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Cashed-In Tax Credits Limits Proposed Increases In Snyder Budget

February 16, 2015

Gov. Rick SNYDER proposed a Fiscal Year (FY) 2016 budget this afternoon that squeezes out modest increases to K-12, higher education and local governments at the expense of a grocery list of program cuts necessitated by $351 million in business tax credits the administration wasn’t expecting.                                                                                                                                 

The Governor also wants to put $36 million more toward career tech initiatives and expand the state’s dental programs to Kent, Oakland and Wayne counties at a $21.8 million expense.

But the additional dollars the state is bringing in from an improved economy is essentially flying back out of the window in tax credits pledged under the prior administration (See “Automakers Awarded Half Of $6.4B In MEGA Credits Since 2005.”)

The upshot is Snyder is operating with a $9.6 billion General Fund, down 6.3 percent from the current year, according to Budget Director John ROBERTS. It means the Governor is basically halving the General Fund contribution to roads from $284.6 million to $139.5 million, which is just enough to get Michigan its maximum federal match money.

So if voters don’t approve the May roads funding ballot proposal, Snyder didn’t provide reporters much of Plan B for lawmakers to start from.

The administration also wasn’t able to expand its preferred programs to the degree it had wanted. The Healthy Kids Dental program, for example, was limited to children 0-8 in the three remaining counties, as opposed to expanding it to all children.

K-12 schools are seeing $75 more a pupil, but $250 million in School Aid Fund money is being used to fill a $450 million General Fund hole in this year’s FY ’15 budget. Michigan’s 15 public universities are getting a 2 percent increase in state funding, but the schools would still be receiving $52 million less than they got from the state before Snyder took office.

Both dynamics left Snyder open to criticism from Democrats that many schools wouldn’t see much, if any, increase and business should be dragged “back to the table” to make a bigger contribution to the state budget.

The way they see it, the Governor gave businesses a $1.8 billion tax cut with his first budget in 2011 and now businesses are cashing in on hundreds of millions in more tax giveaways, which is hurting the pool of money available to education, among other needed services.

“We need to find the right mix between taxes on people and taxes on businesses,” said Rep. Jeff IRWIN (D-Ann Arbor). “In 2011, when the Governor re-wrote the tax code, he reformulated that balance whereas people pay almost everything and businesses pay almost nothing.”

For his part, the Governor called it a “structurally sound, good budget” in that it dumps another $95 million in to the Rainy Day Fund and continues to address long-term liability issues. It creates another 75-member trooper school, puts $31 million in state facilities and $70 million into state government computer upgrades.

Local governments will see 3 percent more in its constitutional revenue sharing, but nothing more in the incentive-based funding pot.

But his proposal also calls for $30 million in new fee increases designed to run specific programs in state government. It also makes cuts to between 50-70 programs, which may mean as many as 30 or 40 layoffs within state government.

Roberts stressed, however, that for those people whose positions are being eliminated, there is a real effort to find them jobs so the number of job losses will be “as close to zero as possible.”

For those cuts to health programs, Snyder said he hoped the continued rollout of the Healthy Michigan program would mitigate the cuts to certain programs.

The biggest sleeping giant in the budget may be the return of a revised Health Insurance Claims Assessment (HICA), now that the federal government alerted the state that it can’t assess Medicaid managed care organizations with the 6 percent Use Tax after this year.

Snyder said the state needs to raises $173 million more from the HICA to get to the $400 million in revenue so Michigan can meet its federal match requirements to fund Medicaid.

During the reporter roundtable, however, the conversation seemed to always circle back to the tax credits and Snyder conceded that he’s taking a hands-on role in figuring out the situation, reading redacted agreements and making his own Excel spreadsheets.

“This is one where I’m personally engaged in,” he said.

The Governor concurred the “retention credits” seem to be where the bulk of the problem is coming from. Several of these credit holders have contacted the administration, but any further elaborations from those discussions would be premature.

“They are interested in sitting down and talking about this whole topic,” Snyder said. “It’s fair to say there are reasonable topics that can be discussed in terms of better visibility and economic growth going ahead in Michigan because these are some of larger employers so I want to make sure we respect that. They’ve grown a lot in the last few years and we should be thankful for that.”

Snyder’s administration has said an exhaustive study was done on these credits back in 2011, but Lt. Gov. Brian CALLEY said nobody believed the companies would hit the job creation numbers they did “in the short term.”

So while the credits were on the radar and they felt they were estimating conservatively for their arrival, the budget fell victim to success of the improved economy.

It was pointed out that some of the Michigan Economic Growth Authority (MEGA) credits on that table were amended during Snyder’s term. Asked about that Wednesday,  the Governor said, “I would not support any amendment to any MEGA that would increase our liability.” 

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