Legislative Report as of August 26, 2019
The Michigan House and Senate are returning this week from their summer recess. They have just over a month to reach a budget agreement with Governor Whitmer in order to avoid a government shutdown. The Governor has already announced her desire to have a “Plan B” that would keep the government open even if she and the Legislature cannot reach an agreement on the budget and on road funding by September 30. The next few weeks will tell whether such a plan is needed.
The focus of the Legislature continues to be squarely on the 2020 budget – and just as importantly – whether a significant increase for transportation funding will be included. While the roads are getting 90% of the legislative and media attention, several other questions will also be answered in the next month’s budget debate. These include the future of the Caro Center Psychiatric Hospital, whether the School Aid Fund will continue to be used to pay for higher education, and how deeply some departments may be cut in order to pay to “fix the damn roads.”
More on these issues below.
Time Running Short for Budget Agreement
Governor Whitmer announced her 2020 budget proposal back in March when she testified before the House and Senate Appropriations committees. That proposal included a 45-cent per gallon increase on the Motor Fuel Tax that would raise over $2 billion for transportation and infrastructure needs. Her proposal also provided a large increase in K-12 school funding.
Since then, the House and Senate have spent several months chewing over how to achieve similar results (large road and school funding increases) without having to increase taxes. Legislative proposals have included selling off state assets, cutting other state budgets to the bone and shifting those dollars to road construction, delaying payments into the public school pension system, and privatizing major highways. Even though the Legislature was on summer recess since late June, budget work continued to take place in Lansing.
Two weeks ago, it seemed as if there had been a breakthrough when Senate Majority Leader Shirkey (R-Clark Lake) announced that instead of unveiling a Republican counter-proposal to the Governor’s budget, the Legislative leaders would be announcing a joint agreement with the Governor. No such joint agreement has yet emerged, and it seems as if those early reports were a tad too optimistic. The Governor has maintained that she is still waiting for a Republican proposal, and she has noted that time is becoming a factor.
This week, the Legislature will return to session, although their agenda is still vague. Meetings will continue to take place between GOP leaders and the Governor’s office in an effort to find common ground. However, the Motor Fuel Tax increase so far has been a non-starter.
The House has proposed replacing the Sales Tax currently on gasoline (which primarily goes for public schools) with an offsetting increase in the Motor Fuel Tax, effectively shifting hundreds of millions of dollars away from public schools and into road construction. This has been flatly rejected by Governor Whitmer. The Senate has been interested in reducing annual funding for the Michigan Public School Employees Retirement System (MPSERS) and using those funds for roads. This has also been rejected by Governor Whitmer.
Other ideas floating around Lansing to raise more road money include a graduated income tax that would increase taxes on persons earning more than $250,000 per year; increasing the Corporate Income Tax and dedicating the increase for roads; and expanding the current Sales Tax to include services such as concert tickets and hair salons. The graduated income tax increase has done well in some polls, but it would require a Constitutional Amendment to achieve, making it a very daunting solution (and one that could never be done in time to avoid a government shutdown).
Even if an agreement is reached on transportation and education funding, there are other areas of contention between the Legislature and the Administration that have received less attention. Both the House and Senate initial budgets made major cuts to both the Attorney General and the Secretary of State. The Legislature explains the SOS cuts by stating that the money is needed to fund the new Redistricting Commission (the one they just filed a lawsuit to quash). Democrats decried the cuts as being “outside the spirit of the redistricting law.”
Governor Announces Preparations for Possible State Shutdown
Later this week, Governor Whitmer will be sending a video communication to state employees discussing the possibility of a government shutdown should the Governor and Legislature fail to approve the 2020 budget by September 30. The video will be accompanied by a written communication to all state employees outlining the steps the administration is taking to avoid a state closure. Governor Whitmer has a good idea of what is at stake, since the last time the state was in this position in 2007 she was the Senate Minority Leader.
Back in 2007, after a solid month of Legislative session which included numerous 24-hour session days and weekends, the Legislature still failed to deliver an agreement until approximately 5am on October 1. Therefore, the state was officially “shut down” for nearly 5 hours. As it happened, few if any members of the public noticed. However, should a shutdown go for more than a few hours, its impact would be hugely felt almost immediately.
The first preparations for a possible shutdown are moving in the State Budget Office. On August 23, directors of state departments were asked to compile a list of “essential” and “non-essential” personnel. The list will focus on job-functions, not specific employees. Staff of 24-hour facilities such as prisons and mental health hospitals would likely be deemed “essential,” along with some state police staff and emergency services personnel. However, even those who are deemed “essential” would have no guarantee of being paid on time and might have to wait to be reimbursed for work performed once the state budget is finally passed.
Governor Whitmer has proposed that the Legislature pass a continuation budget that goes beyond September 30 so that the state would continue to remain “open” even if a final agreement on the 2020 budget is not reached by then. At this point, Legislative leaders have made no indication that a contingency plan is necessary and instead are hopeful that an agreement can be reached in time to avoid a shutdown. Unless there is a major breakthrough in the next two or three weeks, however, avoiding a shutdown may emerge as the top priority in Lansing.