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News Analysis: Looking for Cover

The recent fuss in the Legislature with budget agreements that weren't and battling press releases has made it fairly clear that the Republican majority in the Senate is looking for cover on increasing taxes, but Democratic lawmakers are reluctant to give it to them.

The Senate majority's initial negotiating position was that adjustments to the current budget, discussions of next year's budget, and a replacement to the Single Business Tax, were all to be kept separate. They said explicitly that they wanted to solve the current-year deficit with cuts, but might consider new revenues for next year. Gov. Granholm and Democratic leaders were equally insistent that resolving this year's deficit and funding next year's budget needed to be handled together. The Democratic line that revenue increases were an essential part of the equation gained force after state economists predicted that the state budget deficit (the general fund and school aid fund) would be significantly larger than originally predicted in January. As State Budget Director Bob Emerson put it, "You can't fix school aid without revenues."

The first indications of trouble came when Senate Republican leaders had to recall a member of their caucus from National Guard maneuvers in Arizona to make sure they had a two-vote margin to pass their original "negative supplemental" for school aid (SB 221), which at that time included a $34 per pupil cut to schools and other cuts to intermediate school districts. (See our earlier coverage.)

More recently, some Senators have changed tack in their communications with constituents. Where early on they insisted that they would never support increased taxes, more recent messages on school aid issues are less clear. In particular, members of the Republican caucus were underlining the fact that they had passed a plan to deal with the "known deficit" (the January figures) without taxes (but with cuts, accounting changes, and a "modest" cut to schools).

This focus on the "known deficit" is also becoming clear in the recent moves by Senate Majority Leader Mike Bishop, who announced yesterday that he, House Speaker Andy Dillon, and Gov. Granholm had reached an agreement on closing the budget deficit. The Governor and Speaker Dillon were quick to say that there was no such agreement, and pointed out that the measures Sen. Bishop was referring to only addressed the January deficit numbers.

Today, Sen. Bishop scheduled a meeting of the House-Senate conference committee working on SB 220, the supplemental bill on the general fund for this year, apparently expecting all sides to report out a measure which would address the deficit from January's figures, again without new taxes. The fact that Democratic leaders balked at approving such a measure, just days before the revenue estimating conference was expected to announce much larger deficit figures, prompted a flurry of anger from Sen. Bishop. "I'm absolutely beyond words on how to express with my disappointment with this newest wrinkle in the process where we put a solution on the table and at the last second, there was a complete reneging of the agreement," he said this evening. "This is the worst example of runaway government I have ever seen and I'm embarrassed by it."

The Governor and Rep. Dillon responded in a joint statement: "We are not willing to sign on to a three-day solution that puts us back to square-one on Friday. We encourage Senator Bishop to meet with us in the morning, as scheduled, and to continue meeting until a resolution is reached."

One interpretation of these events would suggest that Sen. Bishop's anger was genuine - not because he expected his proposals to be the final word on the deficit, but because he and his caucus wanted to claim a minor victory by closing the deficit, albeit using January numbers, without taxes. They might feel this would give them more leeway with their presumably anti-tax base to vote for taxes once the deficit grew beyond what was achievable with cuts. In this interpretation, announcing agreements at this point, before this Friday's revenue conference, was crucial to making this whole strategy work.

According to some press reports, the conference committee agreement fell apart after Sen. Bishop refused to pledge to support increased taxes for fiscal 2008. At the same time, House Appropriations Chair George Cushingberry (D-Detroit) told reporters that House Democrats were being asked by Senate Republicans to put forward a proposal to increase the sales tax from 6% to 7%; he argued that there was little point to this step now, since it would require ratification by the public in a referendum (which would delay the measure substantially). Rep. Cushingberry himself has proposed increasing, or in his words "restoring," the income tax rate to 4.6% from the current 3.9% - returning to the rate in place before proposal A passed in 1994. He estimates that such a change, if effective June 1st, would raise nearly $1.2 billion and take the pressure off decisions for the fiscal 2008 budget.

Clearly new revenues, taxes, are on the table. What remains to be seen is what concessions are required to move tax measures through the Senate. One press report suggests that Senate Democrats are offering to link revenue measures to changes in how state and school employee health care coverage is provided. A key feature of any such changes would be linking state benefits to private sector benefits, with employees being asked to pay more of the costs of health care, and perhaps changing the available options. This plays into long-standing efforts by Republican lawmakers to undermine MESSA, the non-profit affiliate of the state teacher's union which currently provides health care coverage to about half of all public school employees. But recent proposals to create new regional and state-wide employee risk pools has attracted support from other public-sector unions, which are worried about the rapidly increasing cost of health care being passed on to their members.

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