LEGISLATIVE/REGULATORY SUMMARY OF ACTIONS
IN MAY 2007

Governor Touts New Bus. Tax, Cuts, Reorganization, Tax Increase As Solutions

Governor Granholm outlined a four-part solution to Michigan’s budget woes in her annual address at the Detroit Regional Chamber’s conference in Mackinac Island. Her solution includes: 1.) a new revenue-neutral business tax, 2.) more budget cuts, 3.) government restructuring and 4.) a tax increase. The tax increase could come in the form of a broader sales tax or increase in the income tax. Government restructuring could come in the form of consolidation and sharing of services by local governments. For the first time Granholm suggested shopping for public employee healthcare and going to a defined contribution retirement system for public employees.

MDEQ Releases Update Solid Waste Policy

The Michigan Department of Environmental Quality has released its updated Solid Waste Policy for Michigan. According to the agency, the last update was conducted in 1998 and no longer reflects the current realities of solid waste management in Michigan. The policy sets goals rather than prescribing solutions and provides guidance on how to meet the goals. Goals include finding uses for 50% of municipal solid waste by 2015 and ensuring all Michigan citizens have access to residential recycling by 2012. The policy can be viewed at: http://www.michigan.gov/documents/deq/DEQ-WHM-STSW-MI_SW_POLICY_198170_7.pdf

House Energy Committee Chair Floats “Electric Choice Killer” Draft Bill

House Energy Committee chair Frank Accavitti has been circulating a draft bill that would amend Public Act 141 of 2000 and effectively eliminate the current electric choice program by removing all provisions referencing to electric choice and alternative electric suppliers. The bill is not expected to be introduced until mid June.

ENVIRONMENTAL ISSUES:

No Senate Action On Landfill Surcharge Bill (HB4221) That Passed 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. There has been no hearing schedule on the bill, which has been assigned to the Senate Natural Resources & Environment Committee.

Solid Waste Moratorium/Planning Bills Pass House (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) passed the Michigan House of Representatives on May 3rd. 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. 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. In the Senate, the bills have been assigned to the Natural Resources & Environment Committee which has not scheduled any hearings on the bills.

House Hears Bill (HB 4222) To Spend Proposed Tipping Fee Money

The House Great Lakes & Environment Committee held hearings on a bill (HB 4222) which would establish a Recycling Market Development Fund and parcel out money to be collected under a House-approved bill (HB 4221) imposing a $7.50 per ton surcharge on solid waste. Under the proposal, out of the first $53 million, $15,000 would go to each county to cover the cost of a new annual recycling report and the remaining amount of the first $53 million would go to municipalities on a per capita basis. The next $2 million would go to the MDEQ for administration & planning, the next $1.5 million to counties for solid waste planning, the next $8 million to municipalities on a per capita basis for curbside programs. The remainder would be split 85/15 between municipalities and counties on a per capita basis.

Court Upholds Michigan’s Waste Law Limiting Type of Waste In Landfills

The U.S. District Court in Detroit has upheld the validity of a Michigan law that restricts the types of waste that can be disposed in Michigan landfills. The court case was the result of a 2004 law that prohibit landfills from accepting trash from out of state unless it meets the same environmental standards as Michigan. The case is entitled: National Slid Wastes v. Steven E. Chester (USDC, docket No. 04-71271).

EPA Grants Ozone Standard Attainment To 16 Counties

The USEPA has re-designated 16 Michigan counties as in attainment with National Ambient Air Quality Standard (NAAQS) for ozone. However, the USEPA is working on a new ozone standard could be reduced from the current .08 ppm to .06 ppm and create future challenges for these counties. The re-designated counties include: Huron, Ingham, Clinton, Eaton, Kent, Ottawa, Calhoun, Kalamazoo, Van Buren, Berrien, Cass, Muskegon, Mason, Benzie, Genessee, and Lapeer.

Michigan Joins Greenhouse Gas “Climate Registry”

Michigan joins 30 other states in working to track greenhouse gas emission. A Climate Registry works with businesses to measure and track their performance on greenhouse emissions such as carbon dioxide.

Farmers Seek Off–Ramp From Permits Under Voluntary System (SB 447-8, 502-4)

Michigan farmers are seeking relief from state permitting requirements if they are certified under a voluntary program entitled the Michigan Agriculture Environmental Assurance program. The proposal would exempt farmers from storm water and NPDES permits. Environmentalists and the MDEQ oppose the measure.

ENERGY:

Renewable Portfolio Standards Still In The Mix

Renewable energy and environmental advocates continue their push 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 representing these interests is requesting a mandate for 20 year contracts between alternative energy developers and utility companies to allow them to get financing for their projects. James Croce, CEO of NextEnergy, testified before the House Energy Committee that an RPS standard would benefit Michigan from an economic and environmental (carbon emissions) standpoint and that alternative energy sources are competitive with carbon-based sources when viewed on a life-cycle basis. Mr. Croce cited a recently released study by the Center for Sustainable Systems at the University of Michigan entitled: “Michigan at a Climate Crossroads”, which examines RPS, appliance energy standards, etc.

Senate Energy Committee Hears Benefits Of Electric Choice

Eric Schneidewind representing Energy Michigan, gave the Senate Energy Committee a presentation highlighting the benefits of Michigan’s electric choice program under Public Act 141 of 2000. The program has been under attack by incumbent utilities who claim they cannot site a new base load power plant without re-monopolization of the industry. Mr. Schneidewind showed the financial benefits of the choice program since 2000 and offered insights into how base load plants can be located in Michigan under a competitive bid process that would give customers the lowest cost power. The Senate committee was scheduled to hear comments from MPSC chairman Peter Lark on May 24th, but the meeting was cancelled due to state budget negotiations.

Customer Choice Coalition Holds Press Conference On Legislative Package

On May 8th, the Customer Choice Coalition held a press conference to announce the introduction of a three-bill package to provide: : 1. "competitive bidding" process for siting new base load capacity (SB 427/HB 4630), 2. "get what you pay for" legislation to ensure choice customers are receiving value for the charges they continue to pay when not being served by host utility (SB 428), and 3. residential choice legislation SB 426.

TAXES & ECONOMIC DEVELOPMENT:

2008 Budget Awaiting Business Tax Resolution

The resolution of the FY 2008 Budget is on hold until the legislature resolves the replacement of Michigan’s Single Business Tax which is set to expire December 31, 2007. Competing proposals with various types of taxation methodologies and various levels of personal property tax relief are under review. See Story Below.

Business Tax Proposals Merge/Amount of Personal Property Tax Relief At Issue

The Senate “BEST” business tax replacement proposal and the House Democrat proposal have merged into a combined proposal that is close to resolving the dilemma over what form of tax will replace the current Michigan Single Business Tax, which is set to expire on December 31, 2007. Both plans are “revenue neutral”, contain R&D credits and grandfather existing credits/tax exemptions under the SBT. However, the House plan provides for a 6.95% tax on business income and a 0.488% tax on net worth while the Senate plan calls for a 2/3rds modified gross receipts tax and a 1/3rd business income tax. Both plans seek to provide some form of personal property tax relief, but the nature and extent of the relief (amount, credit or deduction, etc.) is still in play. The House wants commercial and industrial property tax relief of 24 mills plus tax credit of the remainder—the equivalent of a 72% reduction in the tax. The Senate wants full 24 mill exemption for industrial, 18 mills for commercial and phased in credit resulting in the equivalent of a 55% reduction. Manufacturers favor the House plan which avoids gross receipts tax and provides more personal property tax relief.

Legislature Scrambles/Settles Current Year Budget Shortfall

Following a downgrade in Michigan’s bond rating, the Michigan legislature is scrambling to close a nearly $800 million shortfall in the current year (2006-7) budget year which ends September 30, 2007. The result appears to be general agreement to raise approximately $400 million by securitizing Michigan’s more of Michigan’s future tobacco settlement revenues and transferring money from the Merit Award Trust Fund and from the Higher Education Student Loan Authority. These two patches, in addition to some one-time accounting tricks appear to have resolved the current year’s budget shortfall. The plan avoids reducing school’s per student allocation by $122, reducing Medicaid payments by 6% and raiding the 21st Century Jobs Fund as had previously been proposed.

Possible Tax Increase In 2008?

A possible increase in the state’s personal income tax from the current 3.8% to 4.6% may be part of a deal between Democrats and Republicans to get approval on the 2007-8 budget. In return for agreement to look at state government restructuring and budget cuts, Republicans may provide enough votes to allow an income tax increase. Each .1% increase in the income tax rate raises an estimated $180 million.

LANSING POLITICS:

Legislators Hold Hearing On Public Employee Wages/Benefits

A series of hearings has exposed the huge cost of the generous wage and benefit packages offered to public employees in Michigan. A legislative package making significant changes is working its way through the legislature.

Legislators Float “Part-Time” Legislature Proposal

A proposal to transition Michigan into a part time legislature has been floated (HJR M)--- but not without a tandem requirement to eliminate the current term limit law. Prospects for changing term limits are slight in light of the fact the limits were enacted by public referendum.

Republican MPSC Member Departs

Laura Chappelle, Republican member of the Michigan Public Service Commission, has resigned her post effective June 7th. Chappelle has served on the Commission since her appointment in January, 2001.

“Fair Tax” Proposal Effort Launched

A proposal to replace Michigan’s income tax, business tax, personal property tax and state education millage with a 9.5% sales tax has been introduced by Rep. Fulton Sheen (HJR L) with a view of putting the measure on the 2008 ballot.

State Revenue Estimates Decrease

The latest round of state revenue estimates paints a gloomy picture with projected reductions in the current year of $195 million and $338 million for 2007-8. According to estimates, the earliest projected turnaround of any kind would be 2009.

Granholm Consolidates/Eliminates Department

Governor Granholm has eliminated the Civil Service Department and moved its functions to the Department of Management & Budget. The DMB was also put in charge of all state accounting and internal auditing under a recent executive order.

Michigan Credit Rating Cut

Michigan’s credit rating by Standard & Poor’s had been reduced from AA to AA-. The drop was a result of Michigan’s failure to address current and long term budget issues.

NATIONAL INDUSTRY NEWS:

US/China Trade Negotiations Update:

Lawmakers and Chinese officials held firm on such issues as currency practices during the first round of meetings the Chinese delegation has scheduled on Capitol Hill this week.  Apparently, lawmakers reiterated to Wu and other Chinese officials concerns about their country’s policies, ranging from its human rights record to government subsidies that critics say give Chinese companies an unfair competitive advantage.

According to press reports, Chinese officials told lawmakers that they plan to make adjustments, “but they have to do it at their timetable and not what we would want them to do,” said Ways and Means Chairman Charles B. Rangel, D-N.Y.  That stance will spur lawmakers to advance legislation in an attempt to compel the Chinese to let the yuan appreciate, Rangel said after the meeting. He said later that he will probably support a measure H.R. 782 sponsored by Tim Ryan, D-Ohio, and Duncan Hunter, R-Calif., that would designate currency manipulation as an unfair subsidy subject to current U.S. trade remedies. “We’re supporting all of the currency bills,” Rangel said. Wu, meanwhile, told lawmakers “that pressure would not work,” Rangel said.

The New York Times reports that a letter was signed by Republicans and Democrats on the House Ways and Means Committee and released to Chinese Vice Premier Wu Yi, which "accused China of not living up to its legal obligations under international trade agreements. The letter sent a signal, if one were needed, that the talks were unlikely to deter Congress from trying to impose sanctions on Chinese exports this year." [See attached article.]

Bottom line:  It is up to Congress to move the ball forward on currency - the big questions - what type of legislation will they develop, will it have teeth and how it will get through the Senate.  AFS will need to keep up the pressure on lawmakers to enact legislation that is actually meaningful.

Note:  AFS submitted testimony to the Ways & Means Committee this week on impact of currency manipulation on the metalcasting industry and in addition, Al Lucchetti will be participating on behalf of AFS in a Manufacturing Summit in June being hosted by the Senate Democratic Policy Committee and spearheaded by Senator Debbie Stabenow.  We will be discussing the Summit and other trade matters during the AFS Government Affairs Committee meeting at the end of June.

Currency Manipulation Hearing

The House Ways and Means Committee, Energy Committee, and Financial Services Committee held "tripartite" hearing today on the China and Japan currency undervaluation issue.  The hearing ran until late this afternoon. Three witnesses testified in direct support of the Fair Currency Act (HR 782 – currency manipulation should be considered as an export subsidy) - Brian O'Shaunessy (Revere Copper), Thea Lee (AFL-CIO) and Bill Hickey (Lapham-Hickey Steel).  I have attached the links to testimony of the entire 1st panel.

Fred Bergsten also testified and presented a strong economic case consistent that the US needs to strengthen its trade laws in regards to currency manipulation.  Bergsten is a former Treasury Undersecretary for International Affairs.  Dr. Bergsten also noted that he and his Treasury team drafted the GATT Subsidies Code 30 years ago, and in his opinion the Ryan-Hunter bill is WTO-consistent.

The hearing was well attended by members of each committee, including Chairmen John Dingell (D-Mich) (Energy Committee), and Barney Frank (D-Mass) (Financial Services).  Ways and Means Trade Subcommittee Chairman Sandy Levin (D-Mich) chaired most of the hearing. Member questions were supportive of action and numerous members were skeptical of Administration strategy and warned of legislation. Representative Tim Ryan (D-Ohio) was granted "temporary" membership on Ways and Means, and participated actively in the questioning. Members of the China Currency Coalition and others felt that the hearing should give a boost to the Ryan-Hunter bill.  Representative Duncan Hunter was not invited to participate. 

The second panel consisted of three Administration witnesses:  Mark Sobel, Deputy Assistant Secretary, Treasury; Steve Claeys, DAS, Commerce; and Dan Brinza, USTR.  They were grilled by both Democrats and Republicans, who were clearly unsatisfied with the responses they received.  The witnesses were reluctant to go on record as to whether better tools are needed to deal with the currency problem.

WHAT’S NEXT: The Ways and Means Committee will likely mark up a China CVD/currency bill after the Memorial Day recess.  However, a specific date has not been announced.  AFS will be submitting testimony for the record.

In the meantime, if you have any questions, please do not hesitate to call me. HR 782 now has 94 House cosponsors. Continue to press your lawmakers to support this measure.