‘Pen­sion tax’ re­peal faces hur­dle

Loom­ing bud­get threats raise prob­lem for policy pushes pledged by Whit­mer

The Detroit News - - NEWS - BY JONATHAN OOSTING The Detroit News

Lans­ing — Slow­ing eco­nomic growth, slug­gish rev­enues and prior leg­isla­tive spend­ing prom­ises will com­pli­cate Gov. Gretchen Whit­mer’s first state bud­get pro­posal and re­lated policy pushes, of­fi­cials ac­knowl­edged Fri­day.

Ex­perts from the state trea­sury and leg­isla­tive fis­cal agen­cies dis­cussed loom­ing bud­get threats as they agreed to in­crease pro­jected tax rev­enues $264.7 mil­lion this year and $225 mil­lion next year.

The bumps will give the Demo­cratic gov­er­nor and Repub­li­can­led Leg­is­la­ture some wig­gle room as they craft the next roughly $56 bil­lion state bud­get. But they will not fund Whit­mer’s cam­paign pledge to boost road re­pair spend­ing — which will likely re­quire new taxes or bond­ing — and may not fully pay for bi­par­ti­san calls to elim­i­nate the state’s so-called pen­sion tax, which could also face opposition in the Michi­gan Sen­ate.

“As we look out, the num­bers ap­proved here are pretty flat,” new Bud­get Di­rec­tor Chris Kolb told re­porters after the bian­nual con­sen­sus rev­enue es­ti­mat­ing con­fer­ence. “And what we have to do is look at not only what we have, the risk that we’re look­ing at, and the gov­er­nor’s pri­or­i­ties. We’re go­ing to re­ally try to ad­dress those pri­or­i­ties in the bud­get.”

The state is ex­pected to col­lect $10.7 bil­lion in Gen­eral Fund rev­enue dur­ing the cur­rent fis­cal year, up $288.6 mil­lion from pre­vi­ous es­ti­mates but down 2.2 per­cent from 2018. Of­fi­cials raised their pro­jec­tions for the Gen­eral Fund $199 mil­lion in 2020. Of­fi­cials also low­ered rev­enue pro­jec­tions for the School Aid Fund $23.9 mil­lion this year while rais­ing es­ti­mates $25.9 mil­lion for 2020.

The Gen­eral Fund, the state’s main source for dis­cre­tionary spend­ing, is es­sen­tially the same size it was in 2001 when he first served as a state leg­is­la­tor, said Kolb, a Demo­crat who rep­re­sented Ann Ar­bor in the Michi­gan House 2001 from through 2006.

“We’re at the same level we were ba­si­cally 20 years ago,” Kolb said, not­ing that needs and costs have changed over the past two decades. “So we have to come up with a very rea­son­able, thought­ful plan to spend those dol­lars very care­fully and to work on the gov­er­nor’s pri­or­i­ties.”

Whit­mer is ex­pected to present her first ex­ec­u­tive bud­get pro­posal in March. Kolb de­clined to say whether it will in­clude any calls for new rev­enue through taxes, fees or other sources to help fund the gov­er­nor’s cam­paign pledge to boost road re­pair and in­fra­struc­ture spend­ing by $2 bil­lion an­nu­ally.

The ad­min­is­tra­tion is still fine-tun­ing and re­view­ing policy ob­jec­tives, said new Trea­surer Rachael Eubanks, who most re­cently served on the Michi­gan Pub­lic Ser­vice Com­mis­sion.

“Cer­tainly, our pri­or­i­ties are well known,” she said, not­ing pledges “to fix the roads, to make sure that we’ve got clean drink­ing wa­ter, to ed­u­cate the kids and to con­tinue to build a bet­ter Michi­gan.”

Michi­gan’s Repub­li­can-led Leg­is­la­ture made spend­ing prom­ises in re­cent years that re­main on the books as Whit­mer pre­pares to draft her first bud­get pro­posal. They in­clude $600 mil­lion in Gen­eral Fund money that will go to­ward roads by 2021 and nearly $500 mil­lion a year to re­im­burse lo­cal gov­ern­ments for lost rev­enue as the re­sult of in­dus­trial per­sonal prop­erty tax cuts.

Law­mak­ers also ded­i­cated most of the state’s un­spent rev­enue late last year, ap­prov­ing a $1.3 bil­lion sup­ple­men­tal spend­ing bill that Gov. Rick Sny­der signed four days be­fore leav­ing of­fice. The term-limited Repub­li­can also signed leg­is­la­tion to shift rev­enue from the School Aid Fund to off­set pro­jected gains in on­line sales tax rev­enue.

“I guess I prob­a­bly should have taken my job a month ear­lier,” Kolb joked.

State Rep. Joe Bellino, R-Mon­roe, this week in­tro­duced leg­is­la­tion that would re­peal the state’s pen­sion tax, which Whit­mer also vowed to ditch dur­ing her cam­paign. Do­ing so would cost the state an es­ti­mated $200 mil­lion to $300 mil­lion in tax rev­enue each year.

“Michi­gan should not be bal­anc­ing its state gov­ern­ment bud­get on the backs of se­niors,” Bellino said in a state­ment. “They worked hard for decades with the ex­pec­ta­tion their re­tire­ment in­come would not be taxed, but the rules were changed on them in the mid­dle of the game. This new leg­is­la­tion sets things right by get­ting rid of the pen­sion tax.”

Sny­der and the GOP-led Leg­is­la­ture elim­i­nated a long­stand­ing in­come tax ex­emp­tion for pen­sions as part of a ma­jor tax code over­haul in 2011. The law in­cludes a three-tiered sys­tem to phase in the pen­sion tax on res­i­dents reaching re­tire­ment age.

Sev­eral House Re­pub­li­cans are in­ter­ested in re­vis­it­ing the pen­sion tax, but House Speaker Lee Chat­field, R-Lev­er­ing, has not yet taken a po­si­tion on the mea­sure, a spokesman said.

Many House Democrats also fa­vor re­peal­ing the pen­sion tax, said Rep. Jon Hoadley, a Kala­ma­zoo Demo­crat who served on the ap­pro­pri­a­tions com­mit­tee last term and is ex­pected to again.

“There is po­ten­tially room to do that, but I think fig­ur­ing out how we phase that in is a big ques­tion,” Hoadley said of the po­ten­tial pen­sion tax re­peal. “At the same time, when we’re mak­ing sure we’re pro­vid­ing re­lief to se­niors who have earned their pen­sions, I think we should be look­ing at mak­ing sure that cor­po­rate Amer­ica is pay­ing their fair share of taxes.”

The Repub­li­can-led Leg­is­la­ture is un­likely to ap­prove any cor­po­rate in­come tax in­creases, and new Sen­ate Ma­jor­ity Leader Mike Shirkey this week said he op­posed a blan­ket pen­sion tax re­peal.

“To me, that was a fair­ness issue when we did that,” said the Clark­lake Repub­li­can, ref­er­enc­ing the fact that re­tire­ment in­come from non-pen­sion sources such as 401(k) re­tire­ment sav­ings ac­counts were already sub­ject to the in­come tax.

“I’m ob­vi­ously not op­posed to re­view­ing and re­duc­ing taxes, but we’re go­ing to do it in a fair way,” Shirkey said.

Michi­gan’s econ­omy is ex­pected to con­tinue grow­ing but at a slower rate than in re­cent years, economists told bud­get of­fi­cials and state law­mak­ers Fri­day dur­ing the con­sen­sus rev­enue es­ti­mat­ing con­fer­ence.

The state’s pro­longed eco­nomic re­cov­ery is ex­pected to con­tinue but slow in 2019 be­cause of loom­ing jobs cuts at Gen­eral Mo­tors Co., mod­est de­clines in Big Three vehicle sales, a tight­en­ing job mar­ket and Pres­i­dent Don­ald Trump’s tar­iff war with China and other coun­tries.

Pro­jec­tions of con­tin­ued eco­nomic growth are “good news” for Michi­gan, sig­nal­ing more jobs and op­por­tu­ni­ties for fam­i­lies, said Sen­ate Ap­pro­pri­a­tions Chair­man Jim Sta­mas, R-Mid­land.

But “this eco­nomic and fis­cal fore­cast il­lus­trates that we must con­tinue mak­ing smart bud­get de­ci­sions that meet our chal­lenges and keep our state on solid fi­nan­cial foot­ing,” he said in a state­ment.

Kolb

Eubanks

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