Seasons of change
Legislature could move on issues during lame duck sessions

State government actually captured the public’s attention early this fall. Sadly, it was negative attention on an issue that our Public Policy Committee had labeled as distasteful but the lesser among many evils.

On September 22, the legislature approved a shift in the collection of county taxes from winter property tax bills to summer. This shift takes place gradually, bringing 1/3 of the total bill forward in the first year, 2/3 of the total in the second, and the whole enchilada thereafter. Despite the hubbub, it doesn’t amount to all that much of a difference for the average residential practitioner. After all, county taxes are a fairly minor part of the overall property tax burden — so, homeowners will only be slightly inconvenienced. Commercial property owners will have to do some fiscal coordination, since the numbers can be far more substantial. Nonetheless, this is much better than a commercial property tax hike that comprised the alternative. In another silver lining, the votes on these bills highlighted a real legislative unwillingness to be viewed as pro-taxation.

Governor Jennifer Granholm hailed the agreement, which some had predicted to be one of the biggest tests of her administration thus far. It was in her comments afterward that rang alarm bells here at the MAR. When asked when Michigan’s structural deficit might be addressed in the next year, she said “I think you can expect them sooner than that.”

Worse yet, she specifically mentioned sales tax on services as a strategy. Given the earlier discussions by others in the administration, we need to be alert to sudden proposals in that direction.

Why? As many of you know, we are entering into the “lame duck” session of the legislature, when the State House elections have already occurred and many term-limited legislators can cut deals with less of an eye toward the sentiments of their districts. Still, you might think, the House is not comprised of a majority of tax-hikers. And even if some fantastic deals could be cut, the Senate is only halfway through its term. Will there be a sudden change in philosophy?

The answer is probably not. But, there is no doubt that a big discussion is under way as to whether or not it bears fruit now or in the next term. Many in the Senate have been reading, The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis, by David Osborne and Peter Huchinson. In the book, there is a program laid out that might benefit any of America’s state governments. It calls for a complete reprioritization of spending based on beneficial results, not good intentions. Additionally, it takes a radical look at oversight costs and, in a sense, privatization, to get government workers steering money effectively rather than performing bureaucratically routine tasks. It may or may not entail new things under the sun, but it’s set the Senate in motion.Whether or not it’s a process that can be accomplished in a matter of weeks is another question.

There are reasons to guard ourselves against potential problems. First, there is a great deal of sentimental momentum going for Michigan’s, and America’s, manufacturing base. There hasn’t been a newspaper or magazine that hasn’t talked about outsourcing and job loss in what used to be regarded as America’s greatest economic stronghold. All of which has led to more pressure on state government to lessen the tax burden on that sector and keep those jobs in our state.

Additionally, this discussion comes during one of the greatest sustained real estate markets in recent memory. Some perceptions about our services, and real estate in general, might work as hard against us on taxation issues as they have worked for us in the marketplace. After many Americans pulled their money out of the stock market and put it into “reliable” real estate, it is an unspoken assumption that the real estate market will continue climbing in its present form and price point. Of course, real estate IS a good investment, and land does generally hold its value. But that doesn’t mean we’re in a sector without fluctuations or instability.

One of the more difficult things for our industry would be a rewrite of the tax code as we enjoy a market peak. No one would have suggested that real estate be the bedrock of state revenues when interest rates were at 18 percent in the 1980s. Perhaps you’ll recall bumper stickers asking the last person leaving Michigan to “turn out the lights.” Even if Lansing should look for “revenue neutral” changes to the tax code, there is danger for us in a legislature that forgets those days and the risks our industry continues to face.

All in all, this concern has prompted MAR’s board of directors to increase our Issues Mobilization Fund. If necessary, we will be ready to take our message to the public over the airwaves. The Issues Mobilization Fund had long been set by the delegate body. But, in a board motion (we expect to receive MAR Delegate Body approval early next year) the cap will be reset at double the amount for just such an eventuality.

Bear in mind, we’ve been discussing this and working behind the scenes for over a year now. You’ve heard of the importance of it in our RPAC pitches, in our political involvement and everywhere else. We continue to work within the Capitol and with your local association. With this action, we’ll be ready to take our case to the public with an effectiveness we’ve never had before.

Farmland bill moves forward

House Bill 5030, sponsored by Rep. Howard Walker ( R-Traverse City ), passed favorably out of the Senate Committee on Agriculture, Forestry and Tourism. The purpose of this legislation is to create a low and flat tax for farmland that is registered as an Agriculture Security Area. Additionally, there is a fair calculation for recapturing taxes if the land is sold and not kept in agricultural use.

This idea was reformulated, since the Governor’s Land Use Leadership Council, as a way to protect Michigan’s farmland and the agricultural industry from high overhead costs in this state. The council also recognized that a farmer may wish to sell his land for economic development or other projects not related to farming, and a real debate continues as to how much money the state deserves if land is converted during or after the full contract is fulfilled.

Two new proposals for the bill have gained support from the administration and environmentalists. The administration proposes to fund the program by allowing only 1 million acres of farmland to go into the program for a five-year contract. The current version of the bill allows for unlimited acres to be added into the program over a twenty-year span. Environmentalists also support a proposal which provides for punitive recapture provisions to discourage “land speculations.” Walker and the Senate Committee on Agriculture, Forestry and Tourism oppose such recapture provisions. Accordingly, the bill passed on to the Senate with no amendments, and MAR continues to support the current version of the bill as passed by the House of Representatives with 104 “Yea” votes.

Many eyes will be on the governor’s desk should the bill pass Senate muster. In an era of tightening budgets and revenue shortfalls, it will be a significant signal from the governor on her priorities.