OPEB – Since the passage of the OPEB package, Treasury has been working with our staff to develop the reporting requirements necessary to begin implementing the new law. That reporting guidance was recently published, with an initial deadline for municipalities to respond by the end of January. Additional guidance is yet to be developed by Treasury on the waiver and corrective action plan processes. The League will continue working with the Department to ensure that the new law is implemented in a thoughtful and efficient way.
Consensus Revenue Estimating Conference – The main event for the first week following the holiday recess was the Consensus Revenue Estimating Conference on Thursday. The final consensus on revenues didn’t reveal anything unexpected—maintaining steady, slow growth for the coming years—and these numbers will serve as a baseline for the Governor’s upcoming budget presentation in early February.
Federal and State Income Tax Conflicts – One item that is virtually guaranteed to be addressed this month is the purported conflict between the recently passed federal income tax reform and Michigan’s state income tax personal exemption. The Governor is proposing to amend the existing state income tax personal exemption to ensure that the changes at the federal level do not cause an additional tax burden on residents at the state level. In addition to maintaining the existing state personal exemption, the Administration’s proposal would increase the personal exemption from the current $4,000 to $4,500 in three years.
Both the House and Senate are now moving competing proposals to expand on the opening the Governor has provided, with the Senate moving Senate Bill 748 unanimously over to the House to expand the personal exemption to $4700 by 2020 and increasing the inflationary factor for years beyond 2020 up to a reported $5000. A companion bill that will move next week would also create a child/dependent tax credit similar to the feds. Combined, these senate bills (SB 748-750) are estimated to reduce state tax revenue by approximately $225-250 million when fully phased in.
The House proposal was just introduced this week, as well. House Bills 5420-22 would also preserve the existing state personal exemption and then expand the exemption beyond the Governor’s proposal, to $4800 for tax year 2020 and beyond. Additionally, the House proposal includes a separate bill that would provide a $100 refundable tax credit for seniors above 62 years of age. Combined, the House package would reduce state revenues by approximately $350 million.
Both packages also include a technical amendment to the Uniform City Income Tax Act to prevent any similar conflict with the personal exemption elimination at the federal level.
The State Treasurer and Budget Director have both cautioned against additional tax relief as the state already has over $2 billion in tax cuts still scheduled to take effect and other budget pressures, like road funding and Medicaid cost increases that will consume all of the state’s expected revenue growth for the foreseeable future. Conversations between the Governor, Speaker and Senate Majority Leader continue as they negotiate on a final amount of tax relief and under which format. We should know more by next week.
Veto Override – In a surprising move, both the House and Senate voted this week to override the Governor’s veto of the acceleration of the sales tax on the difference proposal for trading in used cars or boats. This override vote comes just as the Detroit International Auto Show is set to debut and is the first override of a Governor’s veto in 16 years and only the fourth in modern history.
Senate Bills 94 & 95 move the currently scheduled phase out from 2039 to 2029 at a cost the House Fiscal Agency estimates at $300 million spread out over the coming years. Gov. Snyder had originally vetoed these bills, calling the proposal “not fiscally prudent” given the budget pressures the state faces in the next few years..
Both chambers voted overwhelmingly to override this veto on Wednesday, with the Senate’s override vote being unanimous. Interestingly, the last veto override was one that was championed by the League to restore former Governor Engler’s veto of revenue sharing in 2002.
State of the State – The Governor will present his final State of the State address to a joint session of the Legislature on Jan. 23. Infrastructure and talent development are themes he is likely to continue promoting.
Events – The State & Federal Affairs and Member Engagement teams will be joining League member communities at the National League of Cities Congressional City Conference in March. Registration for this conference is still open and members are encouraged to sign up and help share our message with Michigan’s congressional delegation. The State & Federal Affairs team will also be providing legislative updates around the state this month, presenting to the South Oakland Mayors Association, the Michigan Municipal Treasurers Association Winter Workshop, the Michigan Municipal Executives Winter Institute, and at the Michigan Association of Municipal Attorneys winter retreat. Team members are also serving as panelists talking medical marijuana at an event hosted by Saginaw Future, Inc. and meeting with the Portland Downtown Development Authority this month.
Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and [email protected].