Friday, March 16, 2007
As legislative leaders inched closer to meaningful discussions on closing the budget shortfall of $900 million and replacing the single business tax, the state financial situation continues to worsen. Last week the Wall Street rating agencies put The pressure on the legislature and Governor has increased inside the Capitol as well. A heated exchange on the Senate floor Thursday between Republicans and Democrats over the lack of progress on solving the fiscal crisis did little to help create a climate for compromise. Senate Majority Leader Mike Bishop (R-Rochester), perhaps out of frustration after the exchange, discharged the Governor’s tax and revenue plan (including the 2% sales tax on servicing) from the Senate Taxation Committee. The package is now on the Senate floor where few political observers believe it will receive sufficient support for passage. Senator Bishop and Speaker Andy Dillon (D-Redford Twp) had been meeting throughout the week on various ideas to solve the revenue problem. Bishop was quoted after the Thursday Senate session that the political exchange has moved the discussions “far’ apart. Governor Granholm who has been out of the state on a trade mission this week issued a press release stating she plans to clear her calendar over the next two weeks to meet around the clock with legislative leaders to find a solution to the growing revenue problem. The Governor has also threatened to cancel the legislative spring recess scheduled to begin the first week of April, if no agreement is reached. The growing anxiety in the Capitol is slowly moving both political parties to the realization that cuts in State spending and the likelihood of a tax increase of some kind are looming closer as each day goes by. POP-UP AND MUNICIPAL FINANCE PROVISIONS PASSED BY HOUSE Led by the Democratic Majority, the House of Representatives on Wednesday passed HB 4440 (Andy Meisner, D-Ferndale) an 18-month moratorium of the so-called “pop-up” tax, which readjusts the taxable value of a homestead upon sale. The House also passed HB 4441 (Andy Meisner, D-Ferndale), a bill aimed at increasing the real estate transfer tax during the lifetime of the moratorium. The plan, designed to spur sagging real estate sales across the state is expected to be revenue neutral for local governments. The moratorium on pop-up taxes would last from March 1, 2007 until September 1, 2008. Current law requires that home assessments may not rise by any more than 5 percent or the rate of inflation, whichever is less. The “pop-up” in taxes occurs when the home is sold, as the taxable value of the home returns to 50 percent of the market value. House Democrats have estimated that their bill would save the average buyer $1,513 in taxes on a house costing $100,000, and as much as $3,405 on a house worth $225,000. While it is thought that this moratorium may reduce state and local revenues, a rise in sales tax could be seen as new homeowners will have more left over to buy big-ticket items often associated with buying a home. HB 4441 will have home buyers paying a higher real estate transfer tax between May 1, 2007 and December 31, 2008. Instead of paying the current transfer tax of $3.75 for every $500 of the purchase price, buyers will owe $4.25. The increased revenue from the higher transfer tax is expected to be nearly $42 million, and will go to the general fund of local governments to aid in the funding of public safety positions such as police officers, fire fighters, and other first responders. FEBRUARY REVENUES FAIL TO REACH $1 BILLION Net income tax collected by the state in February fell by 12.5 percent, due in large measure to income tax refunds, bringing in $100 million. For the year, the income tax is actually on the rise from a year ago, up .7 percent compared to last February, and has brought in $2.058 billion in total revenue. Sales tax revenue fell by 3.3 percent for the month, raising $469.4 million. For the year, the tax collected $2.145 billion, a reduction of 2.1 percent from this point last year. While the use tax is up 4.9 percent for the year, collecting $496.5 million, the tax fell for February by 7.2 percent. SENATE SUBCOMMITTEES TOLD TO HOLD ’08 BUDGETS In a move to focus attention and efforts on resolving the current fiscal year budget deficit, the Senate Appropriations subcommittees have been told not to report their 2007-08 budget bills. They had been scheduled to report them to the full Appropriations Committee for action by the end of next week. The 2007-08 budget hinges on the debate to replace the Single Business Tax, which expires on December 31, 2007. The roughly $2 billion, which the SBT generates, will have a major impact on the spending plan if not replaced. The budget needs to be completed by early summer to allow K-12 schools to borrow money for their September opening. PAADVISORY BRIEFS Legislators and Financial Disclosure: Chamber, Realtors Begin Ads Against Tax on Services: A television ad sponsored jointly by the Michigan Chamber of Commerce and the Michigan Association of Realtors urging Michigan residents to oppose Governor Granholm's proposed 2 percent sales tax on services - saying "two cents makes no sense" - began broadcasting on cable television in the Lansing area Monday, with the possibility that it could move to other state markets later. The 30-second ad begins with a clip of Ms. Granholm from the 2006 Democratic convention where she said she was "thrilled" with how the administration's economic plan is working and then freezes her image as a voiceover says the 2 percent tax will be applied to services like movie tickets, haircuts, preparing a will, cable television, buying and selling a home, car repairs, preparing tax returns and funeral expenses. The ad concludes by urging viewers to contact the governor and give her "your two cents" by opposing the proposal. A spokesperson for Ms. Granholm, who was in |