Tax votes could mean billion-dollar reduction to state’s General Fund

Major changes to Michigan’s income tax collections, with the potential to reduce the state General Fund by approximately $1 billion for the next budget year, crossed between legislative chambers this week.

The House and the Senate moved their own versions of bills that would roll back the tax on public pension income and increase the Earned Income Tax Credit (EITC) for low- to moderate-income families.   

On the EITC, the Senate plan (Senate Bill 3 by Sen. Kristen McDonald Rivet, D-Bay) would increase the allowable state income tax credit from 6 percent to 30 percent of the allowable federal EITC. The House version (House Bill 4002 by Rep. Nate Shannon, D-Macomb), would increase the allowable state credit to 20 percent.

The Senate version would remove about $440 million from the state’s General Fund in FY23, as it is written to be retroactive to the 2022 tax year. Estimates on the House version have not been released.

MAC anticipates more negotiations between the House and the Senate before a final version will be prepped for the governor.

On pensions, both HB 4001, by Rep. Angela Witwer (D-Eaton) and SB 1, by Sen. Kevin Hertel (D-Macomb) target taxation on pension income imposed by the state in 2011.

The reduction in General Fund revenue would be around $500 million once changes in either bill are in full effect. At present, SB 1 would go into full effect for the current state budget year, while HB 4001 would scale up the reduction between FY23 and FY27.

Another looming change to income taxes and the state General Fund does not require any current legislative action.

Under a 2015 law, Michigan’s current 4.25 percent income tax rate would be reduced if the General Fund has been shown to have grown faster than the rate of inflation. State fiscal experts say that has occurred and would mean an estimated cut to the rate to 4.05 percent. Such a reduction, in turn, could mean an $800 million cut to the General Fund, said Witwer, the House Appropriations Committee chair, in a recent media report.

While MAC has taken no position on any of these tax measures, the General Fund, estimated to be $15.1 billion for FY24 prior to any income tax changes, is the state account used to finance County Revenue Sharing and a plethora of other responsibilities carried out by counties each year. MAC will monitor the progress of General Fund resources as the state budget process accelerates in coming weeks.

For more information on these proposals, contact Deena Bosworth at bosworth@micounties.org.

 

‘Essential’ for Michigan to address funding impact of EVs, MAC says

It is “essential” that Michigan quickly identify a new revenue source for public roads in response to the fiscal effects of the growing ranks of electric vehicles (EVs), MAC’s director of governmental affairs told a Lansing press conference on Tuesday.

In her remarks at the event to unveil a study on EVs and road funding, Deena Bosworth also noted, “As the report demonstrates, in 2021 1.9 percent of vehicles on roads in Michigan were electric. While this number may seem small, it is not insignificant. That number will undoubtedly grow, and we will continue to lose gas tax revenue at an alarming rate. We must consider other revenue sources, or we will be left in a hopeless and helpless position.”

The event was hosted by the County Road Association of Michigan (CRA) to unveil the study, which was conducted by the Anderson Economic Group.

As outlined in Public Act 51, roads in Michigan are primarily funded by the tax on motor fuel and vehicle registration fees. EV drivers are clearly not contributing to the gas tax and are paying a reduced registration fee. As more drivers transition to EVs each year, Michigan will see a dramatic decrease in revenue, and we will no longer be able to maintain and repair our roads.

The report came from an EV workgroup coordinated by CRA that includes MAC, other local government groups, business leaders and transportation experts.

Between 2019 and 2021, the report says, EVs on the road cost the state $50 million. By 2030, $65 million to $90 million will be lost annually. The report proposes several potential policy solutions, including an annual flat registration surcharge, mileage-based user fees, per kilowatt-hour fees and tolling. It will ultimately be up to the Legislature and governor to determine which path forward will best serve the people of Michigan. The workgroup plans to work closely with them during the decision-making process.

MAC is dedicated to finding realistic solutions that both promote EV adoption and sustain road systems.

You can find the full report here: The Impact of Electric vehicle Adoption on Road Funding in Michigan.

For more information on MAC’s infrastructure work, contact Madeline Fata at fata@micounties.org

 

Revenue Conference: Dollars keep flowing to state

The state’s economic experts are predicting a mild recession will occur in Michigan in 2023, but this dip will not end the recent trend of generally growing state revenues, according to the Consensus Revenue Estimating Conference held Friday in Lansing.

Since the depths of the Michigan’s recession in the aughts, the state government’s revenues have soared, with a General Fund expected to stay near or above $15 billion through at least fiscal 2025. As recently as 2016, the state General Fund budget was barely exceeding $8 billion.

Unfortunately, those improvements have not translated into similar investments in county revenue sharing or transformational investments in trial court funding, juvenile justice, mental health or other services where counties carry heavy burdens.

For example, in fiscal 2001, the last year before recessionary trends took hold in Michigan, the state had a General Fund of about $10 billion and assigned $228.7 million to county revenue sharing. Adjusting for inflation, that revenue sharing amount today would be $379.2 million. The actual county revenue sharing number for fiscal 2023 is $245.8 million.

Already, during the first week of the 102^nd Legislature, legislators have introduced bills that would reduce state revenues available to invest in counties through a huge increase of the state’s Earned Income Tax Credit and the repeal of the state tax on pension income.

“While much has changed in Lansing since last January, what has not is that counties will have to fight hard to convince legislators to make proper – and long overdue – investments in county services as the competition for dollars will be fierce,” said Deena Bosworth, MAC’s director of governmental affairs. “We can’t stress enough the importance of engagement between the 619 elected commissioners and their state counterparts as the budget process unfolds.”

For more information on MAC’s budget advocacy work, contact Deena Bosworth at bosworth@micounties.org.

 

MAC establishes state legislative priorities for 2023     

Each year, MAC establishes legislative priorities for the upcoming year. These items are based on input and feedback from our membership and center around the more pressing issues our counties are facing. Some items are hold overs from the previous legislative session, and some are new items brought to our attention.

2023 Legislative Priorities

The list covers only a portion of the issues we will work on this year, but these six issues areas are where we will take the lead:

Revamping the Open Meetings Act to allow for pre-pandemic virtual participation in meetings.

Prior to the changes made to the Open Meetings Act (OMA) in 2020 during the pandemic, members of a public body could attend, participate and vote remotely at county board sessions, so long as a quorum of the public body was physically present at the meeting location. The statutory change to allow for full board meetings to be held remotely due to the pandemic expired Dec. 31, 2021, and impacted the pre-pandemic rules by now barring remote participants from voting, even if a quorum is physically present in the meeting room. For questions on this topic, contact Madeline Fata at fata@micounties.org.

Establishing a Revenue Sharing Trust Fund.

Revenue Sharing is the most flexible form of state aid to counties, which makes it the most effective method to fund generational investments in public services — with decisions made at the local level. The legislation will seek to create a statutory earmark of the state sales tax. The money deposited into the fund would stay in the fund for distribution to counties, cities, villages and townships and not lapse to the state General Fund at the end of each fiscal year. The money in the fund would be split, with 50 percent going to county revenue sharing and 50 percent going to revenue sharing for cities, villages and townships; this distribution could potentially increase county revenue sharing in the first year by more than 40 percent. The legislation’s method of carving out a percentage of the sales tax for the fund is what revenue sharing was originally designed to do — share in the state’s revenue. If sales tax revenue goes up, local allocations go up, if sales tax revenue falls, so do allocations, just like it does for constitutional revenue sharing for cities, villages and townships. For questions on this topic, contact Deena Bosworth at bosworth@micounties.org.

Implementing the Trial Court Funding Commission’s recommendations for a more equitable and stable funding mechanism for our trial courts.

Local court funding remains caught in a looming statutory sunset, which now is set for May 2024, and is the subject of ongoing litigation before the Michigan Supreme Court. To ensure our local courts do not face a financial emergency, MAC supports the creation of the Trial Court Fund to distribute funding to trial courts based on operational requirements while maintaining local discretion over trial court operational decisions and the establishment of uniform assessments and centralized collections for all trial courts through the State Court Administrator’s Office. The system will maintain judicial discretion for ordering fines, will reduce costs and increase efficiency. For questions on this topic, contact Samantha Gibson at gibson@micounties.org.

Increasing resources for juvenile justice services.

A lack of staff, training and facilities has left a critical shortage of resources to house those in the juvenile justice system. MAC will be seeking an increase in funding for staff recruiting, retention and training, direct funding for additional facilities and an increase in the per diem rate for foster care parents. For questions on this topic, contact Samantha Gibson at gibson@micounties.org.

Compensating local governments for funds diverted by the Veterans Property Tax Exemption.

Since the enactment of the Disabled Veterans Property Tax exemption in 2013, counties have sought reimbursement from the state for the lost local revenues, a hit of tens of millions of dollars each year. MAC supports continuing the exemption — but with the state making up those local losses through a refundable income tax credit payable to local governments. This method of reimbursement was approved in previous legislative sessions by both the Senate and supported by veterans organizations but was never fully enacted. For questions on this topic, contact Deena Bosworth at bosworth@micounties.org.

Revamping the Personal Property Tax (PPT) Exemption to provide annual reimbursement to local governments.

As part of the economic development deal struck at the end of 2021, the Legislature and governor enacted an increase for the PPT exemption for small business, thereby reducing revenue to local governments by approximately $75 million each year. This exemption begins this year without a defined method for reimbursement for local governments that receive PPT funds. MAC worked with the 101st Legislature on a reimbursement methodology, but the bills were not brought up for a vote in the House during the last days of session. MAC will seek the same legislative reimbursement mechanism in new legislation in 2023. For questions on this topic, contact Deena Bosworth at bosworth@micounties.org.

Please watch for MAC advocacy campaigns throughout the year on these items and others so we can succeed helping counties better serve their residents in 2023 and beyond. For more information about MAC’s advocacy strategies, contact Governmental Affairs Director Deena Bosworth at bosworth@micounties.org.

 

Each year, MAC establishes legislative priorities for the upcoming year. These items are based on input and feedback from our membership and center around the more pressing issues our counties are facing. Some items are holdovers from the previous legislative session, and some are new items brought to our attention.

MAC’s 2023 Legislative Priorities

The list covers only a portion of the issues we will work on this year, but these six issue areas are where we will take the lead:

Revamping the Open Meetings Act to allow for pre-pandemic virtual participation in meetings.

Prior to the changes made to the Open Meetings Act (OMA) in 2020 during the pandemic, members of a public body could attend, participate and vote remotely at county board sessions, so long as a quorum of the public body was physically present at the meeting location. The statutory change to allow for full board meetings to be held remotely due to the pandemic expired Dec. 31, 2021, and impacted the pre-pandemic rules by now barring remote participants from voting, even if a quorum is physically present in the meeting room. For questions on this topic, contact Madeline Fata at fata@micounties.org.

Establishing a Revenue Sharing Trust Fund.

Revenue Sharing is the most flexible form of state aid to counties, which makes it the most effective method to fund generational investments in public services — with decisions made at the local level. The legislation will seek to create a statutory earmark of the state sales tax. The money deposited into the fund would stay in the fund for distribution to counties, cities, villages and townships and not lapse to the state General Fund at the end of each fiscal year. The money in the fund would be split, with 50 percent going to county revenue sharing and 50 percent going to revenue sharing for cities, villages and townships; this distribution could potentially increase county revenue sharing in the first year by more than 40 percent. The legislation’s method of carving out a percentage of the sales tax for the fund is what revenue sharing was originally designed to do — share in the state’s revenue. If sales tax revenue goes up, local allocations go up, if sales tax revenue falls, so do allocations, just like it does for constitutional revenue sharing for cities, villages and townships. For questions on this topic, contact Deena Bosworth at bosworth@micounties.org.

Implementing the Trial Court Funding Commission’s recommendations for a more equitable and stable funding mechanism for our trial courts.

Local court funding remains caught in a looming statutory sunset, which now is set for May 2024, and is the subject of ongoing litigation before the Michigan Supreme Court. To ensure our local courts do not face a financial emergency, MAC supports the creation of the Trial Court Fund to distribute funding to trial courts based on operational requirements while maintaining local discretion over trial court operational decisions and the establishment of uniform assessments and centralized collections for all trial courts through the State Court Administrator’s Office. The system will maintain judicial discretion for ordering fines, will reduce costs and increase efficiency. For questions on this topic, contact Samantha Gibson at gibson@micounties.org.

Increasing resources for juvenile justice services.

A lack of staff, training and facilities has left a critical shortage of resources to house those in the juvenile justice system. MAC will be seeking an increase in funding for staff recruiting, retention and training, direct funding for additional facilities and an increase in the per diem rate for foster care parents. For questions on this topic, contact Samantha Gibson at gibson@micounties.org.

Compensating local governments for funds diverted by the Veterans Property Tax Exemption.

Since the enactment of the Disabled Veterans Property Tax exemption in 2013, counties have sought reimbursement from the state for the lost local revenues, a hit of tens of millions of dollars each year. MAC supports continuing the exemption — but with the state making up those local losses through a refundable income tax credit payable to local governments. This method of reimbursement was approved in previous legislative sessions by both the Senate and supported by veterans organizations but was never fully enacted. For questions on this topic, contact Deena Bosworth at bosworth@micounties.org.

Revamping the Personal Property Tax (PPT) Exemption to provide annual reimbursement to local governments.

As part of the economic development deal struck at the end of 2021, the Legislature and governor enacted an increase for the PPT exemption for small business, thereby reducing revenue to local governments by approximately $75 million each year. This exemption begins this year without a defined method for reimbursement for local governments that receive PPT funds. MAC worked with the 101st Legislature on a reimbursement methodology, but the bills were not brought up for a vote in the House during the last days of session. MAC will seek the same legislative reimbursement mechanism in new legislation in 2023. For questions on this topic, contact Deena Bosworth at bosworth@micounties.org.

Please watch for MAC advocacy campaigns throughout the year on these items and others so we can succeed helping counties better serve their residents in 2023 and beyond.

For more information about MAC’s advocacy strategies, contact Governmental Affairs Director Deena Bosworth at bosworth@micounties.org.