Rainy Days Are Ahead

August 11, 2006
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GRAND RAPIDS — Even though Kentwood Mayor Richard Root isn't a meteorologist, he predicted that a perfect storm could develop over Michigan in November, one that just might leave local public officials treading fiscal waters for years to come.

Root, who chairs the Grand Valley Metro Council's Legislative Committee, was referring to a pair of proposals that are almost certain to be on the ballot in November, along with a trio of actions that state lawmakers are likely to take before the year ends.

One has already been taken since Root issued his warning a few weeks ago, as legislators agreed last week to execute the Single Business Tax — tagging the business levy with an expiration date of Dec. 31, 2007.

Lawmakers were able to do that by a simple voice vote because an initiative to eliminate the SBT was cleared for the fall election, and that clearance gave legislators 40 days to take veto-proof action on it. And they did it on the same day the state promised Ford Motor Co. a 20-year SBT credit of $151 million for the automaker's $1 billion investment in Michigan

"I might question the wisdom of the state in doing this without having a replacement tax," said Root.

SBT revenue was worth roughly $2 billion annually to the state. Two billion dollars more could be lost each year if lawmakers erase the personal property tax, a move favored by business groups including the state and local chambers of commerce. Communities receive revenue from the PPT and offer exemptions from the tax to manufacturers. Municipalities also use SBT credits as incentives to developers.

"There is no plan in place to replace the SBT and the personal property tax," said Don Stypula, GVMC executive director. "Four billion (dollars) will be gone from the state budget."

Stypula is part of a work group the Grand Rapids Area Chamber of Commerce has organized to look at ways of replacing lost SBT revenue, and he said a gross receipts tax is the work group's leading candidate right now.

But as it stands today, revenue from that new levy would return about $1.5 billion to the state annually, or roughly $500 million less than the SBT generates. The Michigan Chamber of Commerce has called for a business tax break ranging from $400 million to $500 million to accompany the SBT replacement, and the local chamber supports the cut.

Stypula said lawmakers would pass a replacement tax package in the "lame duck" session in December, if Gov. Jennifer Granholm is returned to office. But if challenger Dick DeVos wins in November, Stypula said a new tax would be coming in the spring.

Another issue that has local officials concerned is legislators are putting together a bill that would establish a statewide franchising system for telecommunications, including cable television service and Internet access.

Local officials negotiate those contracts today, which let them collect a fee and retain control over rights-of-way. A state bill would outline a contract for all locales in Michigan, and local governments would likely get a smaller franchise fee and lose control over rights-of-way under it.

"No news, in this case, is not good news because there is a panel that has been working on this in the state House of Representatives. We have not heard anything. We have not been involved in any work groups to work out a deal on legislation," said Stypula.

"Because of that, my experience tells me that they're getting ready to introduce a formal bill that will spell out the terms of conditions," he added.

Stypula said local officials have been willing to negotiate franchise contracts with AT&T and Verizon — the telecom firms pushing for a state law — because they want the competition for cable, phone and Internet services for their residents.

"They (AT&T and Verizon) thumbed their noses at it," said Stypula, who expects the telecom bill to be passed in the lame duck session.

But the U.S. Congress could act on its version of a franchising bill that would create a national system and trump whatever comes out of Lansing. The federal bill may give local units 30 days to reach an agreement with a new cable and Internet firm, a somewhat hollow offering. If a contract isn't in place within a month, then a national franchise would be awarded to the provider. The Federal Communications Commission would put that agreement together.

"In the U.S. Senate, senators are coming real close to the 60 votes that would close debate on it. We're working with Senators [Carl] Levin and [Debbie] Stabenow to not support that effort. It's kind of hard to predict," he said.

But because Congress has more important issues to deal with during an election year, Stypula said Washington may not get to the legislation before this year's session ends.

At their last meeting, Metro Council members unanimously passed resolutions opposing the K-16 and Stop Over Spending (SOS) proposals heading to the November ballot.

The K-16 resolution would automatically hike state funding for all levels of education by linking increases to the Detroit Consumer Price Index. The council dislikes the measure as members believe it would have a harmful effect on municipal budgets.

"I am of the understanding that there are a number of school districts that are not supporting this," said Mike DeVries, supervisor of Grand RapidsTownship

Members oppose the SOS resolution, which is expected to be on the ballot, because it limits state-spending increases to the inflation rate and would make everyday business difficult to conduct. For example, the Michigan Township Association said SOS would require a municipality to get voter approval if it wanted to buy new office equipment.

Stypula fears the measure will appeal to voters because it prohibits state lawmakers from receiving pensions. He said it will have a good chance to pass if the pension ban is at the top of the 100-word description on the November ballot.

"Where that language regarding pensions falls within the 100 words is crucial," he said.

Center for Michigan President Phil Power, a keynote speaker at the GVMC Growing Communities Conference in June, said the SOS campaign is being funded by three out-of-state groups. Power named Americans for Limited Government of Glenview, Ill., Americans for Tax Reform of Washington, D.C., and the National Taxpayers Union Foundation in Arlington, Va., as having spent "north of a million bucks" to get the measure on the ballot.

SOS is similar to a Colorado resolution that voters passed in 1992. Voters suspended it for five years last fall.

Both K-16 and SOS would amend the state Constitution, if approved by voters.

"I'm terribly pessimistic that local governments will be able to sustain themselves if all of these pass," said Root.    

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