LEGISLATIVE/REGULATORY SUMMARY OF ACTIONS
IN JUNE 2007

Rumors Of Proposed “Severance Tax” On Non Renewable Resources

A rumor has been spreading around Lansing that environmental groups are approaching key legislators about imposing a “severance tax” (similar to that imposed on the extraction of oil and gas) as a possible new source of revenue to fund natural resource and environmental programs. At this point, there has been no specific proposal introduced. FAM will stay on top of this issue.

Governor/Legislature Agree On New Michigan Business Tax

Governor Granholm and legislative leaders have finally agreed upon a replacement for the Michigan Single Business Tax (SBT) which is set to expire on December 31, 2007. The new Michigan Business Tax (MBT) is a combination gross receipts (2/3rds) and profits tax (1/3rd) designed to replace the $1.8 billion in revenue raised by the SBT. The gross receipts tax is called a “margins tax” of approximately 0.8% on a company’s sales less its purchases of tangible property. To establish a company’s gross receipts total revenues will be reduced by the cost of tangible property. Contracting firms will be permitted to deduct the cost of sub-contractors and LLC companies will be able to deduct the cost of salaries paid co-owners. The income tax is imposed at the rate of 4.95%. In order to reduce the impact of the tax on companies with in-state operations, there are a number of tax credits provided. There is a compensation credit of 0.37 percent and an investment tax credit of 2.9 percent of the cost of new capital assets, both capped at 65 percent of a company’s tax liability and a 1.9-percent research and development credit, with a cap at 75 percent of tax liability. The new business tax also contains an apportionment factor based on a company’s sales in Michigan.

The tax is designed to help manufacturers and spread the tax burden more evenly among the various sectors of the Michigan economy. Banking, financial services, insurance and professional service companies will face increases under the new tax. Last minute adjustments were made to address concerns of contractors and small businesses.

Of equal interest is the personal property tax relief granted to commercial and industrial businesses under the proposal. Industrial tax payers would enjoy a 65% reduction in personal property tax burden through an exemption of their 24 state mills (6 mills of state education tax plus 18 mills of local school property tax) and a 35% tax credit for their remaining local mills.

A complete summary of the legislative package is available at the following link:http://www.legislature.mi.gov/documents/2007-2008/billanalysis/Senate/pdf/2007-SFA-0094-E.pdf

ENVIRONMENTAL ISSUES:

Tipping Fee Spending (HB 4222) and Recycling Report (HB 4484 Bills Delayed

Action before the House Great Lakes & Environment Committee on bills to establish a Recycling Market Development Fund (HB 4222) for the purpose of parceling out money to be collected under a previous House-approved bill (HB 4221) imposing a $7.50 per ton surcharge on solid waste has stalled. 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. Business interests and the Michigan Association of Counties opposed the bill while the MDEQ, Michigan Townships Association and environmental groups supported the bill. Another bill revising and requiring detailed new reports on solid waste and recycle material collection (HB 4484) has stalled as well. The bills were scheduled to be reported out of committee on June 27th, but were pulled from the agenda for lack of consensus.

Please note there has been no further action in the Republican-controlled Senate on the $7.50 per ton landfill surcharge bill (HB 4221) or landfill moratorium/solid waste planning bills (HB 4485-6/HB 4047) that passed the House recently.

Statewide Recycling Resolution Introduced (HR 132)

A resolution calling for the Governor and Michigan Department of Environmental Quality to implement a statewide recycling initiative has been introduced by Representative David Law.

CAFO Bills Give Farmers Alternative Compliance To Permits Under Voluntary System (SB 447-8, 502-4)

A package of bills allowing concentrated animal feeding operations (CAF)’s) relief from state permitting requirements if they are certified under a voluntary program entitled the Michigan Agriculture Environmental Assurance program have passed the Senate on a largely party line vote. The bills, as currently drafted, do not have the support of the Michigan Department of Environmental Quality or the Governor’s office. The proposal would exempt farmers from storm water and NPDES permits. Environmentalists strongly oppose the measures.

ENERGY:

Dems Announce Renewable Energy Plan/Senate Energy Chair Sets Work Groups

On June 11th, House Democrats unveiled a renewable energy plan that would provide for 10% renewable energy by 2015 and 25% renewable energy by 2025, foster more alternative energy renaissance zones, promote energy conservation through construction code and energy-efficient appliance, provide tax credits for solar equipment and set a target of reducing electricity consumption by 1% per year.

In response, Senate Energy & Public Utilities chair Bruce Patterson erupted at his June 14th committee hearing accusing House Energy Chair Frank Accavitti of breaking a deal they had struck to work together co-operatively on developing state energy policy. As a result, Mr. Patterson has established two energy work groups: 1.) Conservation, RPS, Alternative Energy comprised of Senators Patterson(R), Birkholz(R) and Olshove (D) and 2.) Regulation & Competition (PA 141) comprised of Senators Patterson (R), Kuipers (R) and Prusi (D).

Customer Choice Coalition Releases Poll Supporting “Electric Choice”

The Customer Choice Coalition, a group advocating the preservation and expansion of the state’s electric choice program, has released a poll in which 77% of respondents supported competition and 67% stating competition was a good way to control electric costs. The Coalition has been promoting a three-bill legislative package to provide: 1. a "competitive bidding" process for siting new base load capacity (SB 427/HB 4630), 2. a "get what you pay for" bill 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. a residential electric choice bill SB 426. Incumbent utilities have been actively working to amend or repeal Michigan’s Customer Choice & Electric Reliability Act of 2000 (PA 141) which they assert hampers their ability to site new base load electric capacity in the state.

Renewable Portfolio Standard Bills Get Hearings In House/Senate

Several bills mandating a portion of all electric energy sold in the state be derived from “renewable” sources were heard before the House Energy & Technology Committee and Senate Energy & Public utilities committees. The House committee heard testimony on three bills (HB 4562- Accavitti, HB 4539 - Jones, HB 4319 - Walker), all of which would impose a mandatory renewable portfolio standard on all providers of electricity in Michigan. The Senate heard testimony on SB 385 (Barcia) which would impose a standard of 20% by 2020. The House bills have varying "rates and dates" for an RPS ranging from 7% to 10% by 2015 and up to 20% by 2020 (and one with goal of 25% by 2025).  Additionally, the bills have different definitions of "renewable energy" and possible "off-ramps" or fines for non-compliance.

The bill that is most likely to move is HB 4562 sponsored by House committee chair Frank Accavitti and supported by the Michigan Sustainable Energy Coalition. HB 4562 defines "renewable energy system" to include an electric generation system using "renewable energy fuel" which includes: biomass, geothermal, solar, wind, hydro electric (except pump storage), landfill gas and that portion of a fuel mixture that is a biomass fuel.  HB 4562 calls for 4% by January 1, 2008, 5% beginning 2009, 6% beginning 2011, 7% beginning 2013 and 10% beginning after December 31, 2015.  Accavitti indicated he will amend his bill to add a "target" (not mandate) of 25% by 2025.

Upper Peninsula power companies expressed concern that the RPS could potentially require the purchase of additional capacity they do not need and idle existing capacity to meet the standards. They also cite transmission constraints for renewable energy sources.

Michigan Renewable Fuels Commission Issues Report/Recommendations

A bi-partisan Michigan Renewable Fuels Commission established by law last session has issued its report and 42 recommendations for encouraging the production of bio diesel and ethanol in the state, increasing the viability of Michigan's agricultural industry and reducing our nation's dependence upon foreign oil. The recommendations include establishing an incentive package of at least $200 million for developing early stage technology projects, exploring federal grant opportunities, reserve 6 tax free renaissance zones for new facilities that utilize cellulosic materials for renewable fuel production, establish “green retailers” tax incentive program, establish regional biomass processing centers, etc. Click here to view the report.

MPSC Calls for “Demand Response Collaborative” Pilot (U-15277)

The Michigan Public Service Commission directed staff to begin and manage a collaborative proceeding for a demand response pilot program. The programs are to be designed to reduce electric consumption in response to price signals, incentives or information from electric grid operators. The process is to include “pilot programs” that emphasize the use of “smart” metering, advanced technology and time-based or real time rate structures and in particular assessing the impact o time-based rates on customer demand for electricity. Customers would be allowed to participate on a voluntary basis.

TAXES & ECONOMIC DEVELOPMENT:

Focus On 2007-2008 Budget/Republicans Demand Cuts Before New Revenues

With the 2006-2007 budget repair agreement mostly enacted, the Governor and Legislature are now focused on the 2007-2008 budget starting October 1, 2007. The parties have already begun squabbling as to whether the 2007 budget deal included commitments for cuts and new revenues in 2008--- and how much. A new revenue target of approximately $1.5 billion was allegedly agreed to, but only after identifying approximately $300 million in wage concessions/reforms or other program cuts. New revenues are likely to come in the form of a broadened sales tax and increase in the personal income tax from its current 3.9% to 4.1%.

LANSING POLITICS:

Legislature Takes Brief “Summer Break”

The Michigan Senate and House have scrapped their planned two week recess for the July 4th Holiday and will return to work on July 10th rather than July 17th as originally scheduled.

Governor Granholm’s Popularity/Support Numbers Drop

The popularity of second term incumbent Governor Jennifer Granholm has dropped to its lowest point with a positive job performance number of just 34%.

Part Time Legislature Mulled

A couple of proposals (SJR B, HJR H, HJR M) to move from a full to a part time legislature have been debated in committee. While many argue both sides of the issue, proponents insist that Michigan’s term limit law must be also modified for a part time legislature to be effective.

Michigan’s Unemployment Remains High/State Revenues Down

While Michigan posted slightly better employment numbers in May (6.9% down from 7.1% in April), it still remains at the bottom nationally—surpassing even Mississippi with 6% unemployment. State revenue collections also fell 17.7% from May of last year and are off 1.2% overall from last year to date.

Michigan Chamber Calls For Legal Reforms

The Michigan Chamber of Commerce is calling for Michigan to enact greater control over the state’s legal process including limiting lawyer contingency fees, enacting a “loser pay” system, and provide incentives to settle lawsuits.

Second MPSC Member To Depart

Following the departure of Laura Chappelle, Republican member of the Michigan Public Service Commission, effective June 7th, another member of the 3-person commission—Democratic chairman Peter Lark is leaving to accept a job as head of the City of Lansing’s Board of Power & Light. Governor Granholm will now be faced with making 2 appointments to the public utility policy-making body.

NATIONAL INDUSTRY NEWS:

AFS Government Affairs Committee Meets In Washington, D.C.

The AFS Government Affairs Committee met in Washington, D.C. on June 27th to review state and federal issues including Trade, OSHA, Subpart UUU, Area Source Rule, Family Medical Leave Act and the Employee Free Choice Act.

Senate Poised for Considering Employee Free Choice Act Next Week

The Senate will be voting on cloture on the motion to proceed to the Employee Free Choice Act next Tuesday, June 26th, at 11:30 a.m. Senators debated EFCA today prior to adjourning and will re-convene on Monday at 1:00 p.m.  The floor time from 1:00 to 7:00 will be reserved for further debate on EFCA, with three hours for each side.  There will most likely be an additional hour of debate prior to the vote on Tuesday.  Immediately following and regardless of the outcome of that vote, the Senate will vote on cloture on the immigration legislation, so we are not expecting additional debate on EFCA following the cloture vote.

Despite the prospect that the bill will stall in the Senate, AFL-CIO officials say they have pressed Democratic leaders to take it up in order to build momentum for the future, much in the way unions pushed for a minimum-wage increase for a decade until it was finally enacted this year.  John Sweeney, the federation’s president, expressed confidence that the bill would fare better if a Democrat won the White House next year. “This is really about 2009,” Mr. Sweeney said. “But it’s important that we show the country that we have majority support.”

Congress Deals With Pressing Issues Up to Recess

In addition to the Employee Free Choice Act, the debate on immigration is expected to consume much of the Senate agenda next week, while the House continues its work on various appropriations measures.  Because of disputes about how immigration amendments should be debated, the precise schedule remained uncertain late Thursday. But the bill is expected to consume most of the week, before Congress adjourns June 29 for the weeklong July Fourth recess.  Senate Majority Leader Harry Reid, D-Nev., said Thursday he also wants to bring up the fiscal 2008 defense authorization bill before the recess, but that may well depend on how the immigration debate proceeds.

Senate Bill Pressures China on Currency

The top Democrat and Republican on the Senate Banking Committee on Thursday introduced legislation giving the U.S. Treasury Department stronger tools to confront China's currency practices.  "Treasury still refuses to officially identify China as a currency manipulator, despite this evidence that the Chinese government is continuing to undervalue its exchange rate against the U.S. dollar," Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat, said in a statement. "This legislation will put American policy where it belongs -- on the side of American workers and businesses."

Dodd and Sen. Richard Shelby (R-AL), an Alabama Republican, chastised a recent Treasury report on foreign currency practices that stopped short of formally labeling China as a currency manipulator. The U.S. Treasury Department has pushed China to move to a more flexible market-oriented exchange rate policy, but has frustrated many lawmakers and manufacturers by refusing to label China as a currency manipulator.  Dodd and Shelby have said their bill would change the definition of currency manipulation to make it harder for Treasury to avoid making that finding for China.

Last week, the lead Democrat and Republican on the Senate Finance Committee unveiled their own currency bill, the Currency Exchange Rate Oversight Reform Act of 2007 that permits consideration of currency manipulation in anti-dumping cases that deal with price discrimination, which is illegal under U.S. law and WTO rules. However, several important provisions of the legislation need to be strengthened to make the legislation effective, including:

1. The Treasury Department would have a key role in the antidumping process in that it would have to determine what the fair currency exchange rate should be and assess whether a country is adopting policies to eliminate currency misalignment. Treasury has not shown a willingness to act aggressively on the China currency issue and Treasury officials insist new legislation is not needed.
2. The President would be permitted to waive a finding of currency manipulation for national security reasons or if he finds it is in the national economic interest not to act. This provides too much discretion, particularly given the history of inaction by this administration.
3. The legislation does not recognize currency manipulation as a government subsidy. It is widely recognized that China’s undervalued currency is an “effective” subsidy as stated recently by Federal Reserve Chairman Ben Bernanke. The China Currency Coalition supports the Ryan/Hunter bill in the House of Representatives and the Bunning/Stabenow/Bayh bill in the Senate, which recognize that the Chinese government provides subsidies as a result of its manipulation of the currency.
4. The processes set forth in the bill are too lengthy and uncertain to meet the urgent need to address the China currency problem in the short term.