Feb. 16, 2024 | This Week in Government: House Committee Revisits Payroll Tax Incentive

The defunct Good Jobs for Michigan program would be revamped as HIRE Michigan under legislation taken up by the House Economic and Small Business Development Committee on Tuesday.

The bill package, which includes HB 5413, HB 5414, and HB 5415, would incentivize high-wage job creation by allowing companies to keep up to 100 percent of the income tax they withhold from new employees.

“One of the things that we certainly have been looking at is targeted incentives to make sure that we’re doing everything we can to attract and retain good jobs and talent here,” Rep. Jason Hoskins (D-Southfield), who chairs the committee, said. “Hire Michigan is one of those tools that will be very helpful.”

Businesses that create at least 250 certified new jobs in Michigan with a median wage that is at least 125 percent of the prosperity region median wage would be eligible. Also eligible would be businesses that create a minimum of 25 certified new jobs in Michigan with a median annual wage at least 150 percent of the prosperity region median wage (editor’s note: this story has been changed to correct the qualification criteria).

“The Senate has similar bills but different numbers, and I know that’ll be an ongoing conversation between the two chambers to find the right numbers as we try to land the plan on this type of incentive,” Sen. Sam Singh (D-East Lansing) said.

Singh testified in support of the House legislation on Tuesday. He worked on the original Good Jobs legislation in 2017 and is currently working on the Senate’s version of the bills. The original payroll tax incentive program was sunset in 2019 because lawmakers couldn’t find common ground to advance it, Singh said.

“What I thought was unique and special about this, especially when you take a look at incentive programs, is that oftentimes older incentives that we had, we would give money upfront to a company, and then that company would take those dollars,” Singh said. “If they didn’t get the jobs that you wanted, you’d have to claw back those resources. … Instead of the older model of giving money up front and then clawing back, you only get the incentive once you get the benchmarks that you have,” Singh said.

The program is targeted at bringing knowledge-based economy jobs to the state.

“We are looking at this as a tool to make sure that we’re competitive with multiple states,” Singh said.

Rep. Jasper Martus (D-Flushing) sponsors HB 5414.

“One of the most important things for our businesses is consistency,” Martus said. “They need to make sure that a lot of our tax policies, a lot of the programs that we’re pushing at the state level are not going to be taken away.”

One of the benefits of the new proposal is that it doesn’t draw money out of the state’s General Fund, said Josh Hunt, executive vice president and chief project officer for the Michigan Economic Development Corporation. The tax capture would fund the program.

“The financial support from this program comes from the tax capture withholding from the creation of the new jobs directly supported by the project,” Hunt said. “This means that there is no General Fund spending impact on the state … the bottom line is if the company does not create and maintain the number of required jobs and pay the wages that are required, there will be no funding for the company under this program.”

Companies are required to create the jobs they’re promising before getting the money, which creates accountability, Rep. Graham Filler (R-Duplain Township) said. Local governments are also asked to provide support by working together with the state and businesses.

“It’s like the Kohl’s Cash of economic development,” Filler said.

The threshold in the current legislation is 500 jobs, but that may be lowered as the bill advances.

“We still want to be able to see a sizable sort of growth here,” Singh said. “That’s why we wanted to put some minimums and put them a little bit higher than what perhaps are in other states.”

James Hillman of the Mackinac Center for Public Policy opposed the legislation.

“If we’re talking about economic performance, I think it should be measured against Michigan’s job performance data,” Hillman said. “Supporters should be clear and transparent about how much employment they want to come from this program and that performance out to be clearly witnessed in states job trends, and with the improvements in the job trends directly accountable to the recipients of this program.”

Rep. Mark Tisdel (R-Rochester Hills) said that it wasn’t enough to provide incentives.

“Whether it’s the cost of energy, the cost of whatever we do to produce something, I just want to make sure that it’s the whole package,” he said.

Martus agreed, saying it was necessary to take a holistic approach to economic development.

“We’re trying to compete regionally and that’s with addressing a lot of the things that we don’t currently have,” he said.

That holistic approach includes the research and development tax credit, the payroll tax credit and renaissance zone, Martus said.

“They’ve been done in a bipartisan manner, which is really important so that no matter who’s in charge of the House or the Senate or the governorship going forward, we can point to this as a bipartisan win,” Martus said. “It’s something that we can offer consistency to businesses.”

House Minority Leader Matt Hall (R-Richland Township) in a statement on the legislation said the state needs to craft “bold, coordinated economic growth strategy.”

“As Michigan struggles to grow, the governor just wants to slap a Band-Aid on our economy while ignoring the deep-seated problems that Democrat policies have exacerbated,” Hall said. “Our state needs to strengthen our economy by lowering our taxes and fostering a fair, reasonable regulatory environment that makes sense for Michigan workers and small businesses. Instead, Gov. Whitmer and Democrats have rammed through laws that will deepen our economic problems.”

The committee also heard testimony from Singh on SB 417, which would remove a provision that prohibits Michigan State Housing Development Authority from providing long-term financing for a project unless the project is constructed or rehabilitated in anticipation of the financing, any requirements that some or all of the units are occupied by low- or moderate-income individuals will expire within two years, or the project is to be owned and operated by a qualified 501(c)(3) nonprofit housing corporation.

“You’re now providing this tool for the development community, but it’s not a risk for state dollars and resources,” Singh said. “It’s ensuring that those bonds will be paid off … in addition to what this bill does, it adds … that private placement option so that a qualified sophisticated institutional investor can find the bonds.”

No further action was taken on any of the legislation on Tuesday.

Budget work got underway in the House Appropriations EGLE Subcommittee on Tuesday, with Department of Environment, Great Lakes and Energy Director Phillip Roos providing a generally supportive overview of Governor Gretchen Whitmer‘s proposal for fiscal year 2025.

Whitmer recommended a $1.1 billion budget for the department, of which $247.8 million is from the General Fund. Approximately $90 million in one-time spending from the General Fund would support water and green infrastructure, electric vehicle chargers and transitioning the state’s fleet to emissions-free vehicles. The funding is a 0.8 percent General Fund increase and a 5 percent gross increase from last fiscal year.

“What I’m really happy to say is that there are four big priority areas that are among our really top priorities that are reflected in a meaningful way in the budget,” Roos said.

Those areas were drinking water and water infrastructure, contaminated sites and waste management, climate and energy, and economic development growth.

Higher landfill tipping fees, which would generate $80 million for contaminated site clean-up, were a centerpiece of Whitmer’s budget. Her proposal would increase the fee from 36 cents per ton to $5 per ton, which is in line with the average fee in the Midwest.

“I don’t think it’s going to eliminate out-of-state waste, but it’s just putting it on a level playing field,” Roos said. “There’s not a disproportionate incentive to come to our state as opposed to other states.”

Rep. Bill Schuette (R-Midland) raised concerns about the cost of tipping fee increases being passed along to Michigan residents.

Roos said waste removal costs might increase by $20 at most.

“We have to also keep in mind the benefits of being able to have better control over the landfill waste,” he said.

The committee also discussed lead service line replacement. The governor’s recommendation earmarks $40 million for water infrastructure replacement and improvements.

“When we offer a community $2 million as part of a $10 million project just for their lead service lines, to be honest, the answer we’re getting a lot of the time is, ‘That’s not enough for me to go forward with that project,’” EGLE Deputy Director Travis Boeskool said. “We’re trying to meet what communities are as us for on this and trying to fund that project in some way.”

Rep. Rachel Hood (D-Grand Rapids), the subcommittee chair, asked Roos to address the gap in funding needed compared to the proposed $40 million allotment.

“This is a massive gap in the amount of funding that’s needed over the long run,” Roos said. “We’ve spent a lot of time with our friends at the EPA, making that clear as the standards change and as the bar has been raised in terms of lead service line replacement, drinking water compliance standards, there are big funding gaps, and I think other states are doing it as well. We’re, at the same time, looking at all options internally at our disposal.”

Rep. Timmy Beson (R-Bay City) highlighted the importance of funding permitting process improvements.

“Some of the stakeholders are frustrated with the process and how it keeps changing,” he said. “We need to make this work a lot faster.”

Roos said he hoped the department could make game-changing investments in the next three years.

“The overall vision is to make Michigan a truly enduring national leader in environmental protection to raise the bar in terms of the level of protection that we can provide our residents,” he said. “At the same time, to recognize that we do play this important role in helping to support responsible economic development.”

Renewable energy projects without state funding would be required to pay the prevailing wage under a bill discussed in the Senate Labor Committee on Thursday.

SB 571 would require solar or wind energy projects connected to or providing electricity to a utility’s distribution system to pay prevailing wage. It would also require registration of contractors and subcontractors working on state prevailing wage projects and require the submission of certified payroll to the state.

It has prompted disagreement between Democrats and their allies in the clean energy industry, who oppose the legislation as written.

Republicans opposed the legislation. Sen. Thomas Albert (R-Lowell) said it was an expansion of the current prevailing wage law, which applies to state-funded projects.

Sen. John Cherry (D-Flint), the bill sponsor and committee chair, said making sure the state is utilizing qualified labor ensures the expansion of renewables happens in the most efficient way possible.

Michael LaFaive with the Mackinac Center for Public Policy called it “a problem” that the bill would apply to renewable energy projects that may not have any state funding.

“This goes beyond the conventional prevailing wage mandates by effectively mandating a higher minimum wage on a particular industry for projects that are not underwritten by the state,” LaFaive said. “Prevailing wage harms taxpayers by forcing them to pay more for equal service.”

Sen. Darrin Camilleri (D-Brownstown Township) countered that prevailing wage projects lead to better quality work that consequently needs less maintenance.

The Michigan Energy Innovation Business Council opposes the bill in its current form, Laura Sherman, the group’s president, said in written testimony submitted to the panel. Sherman wrote that conversations with Cherry have been positive, and changes could be made.

Sherman wrote under the wind and solar siting legislation recently enacted, large-scale wind and solar projects will be required to include Project Labor Agreements and to pay prevailing wages during construction. Additionally, she wrote, any utility-scale projects seeking access to federal tax credits also must pay prevailing wages.

She wrote the group would like to see the size of wind and solar projects covered under the bill to be aligned with existing statute, or at the very least, a minimum project size should be set so the requirements do not apply to small residential and commercial solar projects.

Additionally, the group would like to ensure payroll records are not publicly available and that the prevailing wage and reporting requirements outlined in the bill should apply only to construction projects, not alteration, repair, or improvements.

“Through the development of supportive state policies, Michigan EIBC endeavors to create and sustain well-paying jobs across the clean energy industry in Michigan,” Sherman wrote. “As of the latest data, Michigan leads the Midwest in clean energy jobs, with nearly 124,000 jobs at the end of 2022. These are well-paying Michigan-based jobs.”

Aaron Pangborn, business manager of the IBEW Local 665 in Lansing, said the bill would ensure the prevailing wage law is being followed.

“With no one to oversee and enforce the prevailing wage law, contractors would be free to ignore it,” he said.

Todd Tennis, representing IBEW, agreed. He said before the prevailing wage law repeal and replacement with new language, there was no oversight to ensure the law was being followed.

Albert, however, said he has had conversations with businesses about the burden of ensuring the prevailing wage is being followed.

“I have talked to business folks who said it was tedious and cumbersome for them to comply with the prevailing wage laws because they would have to account for different wages and different times depending on location of the project,” he said.

The committee did not act on the bill.

With one day until early voting launches statewide for the first time ahead of the presidential primary election, Secretary of State Jocelyn Benson said the state’s clerks and poll workers are ready for the rollout.

The nine-day early voting period, which begins Saturday and ends February 25th, will mark the first time that any Michigander can cast an in-person ballot before Election Day.

“We’re about to make history in the state of Michigan,” Benson said in a press conference Thursday.

Early voting was a key component of ballot Proposal 2022-2, which created several new facets of election law after 59 percent of voters approved it in November 2022.

Benson assured members of the media that municipalities and their voters are prepared for early voting, particularly after several communities conducted a pilot program in October 2023.

“Early voting will operate just like anyone would experience on election day,” Benson said. “A voter comes in, gets their ballot, marks their ballot and enters it into the voting tabulator. Those ballots will be counted on election day.”

Some local clerks expressed concern last year over the short period of time given by the Legislature to prepare for the newly scheduled February primary, and Benson said her department spent the last several months devoted to making sure things run smoothly come Saturday.

“In these last seven short months, the Bureau of Elections has been working tirelessly to develop the new technologies and procedures for early voting,” Benson said.

Benson was joined by Delta Township Clerk Mary Clark, whose office participated in the 2023 pilot program. Clark said early voting is an “exciting new option” for Michigan voters and that the pilot allowed her election workers to gain important training in the new model.

“Our experience was positive,” Clark said of the pilot program. “We were able to test the new early voting tool, figure out what worked, what needed some changes, and give feedback directly to the Bureau of Elections every day in conference calls.”

The Bureau of Elections will be monitoring the early voting process, and Benson said she herself will travel to several polling places around the state during the period to address any concerns.

“We expect early voting sites to run smoothly and offer a secure convenient option for voters participating in the presidential primary,” Benson said. “My team will be in constant contact with the clerks in each jurisdiction and will be on the ground at early voting sites to ensure everyone has the support they need.”

Tax revenue from marijuana purchases and online gaming came in higher than a year ago, while other consumption taxes are lower, the House Fiscal Agency said in its January revenue report.

In January, recreational marijuana revenue was $16.1 million, 27.7 percent, higher than last year, and online gaming revenue was $13.8 million, 17.9 percent, higher than last year, the HFA said.

Revenue from consumption taxes, which consist of the sales tax, the use tax, beer and wine taxes, liquor taxes, and tobacco taxes, totaled $1.2 billion in January 2024 and were collectively $56.3 million lower than in the 2022-23 fiscal year, on a year-to-date basis. Strong use tax collections were more than offset by weaker sales tax and tobacco tax collections, HFA said.

Revenues from the state education tax and the real estate transfer tax in January 2024 were $20.3 million and $31.9 million, respectively.

As is usually the case for a monthly revenue report in the same month of a Consensus Revenue Estimating Conference, the numbers were in line with expectations. Overall, the $1.6 billion in General Fund revenue for January is about $14.2 million above estimates, while the $1.4 billion in the School Aid Fund is $12.7 million below estimates.

Cash collections from Michigan’s major taxes, penalties and interest, and lottery transfers totaled $3.2 billion for January, which HFA said was $290.8 million more than in January 2023.

Net income tax revenue totaled $1,6 billion in January 2024, and for 2023-24 collections through January were $183.3 million more than the same period during 2022-23.

Net business taxes from the single business tax, the Michigan business tax, the corporate income tax, and insurance company taxes were $324.8 million higher through January 2024 than a year ago.

MBT refunds through January 2024 are substantially lower at this point, HFA said, while CIT collections and insurance taxes over the same period were $29.3 million, 5.4 percent, and $25.5 million, 25 percent, respectively, higher than last year’s amount.