LEGISLATIVE/REGULATORY SUMMARY OF ACTIONS
IN APRIL 2007

Pressure Mounts To Resolve Current Budget Shortfall/Replace Business Tax

Governor Granholm has given the Legislature 30 days to resolve a $713 million budget deficit in the current year (ending September 30, 2007) budget or cut school and Medicaid funding. Additionally, legislators are being pressured to establish a new business tax before the current Single Business Tax expires January 1, 2007. The House is working on a new tax proposal submitted by Democrats and the Senate is poised to pass its BEST proposal crafted by Republicans. See articles below.

Landfill Surcharge Bill (HB4221) Discharged/Passes Democratic House

A bill that would impose a recycling and waste diversion surcharge of $7.50 per ton surcharge on all solid waste disposed of in a landfill was discharged from committee and approved by a slim majority of the House of Representatives. The only exception from the charge is municipal incinerator ash disposed of in a landfill. The money is to be remitted to the state quarterly and deposited into a Recycling & Waste Diversion Fund. As with previous version of this legislation, the bill does not provide an exemption for Type III or other types of high volume industrial wastes. The bill faces an uphill battle in the Republican-controlled Senate. Waste industry spokesmen suggested money for recycling would be best spent creating markets for materials, not for community collection programs. It was suggested the fee could also have the opposite effect of increasing the potential for illegal dumping. The fee is estimated to generate up to $150 million per year at current disposal rates.

Utility Companies Turn Up Heat To Repeal/Revise “Electric Choice”

Both DTE and Consumers Energy have turned up the heat on the legislature to repeal or revise the Electric Choice and Reliability Act of 2000 (PA 141). In a series of hearings before the House Energy & Technology Committee, the utilities have paraded a number of interest groups and experts to point out flaws in the current “hybrid” system which allows companies to choose between their incumbent utility and an alternative electric supplier. The utilities allege that they will be unable to finance necessary base load capacity expansions without a return to monopoly status. Choice advocates counter that the current system has saved hundreds of millions, kept prices down and that independent developers stand ready to build the necessary base load capacity without financial guarantees.

ENVIRONMENTAL ISSUES:

Solid Waste Moratorium/Planning Bills Sent To House Floor (HB 4485-6/HB 4047)

Solid waste legislation calling for solid waste inspection (HB 4485) and changing how solid waste management plans are crafted (HB 4486) were reported out of the House Great Lakes and Environment Committee on a straight 8-4 party line vote. The bills provide as follows: HB 4047 imposes a moratorium on the construction or expansion of existing landfills with minor exceptions. HB 4485 and HB 4486 amend the solid waste planning process in Michigan and create new definitions relating to solid waste and landfills. Testifying in opposition to the bills was an attorney hired by the Michigan Waste Industries Association who pointed out several flaws in the bills. Among other things, the bills provide for staggered county solid waste management plans (and updates), inspections of waste facilities, revised permit fee schedules and major new solid waste law definitions including the definition of: agreement, captive facility, consistency review, de minimis, designated planning agency, excess landfill disposal capacity, garbage, guaranteed landfill capacity, intergovernmental agreement, landfill disposal capacity, planning committee, planning entity, remaining landfill disposal capacity, scrap wood, solid waste boundary, solid waste diversion, solid waste management plan, treated wood, trust fund, and wood. As with the recent tipping fee legislation (HB 4221), these bills will face tough sledding in the Republican-controlled Senate.

Dingell Bill To Limit Canadian Trash Passes U.S. House of Representatives

Michigan Congressman John Dingell, chair of the powerful Energy & Commerce Committee, has successfully moved legislation granting states the authority to control trash imports from Canada. The legislation cleared the U.S. House of Representatives without opposition. Bush administration officials cautioned the move could result in counter moves by Canada to restrict the import of hazardous waste from the U.S. Trade officials questioned whether the legislation violates provision of NAFTA and the WTO. Last year, Senators Levin and Stabenow negotiated an agreement with Ontario to voluntarily phase out shipment of trash to Michigan by 2010. Last session, similar legislation passed the House but died in the U.S. Senate.

EPA Pondering Lowering Ozone Standard

The USEPA is planning to issue a proposed rule by June 20, 2007, to establish a new National Ambient Air Quality Standard (NAAQS) for ozone. The new ozone standard could be reduced from the current .08 ppm to .06 ppm.

Work Group Recommends Reforms To MDEQ On “Clean-Up” Program

A stakeholder group charged with reviewing the effectiveness of Michigan’s clean up program under Part 201 or NREPA has issued its report to MDEQ Director Steve Chester. The work group separated into four subgroups (Program Administration, Brownfield Redevelopment, Complexity & Technical Issues, and Liability & Compliance). The group came up with about 100 recommendations of which 50 would require legislative changes.

Work Continues On Proposed MDEQ Fee Increases

The business community continues its efforts to oppose more than $20 million in new fee increases being proposed by the MDEQ as part of its 2007-2008 budget proposal.

Title V Air Fee Discussions/Debate Continue

Debate over the proper level of funding and staff for the federal Title V air program continues. The MDEQ has proposed a new budget of $16,576,000 to support 127 staff (13 more than in 2007) and $2 million more than the agency listed as expenses in 2007. The agency also seeks to raise the facility charges for Category 1, Category 2 and Category 3 facilities as well as increase the emission rate per ton of pollutant from $45.25 to $50.84 per ton. Business interests argue the program should match the “presumptive minimum” provided for by the federal government—or about $12 million in 2007. Industry also opposes incorporating an annual inflation adjustment and insists on a sunset date for the fees.

Annual Pollution Prevention Report Issued

The Michigan Department of Environmental Quality has released its 2006 Pollution Prevention (P-2) Annual Report. The report can be accessed at: www.michigan.gov/deqp2.

ENERGY:

Renewable Portfolio Standards Pushed By Coalition

A coalition of alternative energy companies and environmental groups is pushing for mandatory renewable portfolio standards (RPS). These standards would require all providers of energy to source 10% of their capacity from renewable sources by 2015. Currently, Michigan’s renewable portfolio is approximately 3%. Renewable energy includes wind, solar, geothermal, biomass and hydroelectric. The Michigan Sustainable Energy Coalition also is requesting a mandate for 20 year contracts between alternative energy developers and utility companies to allow them to get financing for their projects. Opponents of an RPS cite the huge cost, poor reliability and other concerns including the impact of building over 700 wind turbines in Michigan and suggest the standards be voluntary. Environmental groups suggest the RPS would be both good for the environment and create jobs/stimulate economic development. The MSEC group testified before both the House Energy & Technology Committee and the Senate Energy & Public Utilities Committee the week of April 23rd.

Consumers Energy To File “Balanced Energy Initiative” Plan With MPSC

Consumers will file a plan with the Public Service Commission it alleges will help meet projected energy needs in its service territory into the future. The Balanced Energy Initiative calls for energy efficiency, alternative energy generation and up to 1,250 megawatts of new traditional coal fired (750 MW)/natural gas (500 MW) generation by 2015. The utility contends it will not be able to provide the new generation without prior certification and a guarantee of its return on its investment. Therefore, it is calling for the repeal or significant modification of the current electric choice program under Public Act 141 of 2000. Proponents of choice argue that developers stand ready to construct new generation in the state without the guarantees of the utilities are demanding.

Customer Choice Coalition Introduces Legislative Package (HB 4630, SB 426-428)

The Customer Choice Coalition, a group of alternative electric suppliers and customers, has sponsored introduction of three pieces of legislation designed to expand and enhance the current electric choice program and provide for future base load generation needs on a competitive basis. The legislation includes: SB 426 providing for expansion of the electric choice program to residential customers, SB 427 (also HB 4630) which provides for competitive bidding for siting new base load capacity in the state, and SB 428 which provides that choice customers receive value for their payment of fees/charges that accrue to the benefit of incumbent utilities.

MPSC To Convene Statewide “Smart Grid” Collaborative (U-15278)

The MPSCE has directed staff to convene a statewide collaborative on a smart grid infrastructure to improve the state’s electric grid. The effort will include examination of new technologies in metering and monitoring power flows. The effort will also focus on accommodating a variety of generation technologies (wind, solar, etc.). All regulated electric distribution companies are ordered to participate, in addition to other interested parties.

DTE And Consumers File Reconciliation Cases

DTE has filed a case (U-14702/U-15259) with the MPSC seeking recovery for approximately $50 million in under-recovery power supply cost recovery (PSCR) costs and over-recovery of $20.8 million pension equalization mechanism obligations. A hearing is scheduled for May 10, 2007. Consumers Energy has filed a case (U-14701) to reconcile its 2006 PSCR under-recovery of $114 million into its 2007 PSCR factors. A hearing on the case is to be held on May 8, 2007.

Consumers Energy Files For $157 Million Rate Increase (U-15245)

Consumers has filed a case requesting to increase its electric rates by not less than $157 million in 2008 to produce a return on equity of 11l25% and allow for continuation of pension and other post-retirement expenses. It is also seeking relief related to the sale of Palisades and Big Rock, including $60 million in costs. Consumers is asking for simplification and consolidation of rate schedules, eliminate rate skewing over 5 years and for other modifications to its rates, rules and regulations. A pre-hearing conference on the case is scheduled for May 10, 2007.

DTE Files $123 Million Increase/Seeks Permanent Choice Incentive Mechanism (U-15244)

Detroit Edison (DTE) has filed for a rate increase of $123 million for 2008, de-skew rates and permanently establish the Choice Incentive Mechanism and modify to 90/10 sharing mechanism.

TAXES & ECONOMIC DEVELOPMENT:

Democrat Single Business Tax (SBT) Replacement Plan Has Broad Appeal

In the latest volley of proposals to replace the sun-setting Michigan Single Business Tax, House Democrats have served up a new plan that appears to be getting some traction across party lines. The proposal includes:

• A 6.95% tax on business income (profit) and a 0.488% tax on net worth (assets less liabilities)
• Exemption for commercial and industrial personal property on the 18 mill local school operating millage and the 6 mill State Education Tax (on average, 46% of tax liability)
• Additional 50% refundable credit for industrial personal property taxes paid (combined with the 24 school mills, reduces liability for manufacturers by 73% on average)
• $700 million in new credits for in-state compensation, investment, and R&D
• Small business tax relief including retaining the $350,000 gross receipts filing threshold and gradual phase-in through $700,000. Small businesses with less than $10 million in gross receipts and income for a single owner not over $115,000 can opt to pay a tax of 1.8% of adjusted business income
• The tax on insurance companies increases from 1.07% to 1.25%, but insurers will retain credits from the SBT
• Retain the existing credits from SBT:
• Start-up business credit
• Early stage venture investment credit
• Charitable contributions credit
• Supplemental worker's compensation credit
• Community foundation credit
• Homeless shelter/food bank credit
• Next Energy credit
• Michigan Economic Growth Authority (MEGA) credit
• Renaissance Zone credit
• Historic rehabilitation credit
• Brownfield credit

One key element of the plan is the ability of Michigan-based businesses to cut their tax rate substantially by taking advantage of all the available credits provided under the plan. Manufacturers are big winners under the proposal as their personal property taxes would drop due to a 50% tax credit against their business tax liability. The use of an income and net worth tax is currently employed in 24 other states.

Republicans Poised To Pass BEST Tax Plan In Senate

In response to the House Democrat tax plan, Republicans in the Senate are expected to advance their BEST Plan (SB 94-96) which would replace $1.5 billon of the $1.9 billion and provide personal property tax relief. The House and Senate proposals will likely serve as the framework for a bipartisan compromise business tax replacement.

LANSING POLITICS:

MEDC Travels To China On Trade Mission

The Michigan Economic Development Corporation (MEDC) traveled to China on a 10-day trade mission to promote Michigan. The group is working at the Shanghai Auto Show and a life sciences forum. Accompanying the MEDC were members of various regional economic development organizations from around the state.

Michigan Jobless Rate Dips/Revenues Down

Michigan’s unemployment rate showed improvement in 13 of 17 major labor markets around the state. In March, unemployment fell to 6.5%---the lowest since October, 2005. However, state revenues were down 5% from the same period a year ago.

Fair Tax Group Readying 2008 Ballot Initiative

A group promoting the Michigan Fair Tax plan is working to get its proposal on the 2008 ballot. The proposal would eliminate most taxes on business and replace the current 6% sales tax with an 8.58% sales tax.

Bond Rating Services Poised To Downgrade Michigan

Major bond rating agencies are poised to downgrade Michigan’s bond rating in the face of falling revenues and the state’s failure to replace its business tax. All three major bond rating agencies, including Fitch, S&P and Moody’s gave Michigan a negative outlook. Moody’s and Fitch recently lowered Michigan’s bond rating from AAA2 to AAA3.

NATIONAL INDUSTRY NEWS:

U.S. Files Two New WTO Complaints Against China Over IPR Protection, Barriers

U.S. Trade Representative Susan Schwab--signaling the continuation of a tougher U.S. stance on longstanding trade complaints against China--announced April 9 the imminent filing of two World Trade Organization cases, one against China's regime for copyright and trademark protection.  China and the United States will have 60 days to discuss the complaints and seek a mutually satisfactory solution, after which USTR can ask for the establishment of a WTO panel. The United States could get the right to impose retaliatory duties on Chinese imports if the WTO were to uphold the complaints.

The WTO complaints are the latest in a series of stepped up actions against China this year.

The administration, in a preliminary decision March 30 on glossy paper imports, reversed a decades-old policy of not applying countervailing duty laws to China. The change marked a major shift for the Commerce Department, which for the past 23 years had chosen not to apply CVD law to nonmarket economies such as China.

The administration also filed a WTO complaint against China in February over industrial subsidies. Consultations are ongoing concerning this complaint.

The April 9 announcement comes against the backdrop of increased prodding by the new Democratic majority in Congress to take action against the growing trade deficit with China, China's currency regime, and other trade irritants. Sen. Sherrod Brown (D-Ohio) characterized the timing as suspicious. "China has engaged in rampant violations of its international commitments ever since its accession to the WTO. "While this is a step in the right direction, the timing of the president's action is certainly suspicious, given that his blanket authority to make trade deals is about to expire. I wish the administration would work to protect jobs in the heartland as much as it protects Hollywood DVDs and drug company patents."

Unfortunately this most recent action does not deal with China's currency undervaluation.

Update On Hill Success Regarding Fair Currency Act (HR 782/S 796)

Thanks to all the AFS members that advocated in favor of the Fair Currency Act during the AFS Government Affairs Conference.  We’re up to 73 co-sponsors in the House.  In the Senate, we’re at seven cosponsors, with Senators Bunning (R-KY), Stabenow (D-MI), Bayh (D-IN), Snowe (R-ME), Levin (D-MI), Casey (D-PA) and Voinovich (R-OH) (our newest addition!). The bill strengthens existing laws to combat distorted exchange-rate policies by providing U.S. manufacturers injured by unfair currency practices with access to relief under U.S. trade laws. The bill also directs the Treasury Department to identify and take action against those trading partners whose currencies are "fundamentally misaligned" with general macroeconomic conditions.

Changes To MACT Proposed (Federal Register – April 17, 2007)

EPA is proposing to modify the Iron & Steel MACT regulation to reflect the changes agreed between EPA and AFS as a result of the industry's legal challenge to the final rule issued in 2004. AFS will be preparing brief comments in support of this proposal. Comments are due to the agency by May 17, 2007. Barring any unforeseen problems, EPA plans to finalize the changes to the Iron & Steel Foundry MACT soon thereafter.

As you know, the compliance date for the Iron & Steel Foundry MACT was Monday, April 23, 2007. EPA has advised (verbally) that facilities follow the proposed changes in lieu of the language in the final rule. In addition, AFS did request a 60 day compliance extension for any requirements included as part of the legal settlement and this rulemaking. That extension is considered approved unless EPA specifically denies the extension (which has not occurred and EPA staff has indicated that they do not plan to deny the request in the future).

111th Metalcasting Congress To Be Held May 15-18, 2007

The 111th Metalcasting Congress will be held May 15-18, 2007, in Houston. Register now to take advantage of this unique opportunity to learn more about new technology, innovative production practices, ongoing research and successful management tools. In addition to the more than 200 metalcasting industry suppliers exhibiting at the show, more than 140 technical and management presentations will be given by experts from around the world. Visit www.metalcastingcongress.org/registration for more information.