Republicans make room for tax cut in state budget blueprint

Posted at 8:22 PM, Apr 01, 2017
and last updated 2017-04-01 20:22:40-04

LANSING, Mich. (AP) — Republicans who control the Legislature are starting to put their stamp on Gov. Rick Snyder’s budget blueprint, trimming his proposed spending increases to make room for a potential tax cut.

A House plan that began winning preliminary approval in recent days would spend between $200 million and $300 million less. The Senate is setting aside roughly $500 million in “uncommitted” funds — a move the chamber’s budget chief said is designed to provide flexibility to later reduce taxes, pay down debt, spend more or add to savings.

“No decisions have been made specifically on any of that, but that’ll be the negotiations as we get closer to (finalizing) the budget,” said Senate Appropriations Committee Chairman Dave Hildenbrand, a Lowell Republican.

A biannual revenue-estimating meeting in May will shape how lawmakers proceed. But it is clear GOP leaders are not giving up on tax relief despite the defeat of an income tax cut in the House earlier this year. Snyder and a dozen House Republicans opposed the plan.

“We want to keep that on the table,” said House Speaker Tom Leonard, who called it his top priority. “If that means we need to trim part of the budget to ensure that happens, I’m willing to do that.”

He said Snyder proposed a $205 million boost in ongoing spending for the fiscal year that will start in October. Reducing the 4.25 percent income tax to 4.15 percent — a less aggressive cut than lowering it to 3.9 percent as proposed in the failed House bill — would cut revenue by $190 million in the first budget year, he said.

“I believe we can afford tax relief,” Leonard said.

Democrats outnumbered in the Capitol are expressing concern with the GOP’s approach.

Rep. Fred Durhal III of Detroit, the ranking Democrat on the House budget committee, said Snyder’s proposal is “a pretty decent budget” and cutting it back “creates difficulty.”

The House and Senate plans would largely spend the same amount as Snyder on K-12 education, though there are differences over per-student funding levels and issues such as paying for private school kids to take some classes at public schools.

Michigan’s 15 public universities would see a smaller bump in state aid than under Snyder’s plan, but not a cut as some higher education officials had feared. Funding for four schools — the University of Michigan-Ann Arbor, Michigan State, Wayne State and Western Michigan — would remain below levels from seven years ago, however.

Environmental cleanup spending would be cut, prompting Democratic Rep. Jon Hoadley of Kalamazoo to say he was “appalled” because it would underfund initiatives to keep toxic vapors out of homes and remediate polluted sites.

The House is proposing to add a quarter of the $20 million Snyder wants for a statewide infrastructure fund and to trim economic development spending. Unlike Snyder, it also plans a boost in statutory revenue sharing to local governments.

To Democrats’ chagrin, House Republicans propose saving general funds by shifting $50 million from the $174 million Unemployment Insurance Contingent Fund. It has penalties and interest from employers who are delinquent paying into the jobless benefits system and from people who collect too much in benefits.

Michigan recently settled a lawsuit after at least 20,000 people receiving benefits were wrongly flagged for fraud by an automated computer system. The state is facing other suits that seek financial damages.

Durhal said the proposed transfer is “very concerning” because wrongly accused claimants should be paid back. Republicans say the state will meet its obligations, including if a judge later rules for the plaintiffs.

Upon their return from a two-week break, legislators will resume advancing the budget bills — with the crucial mid-May look at tax revenue collections on the horizon.

The House blueprint includes Snyder’s planned $266 million deposit into savings, which would bring the account to more than $1 billion. The Senate, where Republicans also have talked about a tax cut, for now is not committing to the deposit.

“I think the larger question this year is what we do with this uncommitted amount,” Hildenbrand said. “It’s a good position to be in, I would argue. But it won’t be easy to get agreement because people are in different places when it comes to what to do with that uncommitted amount.”