ABC OF MICHIGAN: LEGISLATIVE UPDATE
November 2007
As the midnight deadline passed triggering a government shutdown after nearly nine month of negotiations, the State House, State Senate and Governor Granholm were able to avoid a shutdown in State Government Services at roughly 4:20 a.m. Monday, October 1st through a combination of tax increases and government reforms. A major piece of this agreement is House Bill 5198, a conference committee report on expanding the Michigan sales tax to include select services. Of paramount concern to ABC was keeping construction services from being subject to the 6% tax.
ABC Michigan was on the scene for all 17 straight days and nights working the issue to oppose an expansion of the services tax to construction. ABC Executive Director Chris Fisher urged all 148 lawmakers and the Governor to oppose the tax and informed them of the problems such a tax would create for construction in Michigan. Fisher also met with Speaker Andy Dillon, Senate Majority Leader Mike Bishop and numerous legislators from both parties and in both the House and Senate.
Early last month ABC helped form S.T.O.P. (Stop Taxing Ordinary People) to fight efforts to expand the sales tax to services. Additionally ABC members from around the state responded to the need to oppose a services tax because of the harmful effects a tax on services would have had on construction by sending hundreds of letters to elected officials to fight the services tax.
"Although we opposed any tax on services, we are nonetheless pleased that we were successful in keeping construction services off the table," said Fisher. The negative effects that a services tax would have had on the Michigan construction industry would have been devastating. According to the Michigan Department of Treasury's own estimates, a new 6 percent services tax would have increased construction costs $372 million per year in Michigan. "Now that the door to a services tax has been opened up, ABC will also be on guard to keep construction services from ever passing through that door in the future," he added.
Scheduled to become effective December 1, 2007, the services tax is estimated to bring in $613.8 million in the portion of fiscal year (FY) 2008 it will be collected, and balloons to $751 million for the full FY 2009 – clearly a significant portion of the revenue enhancements contained in the late-night/early morning deal.
The measure received zero Republican votes in the House, passing with the minimum 56 "yes" votes as two Democrats voted "no" (Rep. Marc Corriveau of Northville and Rep. Kathy Elbi of Monroe). In the Senate the vote was a 19-19 tie that was broken with Lt. Governor John Cherry's "yes" vote. Three Republican Senate members (Sen. Valde Garcia of Howell, Sen. Wayne Kuipers of Holland, and Sen. Ron Jelinek of Three Oaks) joined the Democrats on final passage of this measure.
In addition to a tax on services, an income tax increase was narrowly passed as well. After weeks of working to pass House Bill (HB) 5194 to increase the Michigan Individual Income Tax, the House, Senate and administration agreed to a rate and a roll-back structure. Two House Republicans (Rep. Ed Gaffney - Grosse Pointe and Rep. Chris Ward - Brighton) joined 55 Democrats in passing a measure increasing the rate from 3.9 to 4.35 percent. The rate will roll back to 3.95 percent on October 1, 2011 and to 3.9 percent on October 1, 2015.
The measure faced equal difficulty getting votes in the State Senate. Lt. Governor John Cherry ultimately cast his vote to break a 19-19 tie. Four Senate Republicans (Sen. Patty Birkholz - Saugatuck, Sen. Tom George - Kalamazoo, Sen. Ron Jelinek - Three Oaks, and Sen. Jerry Van Woerkom - Muskegon) joined all but two Senate Democrats to send the measure to the Governor's desk. The dissenting Democrats included Sen. Glenn Anderson - Westland and Sen. Dennis Olshove -Warren.
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Scheduled to become effective December 1, 2007, the expansion of the state sales tax to services is estimated to cost taxpayers $613.8 million in the portion of fiscal year (FY) 2008 it will be collected, estimates balloon to $751 million for the full FY 2009. Services being covered under the bill (plus the amount of revenue expected to be raised) as of FY 2008 includes:
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Renewing its call to repeal Michigan’s prevailing wage law, ABC of Michigan pointed to a recent Mackinac Center for Public Policy finding clearly showing that the law costs Michigan taxpayers an extra $250 million each year.
“As lawmakers and the governor try to balance the state budget, they should take a serious look at repealing Michigan’s prevailing wage law,” said Chris Fisher, ABC MI executive director. “This law is tantamount to government-sanctioned wage fixing. It is anything but ‘prevailing,’ and it comes at the expense of Michigan jobs and taxpayer dollars. We need to promote competitive wages that are neither artificially low nor high.”
The study reached the same conclusions as previous studies on prevailing wage laws in Michigan and other states. Under the law, pay on all state-supported construction projects is determined by union scale wages even though union workers represent only 22 percent of Michigan’s construction work force.
Eighteen states do not have state prevailing wage laws, which inflate construction costs, limit state budgets and siphon valuable funds that otherwise could be spent on other vital projects. His includes growing states like Arizona, Florida, Georgia, North Carolina, South Carolina and Virginia.
Legislation to repeal prevailing wages on school construction has been introduced in the Michigan House by Reps. Dave Hildebrandt (R-Lowell) and Arlan Meekhof (R-West Olive). In the state Senate, a bill to suspend prevailing wages whenever state unemployment is higher than the national average has been introduced by Sen. Nancy Cassis (R-Novi).
ABC has lobbied key lawmakers, met with other business groups and will continue to make this a priority issue on behalf of our members and industry.