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
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
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
Mr. Sikkema told reporters after the Senate acted that he
applauded Mr. Switalski. "I think this is a fair way to go," he
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
"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
"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
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
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
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
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
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
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,
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
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
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
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
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
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
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
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
Treasury and ISD officials both raised concerns that the
Treasury audits could interfere with the required annual
"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
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
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
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
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
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
Paula Cunningham of Lansing, president of Lansing Community
Dan DeGrow of Port Huron, superintendent of the St. Clair County
Intermediate School District and a former Senate majority
Debbie Dingell of Dearborn, vice chair of the General Motors
Corporation Foundation and executive director of government and
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
Robert Naftaly of West Bloomfield, chair of the State Tax
Juan Olivarez of Grand Rapids, president of Grand Rapids
John Porter of Ann Arbor, former state Superintendent of Public
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
Gary Russi of Rochester, president of Oakland University;
Lou Anna Simon of East Lansing, president-designate of Michigan
Lee Sprague of Manistee, ogema of the Little River Band of
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
Teri Takai of East Lansing, director of the Department of
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
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
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
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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