March 15, 2024 | This Week in Government: Tax Credit For Lower-Emission Aviation Fuel

A Senate committee was told Thursday that by enacting a tax credit for the sale and use of sustainable aviation fuel, Michigan could become a key player in what is expected to become a growing market for a product meant to reduce aviation emissions.

Sen. Sam Singh (D-East Lansing) outlined SB 447 on Thursday, which was before the Senate Energy and Environment Committee for testimony only.

The bill would create a refundable tax credit under the Income Tax Act for the purchase of sustainable aviation fuel within the state for use in flights that depart Michigan.

Singh called his bill another part of the overall conversation on reducing emissions and moving away from fossil fuels, pointing to work the Legislature did last year on passing major renewable energy law changes.

“This is an opportunity for us to make an impact on jet fuel and the emissions that that is creating,” Singh said.

The market for sustainable aviation fuel is poised for sharp growth, he said.

Singh pointed to a U.S. Department of Energy roadmap on working with industry to expand the production of sustainable aviation fuel to 35 billion gallons by 2050.

Under SB 447, a taxpayer or business using sustainable aviation fuel would be able to claim a tax credit against the income tax equal to $1 per gallon of sustainable aviation fuel purchased in the state during the tax year used by a business to use to fuel flights leaving the state.

The per-gallon credit would rise by 2 cents per additional 1% reduction in carbon dioxide equivalent emissions above 50%, but it would not exceed $2 per gallon.

Aviation fuel credits would only be redeemable if the taxpayer has received a certificate from the Department of Environment, Great Lakes and Energy’s Office of Climate and Energy.

Sustainable aviation fuel would be defined as liquid fuel that is derived from biomass and not from palm fatty acid distillates. Fuels would also have to reach a 50% life-cycle greenhouse gas emissions reduction in comparison to petroleum-based aviation gasoline, aviation turbine fuel, and jet fuel.

Singh said several other states have already enacted similar tax credits.

“We think Michigan should be one of the next states to do that,” Singh said.

Amelia DeLuca, chief sustainability officer for Delta Airlines, said the technology is not yet available for airplanes to be powered by batteries, and the use of hydrogen is also still far from being feasible.

“This is not only the biggest lever, it is the only lever that will help our industry move to net zero by 2050,” DeLuca said of sustainable aviation fuel. “It’s here today.”

DeLuca said Delta used 3 million gallons of sustainable aviation fuel last year and could have used more if the supply was there. She said more hubs are needed to increase its production, which is why the company is looking to states like Michigan to help in scaling up production.

John Delmotte, vice president of the Michigan Corn Growers Association, told committee members the emergence of this industry could help sustain family farms.

“This is good for farmers. This is good for rural Michigan.” Delmotte said. “The legislation is important because it lays a groundwork for a strong and viable market in the future. … This is an opportunity to say we’re putting out money where our mouth is.”

Delmotte said he believed Michigan farmers are ready to step up and help meet the demand for the growing sustainable aviation fuel market.

To become a Top 10 state, Michigan’s economy and housing market need significant investments, officials told a House panel on Thursday.

During the House Appropriations Labor and Economic Opportunity Subcommittee, Michigan Economic Development Corporation Chief Executive Officer Quentin Messer Jr., Hilary Doe, Michigan’s chief growth officer, and Michigan State Housing Development Authority Executive Director Amy Hovey discussed the goals and challenges facing their organizations during the next fiscal year as they focus on making Michigan a place where people want to live and work.

“We want to ensure that MEDC is in lockstep with the Growing Michigan Together Council,” Messer said, referencing the report that came out last year that recommended improvements the state needs to grow its population.

Messer highlighted MEDC’s accomplishments that have contributed to Michigan’s goal of becoming a top-10 state, such as increasing median household income, growing equitable jobs, becoming a Midwest Innovation Hub, and building lifelong learning systems.

“But work remains to be done,” he said. “Like our Lions, we made a deep playoff run, but now we’ve got to take that next step to get to the Super Bowl.”

Doe told the committee about Michigan’s marketing initiatives in other states, including the talent attraction and retention program, You Can in Michigan.

About 5,000 candidates have entered the job portal through the program during the last five months, she said.

“Folks in other states across the country are looking at Michigan and are interested in coming and working here,” she said.

Rep. Will Snyder (D-Muskegon), who chairs the committee, said he had significant concerns about the You Can in Michigan marketing initiative.

“It seems to be taking away from Pure Michigan funding, which continues to get smaller and smaller in executive budget recommendations,” Snyder said.

He cited an advertisement that boasted, “Michigan has a nightlife as exciting as its semiconductor career options. Find your perfect setting and make your move. Innovate on the factory floor then work in on the dance floor.”

“I’m just not sure of the effectiveness of the delivery of this ad,” he said. “I do have some concerns about who we’re going after.”

Doe said that the You Can in Michigan marketing campaign was separate from the Pure Michigan campaign and that Pure Michigan funding was cut because there are fewer federal dollars available.

“Pure Michigan is, and will continue to be, our campaign with the most brand equity,” she said. “This is separate funding from Pure Michigan, which we care about and want to protect. …This is sort of a complement to that existing campaign.”

During 2022, the Pure Michigan campaign brought in $27 billion in visitor spending, $40 billion in overall economic impact, and supported about 30,000 jobs, Doe said.

Doe said that the state has been engaging with young people about what they want out of the places where they live.

“Folks cite walkability and downtown enhancements, and it’s just so critical, programs like this for talent attraction and retention,” she said.

Josh Hundt of the MEDC discussed the $1 million budget request to prepare sites for development or redevelopment. The funds would be used to provide technical assistance, land acquisitions, assembly, engineering, infrastructure, and other improvements.

“We can’t take for granted that there will be sites ready, and so this program helps to ensure that we are able to have sites ready for companies as they’re looking to locate in the state,” he said.

Hundt also highlighted the up to $500 million funding that is set to go to the Strategic Outreach and Attraction Reserve Fund, known as SOAR.

“That has been a program that has had substantial investment as a result of it so far,” he said. “It’s been able to connect to some of that federal industrial policy … and the macro-economic factors that have played a role in making sure that we are able to meet the moment of the needs of today.”

In addition, Hundt said the department was requesting $20 million for the business attraction and community revitalization fund, saying that funding has been stagnant since 2021.

“Our pipeline of new community development and business development opportunities has continued to grow, which has increased the pressure for our local economic development organizations and partners across the state,” he said. “Most of us have projects that far outweigh and exceed our ability to be able to support good projects across the state.”

Hundt also noted the $60 million request for a Michigan Innovation Fund, saying the evergreen fund would provide investment capital to spur job growth, research, commercialization, and expansion of startups across the state.

Messer said it was important for economic development funding to remain flexible.

“To be nimble to industries that may not be incumbent to the state but provide solutions that may be somewhat unique for each company,” he said.

Rep. Donnavan McKinney (D-Detroit) stressed the importance of making Michigan a state where young people want to be.

“While on the campaign trail, the largest thing I heard on the doors wasn’t about guns, wasn’t about abortion. It was literally about ‘I want my kids and grandkids to move back to Michigan,’” he said. “I told my constituents, ‘They’re not coming back until we give them something to move back to.’ And this is all of our responsibility collectively.”

Hovey said that although she didn’t have anything new in the budget to discuss, she wanted to take the opportunity to update the committee on the state of housing in Michigan.

“Our renters are still paying too much. The cost of a for-sale home is still too high compared to where our incomes are. Our housing stock is still old,” she said. “As we talk about young people, we have a really hard time finding housing for people trying to come to Michigan. It’s almost impossible for a recent college grad or even folks who have been in the job market for five to 10 years to enter homeownership in our state. We have more and more young people being forced to live with their parents in our state because the cost of entry is just too high, mostly because we don’t have enough units.”

The situation has improved due to recent investment in housing, Hovey said, highlighting the recent funding for missing middle housing, the Housing Tax Increment Financing program, and the Housing Choice Voucher program.

Still, the crisis is nowhere near over, she said.

Hovey asked for support of SB 293, which would provide flexibility in the Housing Community Development Fund dollars, and HB 5032, which would expand the percentage of first-time home buyers MSHDA could support.

“We don’t have enough supply, and we can’t build our way out of it without some type of subsidy,” Hovey said. “What it costs to build a new, single-family home or a multifamily unit in our state, the average Michigander can’t afford to pay. So, we can’t just say, ‘Let’s build.’”

House subcommittee budget recommendations are expected sometime after the Legislature’s spring break.

Supporters of a proposal to make kindergarten mandatory for Michigan children said the change would improve educational outcomes during testimony Tuesday.

Members of the Senate Education Committee heard testimony only on SB 285, a bill introduced by committee chair Sen. Dayna Polehanki (D-Livonia) that would require school districts to provide kindergarten for children who are at least five years old.

The bill would require that a child who is at least five years old as of Sept. 1 to be enrolled on the first day of the school year that begins during the calendar year in which the child’s fifth birthday falls.

Under current law, kindergarten enrollment is not required in Michigan but is recommended. Enrollment in public or nonpublic schools is required for children who reach six years old by Sept. 1 of that school year.

“I think that is a missed opportunity,” Polehanki said of children not having to be enrolled until the first grade. “Because we are moving toward universal preschool, it doesn’t make sense that kids skip kindergarten.”

She said kindergarten needs to be made mandatory in the state if Michigan wants to be serious about improving academic performance among students.

The Education Commission of the States reports that 17 states and the District of Columbia require some form of mandatory kindergarten.

Polehanki said the bill would be effective beginning with the 2025-26 school year and that both half-day and full-day kindergarten options would be available. The current exemptions for homeschool, private, or religious schools would still be allowed for kindergarten as there are for other grade levels.

“This bill is simply meant to catch those falling through the cracks and not enrolling in school until the first grade,” Polehanki said.

Detroit Public Schools Community District Superintendent Nikolai Vitti spoke in support of the bill.

“The research is clear that full-day kindergarten in and of itself makes a positive impact on literacy and math,” Vitti said. “Research also indicates that it is proven to reduce levels of poverty and improve job opportunities for students.”

He also praised the state’s expansion of pre-K statewide, which he said helps build momentum into kindergarten.

Vitti said there is a large rate of chronic absenteeism in kindergarten in the district, totaling about 70%, which he said might be improved upon by making kindergarten mandatory.

Sen. Ruth Johnson (R-Groveland Township) asked what the average chronic absenteeism rate was for schools.

Vitti said about 60% of students in his district overall are trending toward chronic absenteeism, which would be classified as missing 18 or more days during a school year.

Polehanki said she is willing to do whatever might be possible through the Legislature to combat chronic absenteeism.

Sheryl Kennedy, legislative liaison with the Department of Education, told committee members that expanding childhood education and improving early literacy would help with the goals further along.

Johnson asked Kennedy if there was any guess by the department as to how many children statewide are currently enrolled in kindergarten. Kennedy said the department’s estimate is between 95% and 98% of kindergarten-aged children are enrolled in kindergarten.

Under an S-1 substitute adopted by the committee, provisions were added to clarify that each school district that provides first grade must offer kindergarten.

Republican opposition to a tie bar on legislation that would extend the sunset permitting trial courts to levy certain costs on criminal defendants could make it difficult to implement the bill in the currently tied House.

That sunset expires on May 1. The issue has been simmering for a decade after the Michigan Supreme Court ruled in 2014 that trial courts could not levy certain costs on defendants, which could create a $100 million shortfall in local courts.

Lawmakers are mulling extending the sunset – again – through December 2026 under HB 5392, which was advanced to the Third Reading in the House on Wednesday shortly after clearing the committee.

Republicans are supporting the sunset extension, but some, including members of the House Judiciary Committee and House Minority Leader Matt Hall (R-Richland Township), want to see it as a stand-alone bill, not tied to another related piece of legislation.

With the House tied 54-54, at least one Republican needs to vote yes.

Lawmakers are also considering HB 5534, which would require the State Court Administrative Office to determine the amount of potential lost revenue for trial courts, the minimum operational cost for trial courts, and the additional funds needed. It would then need to submit a report to the Legislature with recommendations on how to cover the operational costs of trial courts after the elimination of the fees.

The idea is then lawmakers would be tasked with passing policy to fund the courts without using the costs the Supreme Court has ruled problematic.

On Wednesday, the House Judiciary Committee reported both bills. HB 5392 was reported unanimously, while HB 5534 was reported 8-0 with Republicans abstaining. Both bills are now on Third Reading in the House.

Rep. Andrew Fink (R-Hillsdale) offered an amendment to break the tie bar. He argued that HB 5534 needed more work and said the Legislature, not SCAO, should lead the data collection process.

He also said the sunset extension, sponsored by Rep. Sarah Lightner (R-Springport), was not controversial, and the courts won’t be funded without it.

“I’m opposed to setting us up on a path to adopt recommendations from someone else after just turning the issue over to them for two years,” Fink said during committee. “And I’m opposed to holding the trial court funding bill, Rep. Lightner’s bill, hostage in order to do a more complex policy bill that as I said, I think needs more work. And the leadership of it should not be in SCAO but should be in the Legislature. We’re the branch of government that controls the purse strings, and so we should take the lead on this project.”

Rep. Kelly Breen (D-Novi), the committee chair and sponsor of HB 5534, said the Legislature has been kicking the can down the road for 10 years.

“This is finally adding some accountability so that we can get this done in accordance with the Supreme Court decisions,” she said.

Hall, in a letter to Breen, said her bill would create “a centralized authority that would eliminate local control.” He also said the tie bar is holding Lightner’s bill hostage.

Local government groups support both bills.

Lightner did not return a request for comment on if she supports the tie bar. She did testify alongside SCAO during last week’s Judiciary Committee hearing.

“There is a plethora of Supreme Court decisions that say we cannot continue to have operational costs of the court on the backs of criminal defendants,” Breen said in an interview Wednesday. “I am absolutely baffled by the allegations in the minority leader’s letters as they are completely contrary to what is actually contained in the bill.”

Transportation and infrastructure funding have been repeatedly highlighted as a need in Michigan by independent studies, the Legislature, and multiple administrations.

Still, with Gov. Gretchen Whitmer‘s road bonding program set to expire during the 2025 fiscal year, there are no imminent solutions to the problem.

Rep. Ranjeev Puri (D-Canton), who chairs the House Appropriations Transportation Subcommittee, said during an interview Monday with Gongwer News Service he hoped to restart the conversation about road funding in a more holistic and intentional way.

“For those that have been around Lansing for a long time, none of these concepts are novel,” he said. “These are ideas that have been floated in the past, it’s just really no action has ever been taken.”

That conversation isn’t only about road funding, though, Puri said. It needs to be about the future of mobility.

“There’s a growing number of people who want to talk about public transit in a serious way,” Puri said. “Layer on the reports from the Population Council and the needs of the younger generations who want to live in Michigan.”

Above all, Puri said the solutions policymakers come up with need to be future-proof and meet the transportation needs of the state.

“We can’t continue to ignore this issue,” he said. “It doesn’t magically go away.”

Years of failure to adequately invest in transportation infrastructure proved the problem won’t solve itself, Puri said.

“The longer we ignore, the more severe the issue becomes,” he said. “Now, we’re talking about a $3.9 billion deficit annually that we need to make up.”

There’s no easy path forward, Puri said, especially given the current political environment.

“What I’m hoping is that we can come away with a solution that floats on top of partisan divides, and we can find something that works for Michiganders across the state,” he said.

There is no silver bullet to solve the road funding problem, Puri said.

“This is a very complex issue that wasn’t created overnight,” he said. “This took a long time to create this issue, and it’s going to take a number of years for us to get out of it.”

Given that, lots of options need to be considered to bridge the funding gap, Puri said. Each of those options needs to be sustainable and identify a dedicated revenue source that isn’t dependent on one type of technology.

“We’re in the preliminary stages of this conversation,” Puri said. “I’m not trying to pick winners and losers at this point, but I know that it’s going to take multiple kinds of new ideas, and it’s going to have something that we all agree on.”

Future proofing the state’s road funding is paramount, Puri said.

“Ideally, we want a solution that doesn’t penalize us for guessing wrong,” he said.

Prior to being in the Legislature, Puri worked in the auto industry. His experience there tells him that electric vehicles will be here to stay.

“This is a global movement that expands far beyond Michigan,” he said. “I don’t think we have a blueprint in terms of what the final end state will exactly look like, but even our own Detroit Big Three are going all in on the electric vehicle.”

Still, the best solution will be “agnostic,” Puri said.

“If there can be a solution where it doesn’t matter what type of care you’re driving, that everyone is paying their fair share for the roads, I think would be the best way and the most accurate way to do it,” he said.

With Whitmer’s infrastructure bond program coming to an end, Puri said the need to find diverse and sustainable solutions is very real.

“The reason that there was a bond program was very indicative of just how dire the situation was, and that was something we could do as a short-term fix,” he said. “We do see data showing that if you’re intentional about spending money on infrastructure, it will get better, and so I think that is a good sign in that way, but as we continue to spend billions and billions of dollars of new revenue, I want to make sure that we’re spending it in a way that future proofs our transportation needs and we’re finding a way that’s fair for everyone in Michigan.”

Whatever happens next needs to be more than a stopgap, Puri said.

“We do need to have serious conversations about either allocating more resources or generating more revenue for our infrastructure,” Puri said.

There are a lot of solutions being floated, including tolls for the number of miles driven or an increase in sales tax.

“If you look at how much Michigan has spent on road maintenance, we are the lowest compared to all of our peer states in terms of per-mile spending,” he said. “Unfortunately, you get what you pay for, and we just have not put the investment into the roads.”

The type of road repairs the state does is also important. Michigan is spending money to make sure the Department of Transportation is innovative, but once the roads get to a certain level of disrepair, no amount of maintenance short of reconstruction will get the job done.

“It’s kind of like brushing your teeth,” he said. “If you don’t brush your teeth for a long time, you’re going to get cavities. And if you don’t take care of those, they’re going to grow and require more than just a filling; they’re going to need a crown. … So, we just have not brushed our teeth.”

Going forward, the state will have to do better, Puri said.

“That goes into the sustainability of them. That goes into making sure that they’re long-lasting,” he said. “That also goes into making sure they’re constructed in a way that is conducive to future transport.”

Future transportation should be diverse, Puri said, and it should include walking, biking, electric vehicles, public transportation, and rail.

He noted that there’s a desire for better and more frequent train routes in Michigan, especially between Detroit and Chicago.

“There are some goals that Amtrak is trying to meet in terms of speeding up those routes,” he said. “Michigan is in a unique situation where it actually owns the rail lines and spends a significant amount funding those, and so I do think it makes sense for those jobs to be Michigan based.”

Transportation conversations are still in the early stages, and Puri said he’s not looking to rush anything through.

“Any of these conversations, we’re very intentionally and purposely engaging a lot of stakeholders,” he said.

No changes, legislative or otherwise, are around the corner. Rather, Puri said he plans to continue to have conversations about the future of mobility through the rest of the year.

“I’m ultimately hoping for my committee to be a catalyst in these conversations – that are holistic of all the things that we would do if we were to re-envision and reconstruct our transportation system,” he said. “We can’t scrap everything and start from scratch, but if we are going to start investing multibillion dollars every year into this, we’re doing it in a way that makes sense.”