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LEGISLATIVE/REGULATORY SUMMARY OF ACTIONS IN AUGUST 2006

HIGHLIGHTS:

Discussions Continue With MDEQ On Part UUU Applicability

FAM’s environmental committee continues to work with AFS’s Washington Office and the MDEQ to resolve the question as to the applicability of an obscure NSPS standard, Part UUU, to foundries. Our position is that the rule was clearly intended to cover drying equipment in mineral processing facilities. The latest information is that USEPA is undertaking an internal review of the applicability of the standard to the foundry industry.

Legislature Repeals Michigan Single Business Tax

On August 9th, the Michigan Legislature voted to repeal the Michigan Single Business Tax (SBT) on December 31, 2007. The Legislature had 40 days to act on a ballot proposal to eliminate the tax or let it go on the November ballot. The action on the ballot proposal does not require the Governor’s approval. Governor Granholm had previously vetoed a legislative proposal to eliminate the tax---stating she would not repeal the tax without identifying the source of income to replace the $1.8 billion annual revenue loss. A number of proposals are being considered to replace the tax. A special tax restructuring subcommittee of the House Tax Policy Committee is continuing its exploration of alternative business taxing mechanisms. Three proposals are the currently of the greatest interest: 1.) Replacing the SBT, personal property and income taxes with a 8.5% sales tax, 2.) a proposal by the Detroit Regional Chamber to eliminate the Single Business Tax and replace it with a franchise and licensing tax imposing a scaled tax based upon profits, and 3.) a proposal to revert back to the simpler tax structure used in Michigan during the period 1953 to 1967. In addition, the Grand Rapids Chamber and Michigan State Chamber are preparing their replacement tax proposals. Replacement of the tax is not expected to be worked on until after the November election in 2007.

FLSA/Overtime & Youth Wage “Fix” Legislation Passes

Legislation to resolve problems created when the Michigan Legislature increased the state’s minimum wage to federal levels have been addressed with a three-bill legislative package. HB 6213 would amend the law to provide that those employees who were previously exempt from minimum wage and overtime requirements would remain exempt. SB 1364 would establish a sub-minimum “youth” wage of 85% of the federal minimum wage for those employees under 18 years of age. In trade for the “fix” legislation, Democrats and the Governor got an earned income tax credit for the working poor under the provisions of SB 453. The bills are tie-barred together and were passed with “immediate effect”—allowing them to become law prior to the October 1, 2006 federal minimum wage increase to $6.95 per hour.

ENVIRONMENTAL ISSUES:

Agreement Reached To Sunset Canadian Waste Imports

An agreement has been reached between the City of Toronto, Canada and Michigan’s two U.S. Senators to end the shipment of Canadian waste into Michigan in the next four years. The agreement was reached between the Ontario Minister of Environment and U.S. Senators Carl Levin and Debbie Stabenow. Reductions in shipments would begin in 2007 and be phased out completely by 2010. U.S. House of Representatives are poised to pass a bill (HR 2941) that would allow states to impose large homeland security inspection fees ($420 per truck) on waste shipments. Passage of the House legislation in the U.S. Senate was not as likely. In reality, the agreement is not a treaty or binding agreement between the two governments, but more of a political arrangement between the Ontario minister and Michigan’s two U.S. Senators. The agreement only affects municipal waste and not commercial/industrial waste. In return for the agreement, Stabenow and Levin agreed not to pursue legislation in the U.S. Senate.

ENERGY:

MPSC Grants Consumers Energy PSCR Electric Rate Increase

The Michigan Public Service Commission has approved a substantial increase in the power supply cost recovery (PSCR) factor for all classes of Consumers Energy customers for the remaining months of 2006. The Commission had previously established a temporary schedule of escalating PSCR factors for each successive quarter of 2006 (2.91 for January-March, 8.30 for April-June, 7.66 for July-September and 6.76 for October-December. The MPSC acknowledged its temporary PSCR schedule set in December of 2005 had purposely under-recovered costs in order to minimize consumer “rate shock” following customer’s high winter natural gas bills. The MPSC set the new maximum PSCR factor at .00994 to address a portion of Consumers under-recovery resulting from the artificially low PSCR factors set earlier. The MPSC denied environmental groups’ request to include energy efficiency and conservation measures in the proceeding. Expect further PSCR increases for 2007 to be set by the MPSC in December.

MPSC Orders DTE Rate Cut/Creates Choice Incentive Mechanism (U-14838)

In response to the MPSC’s recent order for DTE to show cause as to why it should not reduce rates, the MPSC has ordered DTE to cut its rates by $52.5 million on an annual basis beginning September 6, 2006 and beginning in January, 2007 reduce its rates for the sale and distribution of power by an additional $26.25 million on an annual basis. The MPSC also issued an order creating a “Choice Incentive Mechanism” that protects DTE and its customers from possible losses should the electric choice program cause DTE to lose more than a specified amount of electric load. The MPSC also created an “experimental load aggregation provision” to allow the aggregation of individual customer loads from different locations for billing purposes. This program is limited to a specified amount of load on a first come, first served basis.

TAXES & ECONOMIC DEVELOPMENT:

Granholm Calls SBT Repeal “Irresponsible”

Citing the lack of a plan in place to replace the $1.8 billion in annual tax revenue generated by the Michigan Single Business Tax, Governor Granholm has called her Republican colleagues irresponsible. Republicans have countered that they will have a plan for a replacement tax by the end of the year. Granholm had asked Republicans for a pledge they would not cut programs raise taxes on individuals in order to replace lost revenue. Granholm expressed her continuing support for her original plan to cut the rate, provide a credit for personal property taxes and close loopholes. According to the Governor, her plan would have benefited 75% or Michigan businesses. Banks and insurance companies would have seen their tax liability increase under her plan.

Michigan “In The Middle” In Tax Burden

According to a study by the Anderson Group commissioned by House Speaker Craig DeRoche, Michigan ranks 27 out of 50 in total taxes paid by business as a percentage of profit earned within each state. Michigan was ranked 33rd in comparison of total taxes paid as a percentage of gross state product, 29th in terms of taxes paid by business as a percent of statewide personal income and 31st in terms of total state & local taxes as a percentage of statewide personal income. The top ten states in the study were Alabama, Arkansas, Colorado, Georgia, Missouri, North Carolina, Oklahoma, South Dakota, Tennessee and Virginia.

Joint Committee Examines Replacement Tax/Role of Incentives

What started as an exercise in identifying a replacement tax for the recently-repealed Single Business Tax turned into an examination of the benefit of past tax incentives. The Joint Select Committee on Economic Growth veered from its core task of examining replacement revenue alternatives to focus on whether tax credits, exemptions and incentive programs have provided any true economic value in the past---and whether they should be part of the future tax structure. Nancy Cassis, Senate Finance Committee chair and co-chair of the Joint Select Committee, suggested incentives will always be part of the mix to meet competition from other states. The Committee is expected to report its recommendations by December 1, 2006.

LANSING POLITICS:

DeVos Picks Ruth Johnson As Running Mate

Republican gubernatorial candidate Dick DeVos has selected former state representative and current Oakland County clerk Ruth Johnson as his running mate. Johnson adds a female and East Michigan candidate to the top of the Republican ticket

Granholm Jumps Ahead Of DeVos In Polls

According to the latest polls, incumbent Governor Jennifer Granholm has regained the lead against Republican challenger Dick DeVos in the race for Governor by a margin of up to 7 points. Granholm had been trailing DeVos in previous polls taken in June/July.