Michigan Developments
Eric Rule,
Director of Governmental Affairs

Budget negotiations in full swing
Legislative leaders, Governor Jennifer Granholm and top budget and treasury officials are negotiating to solve the $700 million shortfall in the state’s budget. Key negotiations will focus on whether a tax increase will be part of the solution or if spending cuts will lead the way.

To underline how serious the budget crisis is, Granholm has ordered a $125 per-student cut in state aid to schools and a 6-percent reduction in state payments to doctors and hospitals that treat Medicaid patients because of the state’s budget deficits. The cutbacks will take effect on May 30 unless the state comes up with money to avert them.

At press time no compromise is in sight, but for both sides to get a portion of what they want, eventual compromise is likely and will probably involve a combination of new fees and budget cuts.

Tax-restructuring plan imminent
With the pressure on, both the House and the Senate passed their respective versions of legislation that would replace the Single Business Tax, set to expire on December 31, 2007.

House Speaker Andy Dillon (D-Redford) released the Democrats’ plan, which would create the Michigan Business Tax Act (MBT), and it passed within the week. A day later, the Senate passed the Republican-sponsored version, known as the Business and Economic Stimulus Tax (BEST).

The two plans have significant differences. The Senate plan would result in an overall tax cut for businesses, but would generate $600 million less in revenue for the state than the SBT did.

The hard-core negotiating will take place in conference committee where Speaker Dillion, Senate Majority Leader Mike Bishop (R-Rochester), Gov. Granholm and the budget director will hammer out a compromise. It is likely neither side will emerge as a clear winner or loser.

Below are the components of the Democratic-sponsored House plan, as provided by a House Fiscal Agency analysis:

• A tax of 6.95 percent on business income.
• A tax of 0.488 percent on net worth.
• An increase in the tax on insurance companies, from the current effective rate of 1.07 percent to 1.25 percent.
• Subjecting insurance companies to sales and use taxes.
• A credit for certain regulated firms (generally finance, insurance, and real estate).
• A credit of 0.8 percent of compensation.
• A 3.3-percent investment tax credit similar to the existing credit against the SBT.
• A credit of 4.0 percent of research and development expenses.
• A credit of half of contributions to a partnering small business engaged in research and development, capped at $500,000.
• Retaining the current SBT filing threshold of $350,000 in gross receipts, but eliminating the “cliff effect” for businesses with gross receipts in excess of $350,000 by phasing in tax liability for businesses with gross receipts between $350,000 and $700,000.
• Retaining the alternative tax on small businesses currently provided by the SBT, but reducing the rate from 2 percent to 1.8 percent.
• Retaining many of the current economic development credits, including those related to the Michigan Economic Growth Authority, Brownfield redevelopment and historic preservation.
• A credit of 50 percent of personal property taxes for industrial property.
• A 24-mill reduction in personal property taxes on commercial and industrial property. This includes the 6-mill State Education Tax and the 18 mills levied for local school operating purposes.

The full bill is available at michiganlegislature.org by searching for Bill Number 4367.

Electric Choice repeal discussed
Speaker Dillon first broached the subject of repealing PA 141, the act that deregulated the electricity market in Michigan. Now Rep. Frank Accavitti, Jr. (D-Eastpointe), chair of the House Energy and Tech Committee, has begun calling for reforms on the act as well.

Short of calling for a full repeal of the act and returning to monopoly status, as the Speaker has done, Accavitti said deregulation has failed horribly in places like California. His committee will hear a few weeks of testimony prior to moving bills aimed at repeal.

Dillon hinted that he might want to levy a higher tax on utilities in exchange for returning them to monopoly status.

MRA has consistently supported choice and is opposed to repealing or weakening PA 141.

Update from Washington
James Goldberg,
MRA Washington Counsel

Stupak introduces H-2B visa bill
U.S. Congressman Bart Stupak (D-Menominee) and a dozen congressional colleagues have introduced an MRA-supported bill to make permanent the so-called returning worker exemption for H-2B visa holders.

Called the “Save Our Sall and Seasonal Businesses Act of 2007,” H.R. 1843 builds on legislation passed in 2005 and again in 2006 that carved out exemptions to the limit on such visas, which are most commonly used in such industries as landscaping, seasonal hospitality and seasonal construction.

The H-2B visa program is capped at 66,000 visas per year, and the number has not been adjusted since the category was initially enacted in 1990. The cap was hit for the first time in 2004, then hit again in the first three months of the 2005 fiscal year, leaving many U.S. employers, including those in Michigan, in crisis.

Under the stop-gap bills passed in 2005 and 2006, workers who had received H-2B visas in any one of the preceding three years did not count against the cap, thus opening up more possibilities for Michigan employers to bring back those who had worked for them in the past.

The Stupak bill—like a companion bill (S. 988) introduced in the Senate by Sen. Barbara Mikulski (D-MD) and others—does not increase the visa cap, but retains the split in the visa limit between the two halves of the year. That way, Michigan employers and others don’t have to rush to file their applications in October for openings that they may not know about until spring.

The legislation has been referred to the Judiciary Committees in both chambers, but no hearings have yet been announced.

Musicians may need permits for violin bows
Musicians traveling out of the country for performances might have to obtain federal government permits to take their violin and other string-instrument bows with them, if a proposal by the Brazilian government is adopted this summer by a global conservation conference.

The 160-plus countries (including the U.S.) that subscribe to the Convention on International Trade in Endangered Species (CITES)—a treaty that bans trade in elephant ivory and similar products—meets in The Netherlands in June, and one of the proposals on the table would add pernambuco wood to CITES’ list of protected species.

Pernambuco is widely used in the making of instrument bows, though the trees are not harvested specifically for that purpose. The tree is found only in the Brazilian rain forest in the eastern part of the South American country.

Brazil has proposed adding not only pernambuco to the protected list, but all products made from the wood. If approved, any manufacturer or retailer selling bows outside of its home country would have to obtain an export permit, as would any musician, such as a symphony orchestra violinist, leaving the U.S. for a performance elsewhere in the world. In the U.S., the Interior Department’s Fish and Wildlife Service would issue the permits.

Trade negotiators trying to meet June 30 deadline
Major changes in U.S. trade policy could be on the horizon if Congress chooses to extend President Bush’s so-called “fast track” authority, which expires June 30.

Using that authority, the president can negotiate international trade treaties, which Congress can only consider on an “up or down” vote—that is, it can’t offer amendments.

The Office of the U.S. Trade Representative is currently engaged in talks on the General Agreement on Trade in Services (GATS), a global pact designed to break down restrictions on the entry of service providers into GATS-participating countries. Included among the types of service providers covered by the GATS are retailers and wholesaler-distributors.

The GATS talks broke off last summer in a dispute over agriculture subsidies, but informal negotiations recently resumed. While trade negotiators are optimistic that a deal can be struck, many trade observers aren’t sure it can be done by the June 30 deadline.

Liberalization of restrictions on services would not adversely impact U.S. retailers, but Congress wants to use the review of “fast track” authority to require the White House to take environmental and labor issues into consideration when negotiating trade liberalization pacts with other countries.