Legislative Highlights To Kick Off The New Year

OPEB – Since the passage of the OPEB package, Treasury has been working with our staff to develop the reporting requirements necessary to begin implementing the new law. That reporting guidance was recently published, with an initial deadline for municipalities to respond by the end of January. Additional guidance is yet to be developed by Treasury on the waiver and corrective action plan processes. The League will continue working with the Department to ensure that the new law is implemented in a thoughtful and efficient way.

Consensus Revenue Estimating Conference – The main event for the first week following the holiday recess was the Consensus Revenue Estimating Conference on Thursday. The final consensus on revenues didn’t reveal anything unexpected—maintaining steady, slow growth for the coming years—and these numbers will serve as a baseline for the Governor’s upcoming budget presentation in early February.

Federal and State Income Tax Conflicts – One item that is virtually guaranteed to be addressed this month is the purported conflict between the recently passed federal income tax reform and Michigan’s state income tax personal exemption. The Governor is proposing to amend the existing state income tax personal exemption to ensure that the changes at the federal level do not cause an additional tax burden on residents at the state level. In addition to maintaining the existing state personal exemption, the Administration’s proposal would increase the personal exemption from the current $4,000 to $4,500 in three years.

Both the House and Senate are now moving competing proposals to expand on the opening the Governor has provided, with  the Senate moving Senate Bill 748 unanimously over to the House to expand the personal exemption to $4700 by 2020 and increasing the inflationary factor for years beyond 2020 up to a reported $5000. A companion bill that will move next week would also create a child/dependent tax credit similar to the feds.  Combined, these senate bills (SB 748-750) are estimated to reduce state tax revenue by approximately $225-250 million when fully phased in.

The House proposal was just introduced this week, as well.  House Bills 5420-22 would also preserve the existing state personal exemption and then expand the exemption beyond the Governor’s proposal, to $4800 for tax year 2020 and beyond.  Additionally, the House proposal includes a separate bill that would provide a $100 refundable tax credit for seniors above 62 years of age.  Combined, the House package would reduce state revenues by approximately $350 million.

Both packages also include a technical amendment to the Uniform City Income Tax Act to prevent any similar conflict with the personal exemption elimination at the federal level.

The State Treasurer and Budget Director have both cautioned against additional tax relief as the state already has over $2 billion in tax cuts still scheduled to take effect and other budget pressures, like road funding and Medicaid cost increases that will consume all of the state’s expected revenue growth for the foreseeable future. Conversations between the Governor, Speaker and Senate Majority Leader continue as they negotiate on a final amount of tax relief and under which format. We should know more by next week.

Veto Override – In a surprising move, both the House and Senate voted this week to override the Governor’s veto of the acceleration of the sales tax on the difference proposal for trading in used cars or boats.  This override vote comes just as the Detroit International Auto Show is set to debut and is the first override of a Governor’s veto in 16 years and only the fourth in modern history.

Senate Bills 94 & 95 move the currently scheduled phase out from 2039 to 2029 at a cost the House Fiscal Agency estimates at $300 million spread out over the coming years. Gov. Snyder had originally vetoed these bills, calling the proposal “not fiscally prudent” given the budget pressures the state faces in the next few years..

Both chambers voted overwhelmingly to override this veto on Wednesday, with the Senate’s override vote being unanimous.  Interestingly, the last veto override was one that was championed by the League to restore former Governor Engler’s veto of revenue sharing in 2002.

State of the State – The Governor will present his final State of the State address to a joint session of the Legislature on Jan. 23. Infrastructure and talent development are themes he is likely to continue promoting.

Events – The State & Federal Affairs and Member Engagement teams will be joining League member communities at the National League of Cities Congressional City Conference in March.  Registration for this conference is still open and members are encouraged to sign up and help share our message with Michigan’s congressional delegation.  The State & Federal Affairs team will also be providing legislative updates around the state this month, presenting to the South Oakland Mayors Association, the Michigan Municipal Treasurers Association Winter Workshop, the Michigan Municipal Executives Winter Institute, and at the Michigan Association of Municipal Attorneys winter retreat.  Team members are also serving as panelists talking medical marijuana at an event hosted by Saginaw Future, Inc. and meeting with the Portland Downtown Development Authority this month.

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and chackbarth@mml.org.

Congress Prepares for Final Vote on Tax Plan

The joint House-Senate conference committee announced their final reconciliation of the federal tax reform proposal on Friday.  Each chamber is expected to vote on the conference report early this week, where the bill is expected to receive enough support to make it to the President’s desk.

The League has been working with the National League of Cities and our delegation throughout the fall to advocate for changes to a number of provisions within the overall reform proposal that could impact communities in Michigan.  While a number of changes that we advocated for have been included in this final version, there are still areas of concern for Michigan municipalities.

After an initial review of the 503-page bill by NLC staff, the conference report on the Tax Cuts and Jobs Act (H.R. 1) does the following;

  • Publicly Issued Tax-Exempt Municipal Bonds: Preserved throughout the whole process.
  • Private Activity Bonds (PABs): Conference report sided with Senate version and preserved PABs.
  • Advance Refunding (ARs) Bonds: Conference report had no difference to reconcile. Tax exemption for interest earned on ARs would terminate on 12/31/2017.
  • New Markets Tax Credits (NMTC): Conference report sided with Senate version and preserved NMTC until their authorization normally expires.
  • Historic Tax Credits (HTC): Conference report sided with the Senate version and preserves the 20% credit for rehabilitation costs to certified historic structures, but eliminates the 10% credit for pre-1936 structures.
  • State and Local Tax (SALT) Deduction: Conference report provided a new modification to SALT. Taxpayers would be able to deduct up to $10k in property taxes combined with either income or sales taxes.  

House Actions: The House Rules Committee is expected to consider the bill on Monday (12/18) and possibly vote on it by Tuesday (12/19).

Senate Actions: The Senate aims to hold 10 hours of debate and a vote on Wednesday (12/20).

A continued thanks to all of you who have sent letters, called members of Congress and helped make sure city priorities have not been ignored.

Feel free to reference www.nlc.org/TaxReform for more information, or reach out with any questions or concerns. Stay tuned.

 

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and chackbarth@mml.org.

 

 

Congress Releases Details of Federal Tax Reform Proposal

Congress released the following details of the proposed federal tax reform legislation:

– Ways & Means Cmte Tax Reform Highlights

– bill text  https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf

Following NLC’s lead, MML staff have been talking with Michigan delegation members about preserving the State & Local Tax deduction (SALT) within the federal tax code.  The version of the bill released today retains a portion of that deduction for taxpayers to continue deducting local property taxes, but eliminates the deduction for local income taxes.

NLC leaders released the following statement in response to today’s announcement: http://www.nlc.org/article/tax-reform-bill-an-affront-to-local-control

You can view NLC’s State and Local Tax Deduction resource page here: http://www.nlc.org/SALT.

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and chackbarth@mml.org.

Contact Your State Reps Today and Tell Them to Oppose Income Tax Elimination Bill

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***UPDATE:   

The Michigan House just adjourned session for the day (Tuesday) after adopting a substitute version H-3 for HB 4001 that would reduce the income tax rate from 4.25% down to 3.9% by January 1, 2021 and stopping at that point.  Following hours of caucus and floor discussion, the new version was introduced and adopted on the House floor with no explanation of the new version.  The House Fiscal Agency analysis of the new proposal pegs the state’s General Fund loss in the first year and $195 million and progressing upwards to $1.1 billion in FY2021-22.  The H-3 version of the bill is now on 3rd reading in the House and has been listed for action on TODAY’s (Wednesday’s) House calendar. So it is just as important to contact your Reps today and ask them to oppose the sub version of HB 4001. Governor Snyder came out with a statement last night opposed to the revised bill (he was also against the original bill).

Legislation being considered in Lansing would eliminate the state income tax, potentially blowing a massive hole in our budget and destroying vital programs and services communities and your residents rely on every day. Let’s face it, nobody likes to pay taxes. But we need the services those taxes support – police and fire protection, road maintenance, street lighting, drinking water, libraries, parks, and the list goes on and on.

This plan to eliminate the state income tax is moving quickly and we need your help to oppose it. On Feb. 15, a state House committee passed out HB 4001, which would cut $680 million from the state budget in the first, partial year alone. This idea is poor fiscal policy that would harm the state’s future ability to provide critical services for its residents, communities, and businesses. There is no question that with revenue reductions of that magnitude, the remaining statutory revenue sharing payments would be at risk and any future restoration of the cuts from the past decade would be a virtual impossibility.

Proponents of the tax cut say it would spur economic growth and allow people living paycheck to paycheck to see meaningful tax relief and allow them to buy more. A recent Midland Daily News editorial disagreed and broke it down like this: “But the reality is that is a bunch of bunk. A person making $50,000 a year would see a tax cut of $175 — about $3.37 per week (48 cents a day). That’s hardly going to bail out people living paycheck to paycheck and is a very minimal increase in buying power.”

Governor Snyder and Michigan Treasurer Nick Khouri also have spoken against the proposal and recent polling reveals little support for an income tax cut from voters, regardless of political party or geography, and almost no support once voters are told of the impact of the repeal. The poll found 74 percent of people oppose the idea of eliminating the income tax without a plan to replace revenue lost by the state.

Michigan communities have already lost $7.5 billion in revenue sharing dollars since 2002. This is money that should have gone to local communities, but instead state leaders kept the funds for their own budget priorities. Further risking cuts in revenue sharing, coupled with the dramatic declines in property tax revenues from the Great Recession, will only further devastate local governments. We should be talking about growth, not more cuts. With Michigan’s economy finally recovering, we should be looking for ways where our communities can share in that recovery, not push them further into crisis.

Please contact your State Representative today (look up their contact information by clicking here) and tell them to oppose HB 4001.

Matt Bach is director of media relations. He can be reached at mbach@mml.org.

City Income Tax Communities Oppose Senate Changes

The Michigan Senate voted Tuesday, Dec. 15, 2015, to discharge House Bill 4462 from the Senate Finance committee and then inserted language that many of the 22 income tax communities have weighed in on opposing. Despite the opposition, the Senate passed it late Tuesday night on a vote of 21-17.

The new language added by the Senate would allow a “voluntary” written agreement between an income tax levying city and an owner of property located in the city on behalf of a qualified employer or with a qualified employer who would make an advance payment of the withholding tax that would normally be deducted from employee compensation and remitted to the city, equal to the nonresident rate for the duration of the written agreement.

The Michigan City Income Tax Administrators Association, representing all 22 income tax cities met last week to discuss this proposal and subsequently, the 14 cities who were represented at the meeting passed a unanimous resolution opposing this proposal. Those cities represented at the meeting were: Grand Rapids, Muskegon, Pontiac, Saginaw, Lansing, Springfield, Jackson, Big Rapids, Lapeer, Ionia, Portland, Detroit, Battle Creek and Flint.

Beyond the grave concerns over the administrative burden that this type of concept would place on a city, there were numerous questions raised about the ability to administer such an agreement, where there is no model to follow and no other similar allowance for treatment of income tax and the federal, state, or local level.  Negative consequences for the taxpayer, possible loss of revenue for the city, and an inability to ensure accountability or compliance were among many of the reasons cited in opposition to this idea.

The League is working with these communities to oppose this legislation now that the bill has been returned to the House.

Chris Hackbarth is the League’s director of state affairs. He can be reached at 517-908-0304and chackbarth@mml.org.