Legislative Report as of 5/14/2020
The COVID-19 pandemic has created the greatest crisis Michigan has faced in recent memory. The Consensus Revenue Estimating Conference taking place on May 15 is expected to show that Michigan’s revenues are down anywhere from $1 billion to $3 billion in the current fiscal year. Losses from the shutdown of most commercial activity will have a devastating impact on the state’s General Fund and School Aid Fund. It is expected that Governor Whitmer will issue a series of executive order budget cuts in the coming weeks.
While the Governor’s Stay Home, Stay Safe order has been extended to May 28, the reduction in the spread of the virus has led for a call to reopen Michigan’s economy. Some sectors, like construction, have already reopened, and some industrial and commercial businesses are expected to be allowed to reopen soon. However, Legislative leaders from the Republican majorities are claiming that the reopening should move faster since the economic impact of the shutdown is proving to be devastating not only on state revenues but also on a huge number of individual Michiganders.
See below for more information on these issues, and more.
Michigan Faces Unprecedented Fiscal Catastrophe due to Pandemic
Since mid-March, Michigan has been under Governor Whitmer’s Stay Home, Stay Safe order. This order has shuttered thousands of businesses and driven hundreds of thousands of workers onto unemployment assistance. The loss of revenue from state income taxes, sales taxes and other fees has been instant and devastating. As of this writing, we are still waiting on the May 15 Consensus Revenue Estimating Conference numbers to be released. Early reports, however, indicate that the state will be facing a shortfall in FY 2020 close to $2.7 billion, with 50-60% of that coming from the State General Fund, and the remainder from the School Aid Fund. Further, it is expected that an additional loss of between $1 billion and $4 billion cumulative from both GF and SAF will occur for FY 2021.
What is even more concerning is that these numbers are predicated on the economy rebounding quickly once Michigan’s businesses are allowed to reopen. While it is the hope that such will be the case, we are dealing with a complete unknown in terms not only of the pandemic, but also how Michiganders will respond over the next
few months. Based on the experience from other states that have reopened their economies more quickly, the
results have been mixed. Even after being allowed to return to normal businesses, many customers are still staying home due to concerns over the virus. As long as the fear of disease remains, even businesses in states that have reopened will likely see fewer customers.
In terms of the spread of the virus, those results have also been mixed. After Georgia reopened most state businesses in late April, many public health experts expected to see a large spike in new cases after two weeks. So far, that has not happened. While this is still a possibility, the fact that new cases in Georgia remain relatively flat is a positive sign. It is unclear, however, whether states that have had a larger community spread such as New York, Michigan, California and Washington would have similar results to Georgia after they reopen.
Even if Michigan’s economy rebounds quickly over the next few months, the loss of productivity and revenues from March, April and May will still lead to drastic budget shortfalls. Federal funds from the CARES Act sent over $3 billion into Michigan, but most of those dollars are reserved solely for COVID-19 related expenses. Some of those funds are going to local units of government that have been hardest hit by the virus, and the state is using another portion to purchase personal protective equipment and expand testing availability for the virus. A large portion of those funds remain unspent, however, due to the fact that the CARES Act makes it very difficult to use them to plug shortfalls for current programs.
One of the deciding factors in how state and local governments will fare over the next 18 months is whether or not the federal government will relax the restrictions on the use of these COVID-19 funds, and whether or not additional stimulus dollars will be released to states. The State Budget Office and the House and Senate Fiscal Agencies are working on budget proposals that do not expect any additional federal assistance, and those proposals are very grim. If the federal government provides assistance to states, and if the economy rebounds quickly after the pandemic subsides, we may be able to mostly escape the fiscal calamity threatening us. At the very least, it may be temporary. On the other hand, if there is not additional aid from the federal government, and if the virus proves to be resistant to mitigation efforts or vaccines, we could be in for another Great Depression-level event.
State Employee Work Share Program Announced
Earlier this week, Governor Whitmer announced a plan to participate in the federal Unemployment Insurance Agency’s work share program for most State of Michigan employees. Under the program, many state workers will take two layoff days per pay period between May 17 and July 25. Federal unemployment benefits would make up the bulk of their lost wages, and they would retain all health care and other benefits. The state will save approximately $80 million in payroll costs with this program.
State workers in critical categories such as corrections, law enforcement, veteran’s homes and the unemployment agency will not be affected by layoff days. State managers level 17 and above will also not participate in the program, but will have work reductions that could result in a 5% pay cut. Depending on the provisions of the federal program, these temporary layoffs could be extended after July 25.
Whitmer Releases Reopening Plan
Last week, Governor Whitmer released details of her plan to gradually reopen Michigan’s economy. The six-phase plan, based on the regional spread of the COVID-19 virus, would gradually relax the Stay Home order as the rate of the virus decreased. The plan divides the state into 8 regions, and the level of the virus in any particular region would determine the allowable reopening.
The first phase is “Uncontrolled Growth,” and indicates a large spike in new cases similar to what was experienced in southeast Michigan in March and early April. That phase would have the strictest form of the Stay Home order, allowing only critical infrastructure personnel such as health care, food service and public transit workers to remain at work. The second phased is “Persistent Spread,” and indicates a lesser increase of the disease but one that still threatens the health care capacity of the region. While it allows for a few more outdoor recreation activities to take place than in Phase 1, it still shutters all non-essential businesses.
Phase 3, called “Flattening,” is the phase where some non-essential businesses are allowed to start reopening. It indicates that the spread of the disease is no longer threatening the ability of the health care system to cope with patients and it is therefore not being overwhelmed. Businesses in the areas of construction, manufacturing, real estate and outdoor work would be allowed to reopen provided that they follow enhanced safety guidelines. Phase 4 is the “Improving” phase where cases are going down over an extended period of time. Non-essential retail and offices would be allowed to reopen provided that they enforce capacity limits.
Phase 5, “Containing,” will occur when the rate of new infections drops to the point where testing and contact tracing can quickly find and quarantine new outbreaks. At this phase, schools and restaurants could reopen, and larger community gatherings would be allowed. Phase 6, called “Post-Pandemic” will likely only occur after a vaccine is approved and made available to the majority of Michiganders. At this phase, no restrictions on gatherings or businesses would remain.
This plan is subject to change, and could be discarded altogether pending litigation filed by the Michigan Legislature against Governor Whitmer’s authority. If Governor Whitmer’s ability to declare a State of Emergency without Legislative approval is overturned, Michigan could be reopening much sooner than it would be under the above plan.
Labor Groups Call for Expansion of Workers Compensation Protections
Early in the pandemic, the Michigan Department of Labor and Economic Growth (LEO) issued emergency rules regarding workers disability compensation benefits. The emergency rules provide that “first response” workers (including health care, law enforcement, and first responders) will be deemed to have suffered a workplace injury if they become sick with the COVID-19 disease. This means that they will automatically be entitled to workers compensation benefits. Soon after these rules were released, labor organizations around the state asked the Governor to extend these protections so that they would include all workers who had to work outside of their home during the COVID-19 pandemic. Unfortunately, at this point, it seems unlikely that Governor Whitmer will endorse such a broad expansion of the rules.
LEO is considering modifying the rules so that they would cover some additional workers such as correctional employees who were left out of the original rules. The Governor’s staff is also examining policies from other states that expand worker protections and we are hoping that they will yet take further action to ensure that workers in Michigan have access to some sort of benefit if they become sick on the job. The best example from another state is an executive order signed by Governor Newsom of California earlier this month. That order creates a rebuttable presumption that a worker contracted the disease on the job. This means that the burden of proof will fall on employers to demonstrate that their employee contracted COVID-19 from another source.
While it does not appear that Governor Whitmer is as of yet willing to go as far as California, legislation has been introduced in the Michigan House and Michigan Senate that would extend workers compensation coverage. Senate Bill 906, sponsored by Sen. Curtis Hertel (D-East Lansing), merely codifies the current emergency rules for first responders. House Bill 5758, however, sponsored by Rep. Laurie Pohutsky (D-Livonia), would extend this coverage beyond first responders so it includes workers considered to be “essential employees” during the pandemic. Unfortunately, at this time, it appears unlikely that either of these bills will be taken up in the House or Senate.
Workers compensation for COVID-19 will become even more important as the state begins to reopen the economy. Organized labor is continuing to advocate for expanded protections for Michigan workers during this difficult time.