Is This The Year Of The ‘Grand Bargain?’
March 19, 2019
Gov. Gretchen Whitmer hasn’t suggested it. Senate Majority Leader Mike Shirkey (R-Clarklake) told reporters he doesn’t envision it. But currently the elephant in the room is the potential pairing of Michigan’s two biggest issues, crumbling roads and skyrocketing auto insurance costs. To many, the prospect of a “Grand Bargain” in which solutions to both are intertwined seems irresistible.
Why not? Don’t big time problems call for big time trade-offs? Or are the complexities of both issues so daunting that combining them would only make solutions more difficult to find? Is the idea of such a “Grand Bargain” visionary or a mirage? MIRS asked a panel of political pundits that question and a handful of other questions, as well.
Q. Is a “Grand Bargain,” linking the road funding issue to the no-fault auto insurance issue, likely or unlikely to materialize?
“At present, it’s a mystery, but perhaps it’s possible,” said Jill Alper of Alper Strategies.
John Sellek, CEO of Harbor Strategic Public Affairs, said such a “Grand Bargain” is “easy to say, but harder to do.”
“Senator Shirkey and Speaker Lee Chatfield (R-Levering) are smart to vigorously pursue rate relief and use the governor’s gas tax proposal as leverage to get her assistance,” Sellek said. “However, between bent rims, growing insistence from business, the Governor’s roads tour, and a spring thaw that will turn asphalt and concrete into rubble, the peak voter rage on roads that makes a tax hike palatable may spike before a concurrent deal can get done on no-fault. Regardless, with Detroit Mayor Duggan and Dan Gilbert also involved, this is shaping up as the most intriguing issue to watch.”
According to T.J. Bucholz, of Vanguard Public Affairs, it’s hard to imagine the two issues not being linked at some level.
“First, using the phrase ‘Grand Bargain’ when lawmakers miraculously agree to doing their jobs drives me crazy,” Bucholz said. “It’s not a ‘Grand Bargain’ to find a comprehensive solution when there’s divided government. It’s called ‘doing the job voters sent you to Lansing to accomplish for them.’
“That being said, I certainly believe there will be some tie-bar between what the Governor wants to accomplish and what Mike Shirkey wants to solve on behalf of Republicans,” Bucholz continued. “I think it’s likely that will be no-fault insurance, especially when Shirkey brought up no-fault insurance at the same time when the Governor’s budget was still hanging in the air over Lansing like words in a cartoon balloon.”
Sarah Anderson, Communications Director for Majority Strategies, suggested there will probably be linkage, even if it’s unseen.
“These are two of the most important issues facing Michigan citizens so whether they are ‘officially’ linked or not, it could make sense,” Anderson said. “The legislature thus far has signaled a willingness to work with the new Governor. If the players all come to the table and can develop an agreement, everyone wins.”
Q. Did Gov. Whitmer make a mistake by not including the idea forwarded by House Speaker Chatfield of fully diverting the sales tax collected at the pump to road funding as part of her budget proposal?
“Lansing waited months for the Governor’s roads plan and she finally dropped it on the legislature like a shovel of cold patch without their input,” Sellek said. “But that was by design because her team clearly wanted to stake a bold claim on solving her key issue, which won her cautious business support and national notice on the Washington Post’s editorial page. She saw what happened with the complex Prop 1 plan and therefore avoided starting with a complicated plan requiring changes to the constitution.”
“The key challenge for Republicans is for the Speaker and Senate Majority Leader to hold together in the face of the Governor attempting to divide and conquer, something they have done a great job of so far,” Sellek added.
Bucholz said, “No,” the Governor did not make a mistake on this one.
“From the Governor’s perspective, her primary rival in this budgetary negotiation is Mike Shirkey” Bucholz asserted. “Speaker Chatfield is an important player to be sure, but what he’s suggesting isn’t necessarily designed to be a huge part of the deal-making process.
“The major difference between this year and past political cycles — such as when Rick Snyder and Jennifer Granholm were Governor — is a lot of the negotiating processes in the past occurred behind closed doors,” Bucholz continued. “Whitmer’s strategy is different — she’s using social media to influence process and coverage through increased transparency, but also through following a long-held tenant of negotiation — putting a longshot deal on the table first with the long-term goal of agreeing to a different deal somewhere in the middle. I think she’s doing a masterful job with legislative horse-trading and setting the pace of negotiations to this point. It’s almost like she’s a lawyer or something. Oh, wait . . .”
According to Anderson, only time will tell whether it was a mistake or not.
“What matters more is where they end up, not necessarily where everyone’s starting point is,” Anderson said. “With the Speaker’s plan, the Governor had an opportunity to live up to her campaign promise of ‘fixing the damn roads’ without proposing a huge tax increase, especially since she scoffed when Bill Schuette said she would increase gas taxes by 20 cents a gallon in the debates. With the idea of diverting the sales tax collected at the pump to road funding, the Speaker is on the right track,” Anderson continued. “Michigan citizens already pay one of the highest gas taxes in the nation. Diverting that money fully to the roads is a move that taxpayers would support and could understand. A huge 45-cent-per-gallon increase at the pump will not be palatable to the voters of this state.”
Alper said it was not a mistake.
“Diverting the sales tax on fuel to roads would cut roughly $600 million in local school funding,” Alper said. “The Speaker has offered no plan for how he would make up that revenue, nor has he offered a proposal for any new revenue for roads.”
Q. Is it inevitable that Michigan’s gas tax will be increased as part of the road funding “solution?” If so, by how much will it be increased?
“Michiganders need to prepare themselves for a gas tax hike of some amount,” Bucholz said. “That being said, it’s likely not going to be 45 cents. Governor Whitmer, as she promised on the campaign trail, offered a comprehensive solution to fixing the damn roads and by all accounts 45 cents is a simple fix that Republicans could agree to with a simple signature. While Republicans and even some Democrats might disagree with it at this point, she’s in the process of negotiating and likely knows she will have to make a deal somewhere in the middle. A quarter (25 cents) seems like a round number — I would bet on that amount being agreed to, along with some increased taxes on small businesses, fees on heavy trucks, and no-fault auto insurance savings being tied in.”
Anderson maintains that there’ll only be a gas tax hike if absolutely unavoidable.
“The legislature is looking for ways to fully fund the road repairs that we need without increasing gas taxes,” Anderson said. “That may mean a pretty deep dive into the budget, reviewing how tax revenue is collected at the pump and other places, but ultimately, we need to explore every possible alternative way to invest in our crumbling roads and infrastructure without jumping immediately to a significant tax increase.”
According to Alper, a gas tax increase is probable.
“The Governor has made it clear that Michigan needs $2.5 billion in revenue to fix the roads,” Alper said. “So far, she’s the only one who has put a real plan on the table to get us there.”
Sellek agreed, some level of increase at the pump is likely.
“The governor’s strategy started with a straight-ahead gas tax increase, but a final deal will inevitably involve more complicated revenue streams and therefore greatly lower the amount of any gas tax increase,” Sellek predicted.
Q. Is the “S-corps” (pass through entities) tax hike portion of the Governor’s budget plan DOA in the legislature?
“Yes, and there is a strong possibility that Governor Whitmer knew it,” Anderson said. “She needs a balanced budget but wants to propose new things, like the expansion of the Earned Income Tax Credit, to appeal to her base. The legislature will save her from the economic havoc that this business tax would create while she can turn to her base and say ‘See, I tried.’ We have seen this movie before, and the sequel promises to be worse than the original.
“Under Governor Granholm, the Democrats tried to balance the budget on the backs of small business, and it was one of the many mistakes that brought us the Lost Decade,” Anderson added. “Governor Whitmer must know this tax will hurt small businesses and slow Michigan’s economic growth, ultimately costing the state money when those businesses pack up and leave Michigan and take their jobs with them.”
Alper reiterated that, it’s easy to criticize, but no one’s seen a GOP alternative, yet.
“The Governor has indicated that she is open to dialogue on this, but again, she is the only one who has offered a real plan to pay for repealing the Retirement Tax,” Alper said, “So far, it’s been ‘crickets’ from the Speaker and Senate Majority Leader about how they would pay for this.”
According to Sellek, these tax hikes are DOA. “The legislature will not turn back the clock on economic reforms plus they know the Governor’s proposal was a place marker that, for now, allows her to say she did her part to cut the pension tax and pin any delay on a ‘pro-corporate’ legislature,” Sellek said. “Pension tax reform will happen, albeit later, because both sides want it.”
Bucholz said it’s dead, unless negotiations revive it.
“At the moment, it’s DOA for the House for sure, but again, negotiation is the name of the game with Governor Whitmer in 2019,” Bucholz said. “When you look at this proposal, it’s pretty much a reversal of Governor Snyder’s tax break for corporations passed in his first term. In this climate we are engaged in, the budget is like a Christmas tree and every player involved will have to hang an ornament or two on it before they have a Merry Christmas.”