Michigan Developments
Eric Rule,
Director of Governmental Affairs

Lawmakers were scheduled to return to work on September 7. Here's a look at some of the retail-related issues that are likely to come up in the fall.

Water act may discourage growth

Governor Jennifer Granholm announced in July that her proposal for regulating water usage policy, the Water Legacy Act, would be her “number 1 legislative priority” and urged Republican legislative leaders to get it done by the end of the year. The impact of the act on the business community needs closer evaluation.

Republicans have several areas of concern. First, the act may be premature. A two-year project to map the state’s aquifers is only half complete. Moreover, the Great Lakes Council of Governors recently released a draft of the Great Lakes Charter Annex, which would protect water diverted from the Great Lakes Basin.

A greater concern is that the Water Legacy Act would usher in a series of regulations and permitting processes that could potentially discourage new business growth by interfering with one of Michigan’s important competitive advantages, its abundant water resources.

The act would directly affect the many businesses that rely heavily on water use, from manufacturing plants to water-intensive retail businesses like grocers and nursery/landscape businesses.

Democrats are holding a series of town hall meetings on the issue of water diversion. Democrats argue that only the Water Legacy Act could protect the Great Lakes from potential diversion.

Republicans argue that the act misleads by confusing two separate but related issues: water diversion out of state (on which both parties agree) and in-state disputes over water and groundwater rights. They are concerned that this “one-size-fits-all” attempt to address water rights won’t be appropriate for all regions of the state.

MRA will watch the issue closely, and will work to ensure that any legislation on water use is not needlessly burdensome or premature.

Electric choice elimination bills need work

The bill package that would cost retailers millions in higher electric bills by eliminating the electric choice program for nearly all small businesses was introduced in July and may see action this fall.

However, Bruce Patterson (R-Canton), chair of the Senate Technology and Energy Committee, where the bill package is now in review, said he expects it to go through lengthy workgroup scrutiny.

“They need a lot of work,” Patterson said of the bills. “This is just the beginning for an exploration that may not result in any legislation this year, or next year.”

Patterson has, however, named five members representing various sides of the debate to a workgroup and has asked them to complete their work by the end of September.

MRA will continue to work as part of the Customer Choice Coalition to keep DTE from changing the law, despite an extremely well-funded public relations campaign by the CLEAR Coalition, a group that primarily represents the interests of DTE and its shareholders.

One of the missions of the Customer Choice Coalition is to debunk the falsehoods and misinformation being spread by CLEAR. For more information, see the Customer Choice Coalition’s website: www.customerchoicecoalition.com.

Pharmacies caught in budget crunch

At press time, the budget had not yet been finalized, but the Community Health Budget gives community pharmacies cause for concern.

The Granholm administration has proposed reducing the fee paid to community pharmacies for filling Medicaid prescriptions, so that a local pharmacy would earn $1.27 less for each Medicaid prescription dispensed than it does today.

The reductions in these Medicaid fees paid to community pharmacies may have a serious impact on patient access to pharmacy services. Community pharmacies—whether a single, independent store or a large chain—operate with a low margin and cannot fill prescriptions at a loss. Particularly in areas with high Medicaid populations, these cuts may force stores to reduce services, shorten hours or close altogether.

The House-approved budget language keeps pharmacy reimbursement constant while including an innovative option to make up these funds in other ways, but it remains to be seen if the final budget will retain this language.

Update from Washington
James Goldberg,
MRA Washington Counsel

Time for a national sales tax?

The “time is right” for Congress to totally overhaul the tax code and replace income and payroll taxes with a national sales tax. That’s what John Barry, policy director for House Majority Leader Tom DeLay (R-TX), told retailers recently.

There are, however, a couple of major assumptions underlying Barry’s prediction.

First, George Bush will have to be re-elected, creating a “lame duck” situation, according to Barry.

Second, Republicans must retain control of both the House and Senate, creating what Barry calls a “maturing majority” in Congress, ready to take on the tax reform issue rather than just talk about it.

The impetus for serious consideration of a national sales tax, according to Barry, may come from the looming application of alternative minimum tax (AMT) rules for most Americans, thus, in effect, increasing taxes for everyone.

The AMT rules were passed as part of the 1986 Tax Reform Act as a means of making sure that wealthy Americans with many shelters paid at least some tax every year. But the AMT was never indexed for inflation and, according to tax experts, it’s soon going to hit average workers hard.

National sales tax proponents argue that replacing all income, payroll and other taxes with a 23-percent national sales tax on all goods and services would be “revenue neutral” and would not cause prices to increase. It would clearly show Americans how much they are paying to run the federal government.

Retailers listening to Barry’s remarks were skeptical. All worried about the price spike that retailers believe is almost certain to severely dampen consumer demand and hurt retail sales if such a tax is ever enacted.

MRA’s Washington Office is keeping a close watch on developments.

Congress may broaden military exchange offerings

House and Senate committees are studying a request by the Defense Department to eliminate virtually all remaining restrictions on the products which may be sold in military exchanges. Most restrictions were lifted several years ago, leaving projection TVs, jewelry and furniture as the last major areas covered.

Defense officials want exchanges to be able to sell projection TVs, diamond settings with individual stones exceeding one carat, and finished furniture with a per-piece cost to the exchange of over $900.

Defense estimates that the changes are expected to save exchange customers 6-10 percent on TV sets, 14-25 percent on furniture and 10-25 percent on jewelry as compared to commercial prices. The agency expects added exchange revenue of $26.7 million from lifting the restrictions.

Restrictions on products sold in military exchanges have long been a source of controversy. Retailers surrounding military bases have generally opposed expansion of product offerings, usually without success.

The process by which restrictions are considered is murky, at best. The relevant committees review the Defense request and then make a decision without holding hearings or passing legislation.

Senate targets new white-collar overtime rules

One of the major items on Congress’ agenda for its fall session prior to the presidential election is consideration of a continuation of the Department of Labor’s new “white collar” overtime rules, which went into effect August 23.

The Senate has passed two amendments effectively overturning the new rules, which were strongly supported by the business community. The amendments are included in the Senate (but not the House) version of an international tax bill, which has become a “lightning rod” for all types of extraneous provisions.

MRA’s Washington Office is working with key members of the House in an effort to keep that body from adopting the Senate language during conference committee consideration of the tax bill. The Bush Administration also opposes any effort to weaken the amendments.

Under the new rules, employees making less than $23,660 in annual salary must be paid overtime regardless of their job duties. Employees earning over $100,000 are automatically exempt. Those making between the two amounts are exempt if their duties fall under new definitions of executive, administrative and professional employees.

MRA members with questions about the new rules can contact MRA’s Washington Office.

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