News Story

So What Happens if the May 5 $2 Billion Tax Hike Fails?

Pundits give their thoughts

While the impending May 5 election hasn’t quite kept the Legislature in a complete holding pattern so far this year, it can be said Gov. Rick Snyder and lawmakers have been toiling beneath its shadow. Approval or rejection of Proposal 1 by Michigan voters will likely set the stage for much of what happens in state government for the balance of 2015.

Meanwhile, with the Legislature out of town for its annual spring break, Michigan Capitol Confidential asked some Lansing political observers about Proposal 1 and other topics.

Q. If Proposal 1 — the $2 billion sales tax hike that is primarily about trying to get new revenues for road funding — is rejected by voters on May 5, would you expect the Legislature to go into “let’s make a deal” mode regarding a “Plan B” for getting road funding dollars?

“They would be smart to do so, but don't count on it,” said Inside Michigan Politics founder Bill Ballenger. “The message from voters is: ‘Yes, we think the roads and bridges are bad and we want them fixed, but we believe you've got the money in Lansing to do it without asking us to raise our taxes.’ If, after the defeat of Prop 1 on May 5, the governor and Legislature are getting a strong message from the electorate that they must act to resolve this issue, then I think it will take something dramatic like raiding the Catastrophic Claims Fund, perhaps involving a ‘Grand Bargain’ wherein a cap is finally imposed on claims — which the insurance industry wants — combined with some ‘borrowing’ from the Catastrophic Claims Fund — which it doesn't want.”

“Remember ‘securitization’ of the tobacco settlement money a decade ago?” Ballenger continued. “That seemed like a wild idea at the time, but it happened quickly when state policymakers realized they had to do something pronto to fix the leaky state budget.”

According to Dennis Darnoi, political consultant with RevSix Data Systems, if the proposal is rejected by the voters, we can see more of what the road funding issue has been producing in recent years — disagreements and complaining.

“Plans B and C have been in the works since Friday, Jan. 30 of this year, but that does not necessarily mean there is legislative consensus on an approach to fix Michigan’s roads,” Darnoi said. “Thus, any solution based on deal-making is likely to come much later in the legislative year. In the interim, we can expect to hear about how poorly the ballot initiative campaign was run and how this issue should have been decided by the last Legislature.”

John Truscott, of Truscott Rossman Group, said if Proposal 1 fails, lawmakers will need to work hard to come up with an alternative.

“I heard Senator Meekhof say that if Prop 1 doesn’t pass, then everyone in Lansing should cancel their plans and prepare for a long summer. I really don’t think it’s a 'let’s make a deal' situation. Rejection of Proposal 1 certainly takes some things off the table politically. I would expect a solution that’s narrowed down and more specifically focused. I do think voters will demand some sort of solution.”

Mark Grebner of Practical Political Consulting said virtually everyone in the legislature will be ready to cut a deal, but that it might not make any difference.

“The Democrats, generally, are pleased to see Prop 1 going down in flames. They were happy to find their votes were needed at all — a sensible Republican majority would have ignored them and settled a proposal on its own terms,” Grebner said. “The Dems have always been happy to make a deal — even a deal that didn't work — they're going to be happy to make another one. The far right is even happier than the Dems to see Prop 1 faltering. If Prop 1 fails, the far right will also remain ready to make a deal — if that deal means reducing public spending somewhere else.”

“Centrist Republicans remain in the same mess they were before the current Rube Goldberg gizmo was assembled,” Grebner continued. “They'd like to find ‘somebody’ to make a deal with, but they don't have a choice of ‘somebody,’ only the Dems and the hard right. In short, everybody is ready to make a deal, but only on their own terms, and not for the good of the body, or the good of the public, for that matter.”

Q. Early this year, state officials announced that selective job creation or retention credits given to corporations and developers while Jennifer Granholm was governor will cost the state $9.38 billion over the next several years, as businesses cash them in or use them to offset tax liabilities. To what extent would you say most Michigan voters are even aware of this situation, and understand what caused it and its impact on the current and future state budgets?

“While Michigan voters are aware of the tax credits for the movie industry, it’s safe to say most of them were not, and are not, fully aware of the impact the other tax credits have on the state budget,” Darnoi said. “Public awareness may increase as these tax credits ensure budget deficits for the foreseeable future. What that means in practical political terms is that governance of the state Legislature will depend upon voters’ attitudes toward taxation as well as the role and scope of government.”

According to Truscott, most voters probably don’t grasp the significance of the issue.

“I think some voters are generally aware, but have no real idea how the tax credit policy has significant consequences,” Truscott said. “A majority of voters probably has no idea how this happened. Policies have consequences, and this is proof. I think over time, more people will become aware, but very few will have a complete understanding. Heck, a lot of voters call their state representative a ‘congressman’ — so I don’t have faith that they’ll fully understand.”

Grebner said he doesn’t see this as an issue the public is very interested in.

“The public has been trained to believe that budget numbers are all matters of political opinion, and vary according to who is making the claims, and what will help their side,” Grebner said. “The public is not at all surprised to have one side claiming the government is running a surplus or has money in the bank while the other claims it's running a terrible deficit and is living on borrowed money.”

“The only people who pretend to take budget numbers seriously, as if there's an objective reality to them, are professional political actors, whose jobs require them to keep a straight face while reading their lines,” Grebner added.

Ballenger said it is likely the public perceives the situation as one more mess the Legislature got itself into and should now be expected to deal with.

“Slowly but surely, the public is probably coming to understand what transpired, and why,” Ballenger said. “However, I think their attitude towards the ‘impact’ of the credit claims on this year's and future state budgets is a little like the public perception of ‘money in Lansing’ on the road repair issue. The public figures this is still more exotic bookkeeping by state politicians who keep rearranging the cash pots in response to one crisis after another.”

“The citizenry figures, in a republican form of government, it elected its politicians as trustees to solve these sorts of problems without dragging rank-and-file voters into it,” Ballenger concluded.

Q. Michigan’s unemployment figures are now at their lowest level since 2001. To what extent does that enhance the reputation of the state and of Gov. Snyder?

“The national economy is buying lots of cars again, and Michigan looks healthy,” Grebner said. “As soon as car purchases tail off — which they will, eventually — we'll hear the same talk about the need to diversify. Nothing miraculous has occurred. We're just benefiting from the tendency for spending on consumer durables to rise faster than the economy as a whole during booms. If anybody thinks the present situation is due to somebody's new ideas, they should get ready to blame a future governor whose ‘bad ideas’ will bring our unemployment rate above the national average during the next bust.”

Ballenger sees the lower jobless numbers as a definite plus, but only a minor one.

“Obviously, it's got to help, but it has to be put in the context of an overall economic recovery nationwide, whereby virtually every state's unemployment rate has continued to drop in recent months.” Ballenger said. “The idea that Michigan is unique in its economic recovery is preposterous. In fact, many are still arguing that it hasn't been as robust a recovery as it should have been, that it's taking too long to achieve, and that we're still not ‘all the way back’ yet.”

According to Darnoi, the state’s overall performance in this area is probably underappreciated.

“It’s certainly a bit of positive news for the governor and is a meaningful statistic by which to gauge the state’s economic health,” Darnoi said. ”Even more impressive than today's unemployment numbers is the steady decline we have seen in relation to the national average over the past year. In March of 2014, Michigan’s unemployment rate was a full percentage point higher than the national average and today it is only .04 percent higher. The steady, consistent decline in Michigan’s unemployment rate over the past year is a solid indicator that our economy is on the mend. “

Truscott said the unemployment figures are very impressive and predicted the public would take notice of that reality.

“It’s a tremendous enhancement of his (Gov. Snyder’s) reputation” Truscott said. “It’s confirmation that his policies are working. Some of the credit should go to the Legislature, too. Bottom line, it shows that leadership matters.”

Q. How seriously should the people of Michigan take news stories about Gov. Rick Snyder potentially entering the 2016 U.S. presidential race?

“I think the people of Michigan should take the talk as a way to tell the Michigan comeback story to the nation,” Truscott said. “I really don’t see the governor running a national campaign, but I do think he is effectively using the attention to market Michigan. There is a lot of good news that has come from his leadership and to the extent that national political talk helps tell the story to a broader audience, it helps the state overall.”

Grebner said no one should take these stories seriously.

“The idea of him running for president is zero-percent serious,” Grebner said. “There's no chance whatever that he'll run, or his name will appear on a ballot, or that he'll be on any genuine list of VP possibilities. None.”

Ballenger doesn’t believe the governor takes the stories seriously and says the public shouldn’t either.

“I think Snyder realizes that, even if he wanted to run for president, the kind of candidacy he represents just wouldn't work in today's political climate, especially in state-by-state Republican primaries,” Ballenger said.

Darnoi suggested such stories aren’t anything to get excited about.

“This should be taken about as seriously as they took news stories about the last elected official from Michigan to announce his run for the Oval Office,” Darnoi quipped.


See also:

Michigan's May Tax Proposal

Policy Brief: Proposal 1 of 2015

Proposal 1 Will Cost Average Michigan Household up to $525 a Year in Extra Taxes