs in the general fund."

But Senate Minority Leader Bob Emerson (D-Flint) said the measure was no compromise because Republicans had not talked to either Senate Democrats, who would be expected to put up the bulk of the votes for the measure, or with the administration.

Then Mr. Switalski - who last week had called for a compromise on the proposal - offered the amendment to delay the 75/25 revenue split until the 2005-06 fiscal year.

"This is my version of a compromise," he said jokingly when the amendment was read.

But surprisingly, Mr. Sikkema immediately took the floor and supported the proposal. "I think this is an excellent proposal. It potentially breaks the logjam we've had here for several weeks in the Senate," he said.

So stunned was the chamber that the proposal might fly, that Mr. Switalski had to review his own amendment to ensure it met Mr. Sikkema's questions, and Mr. Emerson took the floor, "for the purpose of wasting a little time" while the amendment was reviewed. Eventually, the chamber stood at ease while changes were written and administration officials came over to speak to Senate Democrats about the proposal.

The Michigan Catholic Conference praised the Senate, saying it would help protect health care for the state's most vulnerable citizens.

But the Health Leaders Alliance issued a statement voicing disappointment that the vote did not include earmarked funding for the state's Healthy Michigan Fund that promotes healthy lifestyle activities such as quitting smoking.

SFA Analysis on Proposal A: Taxpayers Win, Schools Lose
Gongwer News Service, June 22, 2004

In the now more than 10 years since Proposal A was adopted by voters, Michigan property taxpayers are paying less, but most school districts are also getting less in revenues than they might have had if schools in the state were still primarily paid for through property taxes, concludes an analysis of the school financing system by the Senate Fiscal Agency.

Actual property taxes for school operating purposes are 29 percent less than they were in 1994, when Proposal A was adopted, the analysis (available at the SFA's Web site) says. And if no changes to the system had been adopted - and voters had not rejected any millage rates - the property taxes paid would have been more than twice those paid in 1994.

But the vast majority of school districts are actually receiving less money under Proposal A than they would have had if the old financial system had stayed in place. In the case of Detroit, for example, the district would receive more than $360 million more in financial aid if the previous system remained in effect.

In fact, the study - titled "Proposal A: Are We Better Off?" - said that of the state's 553 school districts, just 28 are getting more money under Proposal A while 525 are getting less.

Former treasurer Doug Roberts, now director of the Institute for Public Policy and Social Research at Michigan State University, one of the principal architects of Proposal A, was familiar with the study though he had not read it, said that the question people would have to answer is, "Would the state have been better off if all that money had gone to education?"

Mr. Roberts said Proposal A overall was a good thing because the tax cut property owners have seen helped lead to significant economic activity in the state.

And the study only lightly touches on issues facing the state under the old school finance system that Mr. Roberts pointed out were major factors for enacting Proposal A, including the chance that a growing number of school districts would run out of money, as did Kalkaska in 1993; that voters would reject millage requests forcing state action in local districts; and that the disparities between the state's richest school districts and poorest would have widened while under Proposal A it has narrowed.

The study also points out that much of the savings property tax payers enjoyed when their tax rates were cut were made up in a 50 percent increase in the sales tax paid by all persons, property owners or not. The state also enacted other tax increases to help pay for schools, including the real estate transfer tax and a boost in the cigarette tax.

To compare on a dollar basis what schools and taxpayers would have seen if the pre-Proposal A system remained, the study took what districts received in payments in 1993-94 and looked at what they would have received if no changes had been enacted under the system.

Since Proposal A based school funding as well on pupil population in schools, the study also looked at whether declining enrollment was the primary factor that school districts got less money and found that only in a few was population decline the main reason why the schools were paid less.

Most districts that lost students would have gotten more money under the old system, the study said.

While Detroit could have seen $360 million more in funding under the old system, Utica schools would have seen $149.9 million more, Livonia schools would have seen $55.1 million more, Grand Rapids schools would have seen $48.9 million more and Flint schools would have seen $12.7 million more. Those five are the largest school districts in the state.

Even some of the smaller districts would have seen dramatic differences. Traverse City schools, where property values have skyrocketed in recent years, would see $52.5 million more under the old system. Kalkaska schools, whose financing crisis precipitated much of the 1993 action, would see $3.4 million more.

The majority of districts that do better financially under Proposal A are smaller, rural districts, such as Church schools in Huron County that gets $24,000 more than under the old financing system. But not all fall into that category. Dearborn is the largest district benefiting under Proposal A, getting $5.3 million more than under the old system.

Property taxpayers, however, are paying about $4 billion for school operating expenses compared to $5.6 billion 10 years ago.

And if the system had not changed, property taxpayers would now be paying $12.6 billion in terms of total taxes.

Proposal A affected school property taxes in two critical areas, the study said. The first is in millage. Before Proposal A, the average local district levied more than 30 mills in school taxes; Proposal A limited school mills on homestead properties at six (although commercial and non-homestead properties pay more).

And Proposal A changed the valuation used to assess taxes. While before Proposal A the valuation used was the state equalized value, Proposal A established a property's taxable value to base the tax on and limited by how much that value can be increased annually.

Since 1994, the gap between the total SEV value of state property and the taxable value has grown by more than $181 billion. The state's total SEV in 2003 was $369.5 billion, while the taxable value was $288.3 billion.

Next Round of ISD Bills Still Under Negotiation
Gongwer News Service, June 22, 2004

Bills that would require additional audits of intermediate school districts and that would provide criminal penalties for misusing special education and vocational education funds are still under negotiation but could yet see movement, Rep. Brian Palmer (R-Romeo), chair of the House Education Committee, said Tuesday.

The committee adopted new substitutes to most of the bills, but ISD officials still raised concerns that the measures would interfere with the audits they already perform and would be an additional layer of work for them. And Department of Treasury officials cautioned that they might not be able to handle the additional workload the bills would create.

Under the main audit bill (HB 5457), Treasury would be required to conduct surprise audits of at least five ISDs every two years. The audits would be done on two days' notice and would have to cover a laundry list of items including such things as travel expenses.

Treasury and ISD officials both raised concerns that the Treasury audits could interfere with the required annual financial audits.

"They have their own auditors who may or may not be part way done," said Deputy Treasurer Cynthia Faulhaber. "I have visions of shouldering them out of the way as we come in the door."

She said Treasury could use those contracted auditors to conduct its own audits of the ISDs, but she was not sure how that might interfere with the contracts between the ISDs and the auditors.

Ms. Faulhaber also raised concerns that the list of subjects for the audit might not be specific enough for Treasury to be able to conduct the audits.

Mr. Palmer said he was willing to work with Treasury and others to resolve the concerns.

HB 5839 would require yet another audit, this of special education and vocational education millage funds. Under the bill, ISDs could seek operating mills for up to 25 years with one renewal and capital bond mills for up to 30 years with one renewal. Use of those funds would have to be audited with the results submitted to Treasury.

Under the bill, any finding that the money had been misspent would allow voters in the community to petition to rescind the millage authority.

And anyone caught intentionally misspending special education or vocational education funds could face misdemeanor penalties under HB 5850. The bill would provide felony penalties for spending those funds without first bidding out the service. HB 5851 provides the sentencing guidelines for the proposed new crimes.

ISD officials also raised concerns about the conflict of interest provisions in HB 5921. Of primary concern was a provision that would prohibit anyone from sitting on both the ISD board and the board of a constituent district.

Burl Gaston, a member of the Van Buren ISD board, noted that he had been a member of both that board and his local school district board because they could not find anyone else to take the ISD slot.

Under HB 5475, the ISDs would have to publish annual financial reports that included many of the topics to be covered by the Treasury audits. And HB 5627 would require much of that information to be submitted to the Center for Education Performance and Information.

Granholm Forms Panel to Study Higher Ed System
Gongwer News Service, June 22, 2004

Vowing to scrutinize the most basic elements of the state's higher education system, Governor Jennifer Granholm on Tuesday officially created a new commission that she has charged with finding ways to double the number of higher education graduates in the state.

Ms. Granholm, who had earlier announced plans for the Lieutenant Governor's Commission on Higher Education and Economic Growth to be headed by Lt. Governor John Cherry, created the 40-member commission by executive order (EO 2004-32).

Mr. Cherry said it would be premature to say the state needs to expand the public university system, which now includes 15 universities, to double the number of graduates. But he said unused capacity at universities and community colleges would be examined along with the current method of state funding for higher education.

The commission will have 30 voting members with members of the panel who are legislators, department directors or the president of the State Board of Education serving as nonvoting members.

Overall, Ms. Granholm and Mr. Cherry said the state must convey to high school students the urgency in obtaining education beyond high school, whether it is an associate's degree from a community college, a bachelor's degree from a university or an apprenticeship. Some 41 percent of high students attend college or vocational schools and only 18 percent graduate with a bachelor's degree within six years.

"You must go to college. It is not a question of whether, but rather (of) where," Ms. Granholm said.

The commission will hold its organizational meeting July 14. It will meet in smaller work groups over the summer. And then the commission in September will hold hearings around the state to gather public testimony.

Members of the commission:

Fawzea Abusalah of Dearborn, a recent college graduate and legal assistant with Ayad & Associates;

Lu Battaglieri of East Lansing, president of the Michigan Education Association;

Richard Blouse of Birmingham, CEO of the Detroit Regional Chamber of Commerce;

Mary Bunn of Detroit, secretary-treasurer of the International Union, United Auto Workers;

Rep. Sandy Caul (R-Mount Pleasant);

Sen. Irma Clark-Coleman (D-Detroit);

Brian Cloyd of Grand Rapids, director of corporate and community relations for Steelcase, Inc.;

Mary Sue Coleman of Ann Arbor, president of the University of Michigan;

Paula Cunningham of Lansing, president of Lansing Community College;

Dan DeGrow of Port Huron, superintendent of the St. Clair County Intermediate School District and a former Senate majority leader;

Debbie Dingell of Dearborn, vice chair of the General Motors Corporation Foundation and executive director of government and community relations;

Steve Hamp of Dearborn, president of The Henry Ford;

David Hecker of Ann Arbor, senior partner of the Michigan Federation of Teachers;

Lawrence Hidalgo of Williamston, training director for the Lansing Electrical Joint Apprenticeship and Training Committee;

Kenneth Hill of Detroit, executive director of the Detroit Area Pre-College Engineering Program;

David Hollister of Lansing, director of the Department of Labor and Economic Growth;

Sen. Wayne Kuipers (R-Holland);

Budget Director Mary Lannoye of Williamston;

Jack Litzenberg of Grand Blanc, program director and senior program officer at the Mott Foundation;

Albert Lorenzo of Warren, president of Macomb Community College;

Paul Massaron of Southfield, owner of PEM Consulting;

Mark Murray of Grand Rapids, president of Grand Valley State University;

Robert Naftaly of West Bloomfield, chair of the State Tax Commission;

Juan Olivarez of Grand Rapids, president of Grand Rapids Community College;

John Porter of Ann Arbor, former state Superintendent of Public Instruction;

Phil Power of Ann Arbor, chairman of Hometown Communications;

Glenda Price of Detroit, president of Marygrove College ;

Jay Rising of Williamston, director of the Department of Treasury;

Gary Russi of Rochester, president of Oakland University;

Lou Anna Simon of East Lansing, president-designate of Michigan State University;

Lee Sprague of Manistee, ogema of the Little River Band of Ottawa Indians;

Shirley Stancato of Detroit, president of New Detroit;

Dennis Stanek of Gladstone, superintendent of the Delta-Schoolcraft Intermediate School District;

Kathleen Straus of Detroit, president of the State Board of Education;

Teri Takai of East Lansing, director of the Department of Information Technology;

Gail Torreano of Mount Pleasant, president of SBC Michigan;

Maria Vaz of West Bloomfield, associate provost and dean of graduate programs at Lawrence Technology University;

Tom Watkins of Northville, state Superintendent of Public Instruction;

Leola Wilson of Saginaw, member of the Saginaw Intermediate School District Board of Education;

and Rep. Gretchen Whitmer (D-East Lansing).


Supreme Court Justics Suggest Juvenile Code Changes
Gongwer News Service, June 22, 2004

In an effort to avoid heavy federal penalties to state trial courts, Supreme Court Chief Justice Maura Corrigan and Justice Elizabeth Weaver offered proposed technical amendments to the state's juvenile code concerning foster childcare at two committee meetings Tuesday.

The justices told the House and Senate Judiciary committees that as the result of two federal audits performed recently that showed the state was not meeting its own statutory guidelines, the state could lose millions through federal penalties.

In one instance, a Child and Family Services review showed some state courts do not hold permanency placement hearings to establish permanent homes for foster children. Also, the review showed inconsistencies in timelines between the state and the federal Adoption and Safe Families Act for the hearings.

Federal authorities handed the state a program improvement plan to follow, or face $2.5 million in federal penalties as a result of the findings, said Ms. Corrigan.

"Our statutes have more stringent timelines than the federal Adoption and Safe Families Act requires, and our state wasn't meeting our own statutory guidelines," Ms. Corrigan said. "In effect, we were penalizing ourselves."

A proposed change to the juvenile code would require courts to hold permanency hearings 12 months from the date of the child's removal from his or her family, rather than the current requirement of a hearing within one year after a hearing petition has been filed.

Another amendment would slightly modify state timeframes to come into alignment with Adoption and Safe Families Act requirements for child foster care review hearings. Currently, it's possible for a court in the state to observe all the state time limits and hold the first review hearing 189 days after the child enters foster care.

The amendment would require the courts to keep with the federal 182-day limit and permanency planning hearings would have to be conducted within 273 days after the initial hearing to avoid a possible future penalty of up to $37 million in lost federal aid under the Social Security Act Title IV-E funding for children in foster care.

Ms. Corrigan said she hopes to have the changes in place by next year so state can avoid penalties under the next year's follow-up federal audit.

Other proposed changes would strike a current requirement for attorneys who are appointed to represent children in abuse and neglect cases (also known as lawyer guardian ad litems, or LGALs) to meet with and observe the child before each court hearing in order to be compensated. Many lawyers have called the state mandate burdensome, especially if the child lives far away, said Ms. Weaver.

Another revision would include the parent of the biological father as a child's relative in cases where the child does not have a legal father. The revision would be consistent with the definition used by the Temporary Assistance to Needy Families Act, making the grandparent eligible to receive aid if he or she is caring for and living with the child.

The justices also presented an amendment that would give the Foster Care Review Board seven days to investigate a change in foster care placement and three days to report its findings to the court, rather than the current three-day investigation and report timeframe. The board hears foster parent appeals of agency decisions to remove a child from the foster home.

Senate Judiciary Committee Chair Sen. Alan Cropsey (R-DeWitt) said there have been discussions among his and the justices' staffs to draft legislation that would bring about the changes.

Ron Hicks, director of the Office of Legislative and Liaison Services within the Department of Human Services, said the office needs time to take a look at the actual language of the proposed amendments, but said he understands the changes would bring about minimal cost to the state.


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