May 17, 2024 | This Week in Government: Senate Passes Amended House Data Center Bill

Members of the Senate passed a bill Thursday in a legislative package that would create a sales and use tax exemption for enterprise data centers and set a sunset date for the exemption.

In a 22-11 vote, the Senate passed an S-10 substitute version of HB 4906. The changes made prior to Thursday’s vote largely mirror that of SB 237, which passed the chamber last week.

Sen. Kevin Hertel (D-Saint Clair Shores), who sponsored SB 237, told reporters his bill focuses on the use tax, while HB 4906 is focused on the sales tax portion of the proposed tax exemption.

Concerns by environmental groups and bill opponents involve potential strains on the electrical grid to power data centers as well as depleting local aquifers. There have also been concerns that the large amounts of electricity being needed could upend the state’s renewable energy mandate. Data centers have also been questioned over the small number of jobs they create.

Hertel said he believed the bills have been made better.

“We’re still having conversations on this legislation. We want to make sure we get it right,” Hertel said.

The senator also said that some recommendations made by environmental groups would be better addressed in separate legislation.

“A lot of what they’ve recommended is very difficult to put in a sales or use tax bill,” Hertel said.

He said about 30 other states have some form of data center tax credit in place, and Michigan needs to be able to compete with other states for an industry that has been rapidly growing.

Environmental groups, in statements, voiced their opposition to the data centers bills again Thursday following the votes.

Andrea Pierce, with the Michigan Environmental Justice Coalition and a member of the Little Traverse Bay Band of Odawa Indians, said that indigenous communities have often been left out of conversations about major tax incentive policies.

“This data center proposal is another sad example of a pattern of disengagement that goes back many generations,” Pierce said. “When these data centers come, the draw on our water will increase enormously – we deserve meaningful consultation before any decisions are made.”

Nayyirah Shariff of Flint Rising agreed, referencing the Flint water crisis as an example of not seeking out meaningful community input. She also questioned the commitment to ensuring residents see the economic benefit of such projects and preventing environmental damage from occurring.

“We refuse to go down this road again. Data centers present an enormous drain on a community’s resources, from the water they draw to the power they need to operate – and with these tax breaks, communities will see more burdens and less revenue,” Shariff said. “We all deserve to share in the benefits of new developments – no exceptions!”

Attorney General Dana Nessel‘s plan to sue the fossil fuel industry is not only a political stunt but could also set a dangerous precedent in targeting political opponents through litigation in the department, the Senate Republican Caucus said Thursday.

In a Thursday letter sent to Nessel and signed by all 18 members of the Senate GOP caucus, they accused her of wasting taxpayer dollars on a publicity stunt.

Members said the oil and gas industry employs thousands of Michigan residents, heats the homes, and fuels the vehicles of millions.

“Beyond attempting to cripple an industry critical to our state’s economy and well-being, such overtly political litigation sets a dangerous precedent,” the caucus wrote. “The legal system should not be used as a tool for advancing political agendas or targeting political adversaries.”

Last week, the Department of Attorney General announced it would be seeking proposals from attorneys and firms with experience in pursuing various claims against industry actors (See Gongwer Michigan Report, May 9, 2024).

Its lawsuit is expected to target what the department called damages caused by oil and gas companies involving climate change.

Republicans quickly denounced the plan last week as a waste of taxpayer money. The caucus repeated its opposition Thursday in its letter.

“Much like your misguided and failed attempts to shut down one of Michigan’s critical energy arteries, this publicity stunt will do nothing but waste taxpayer dollars, discourage investment in our state, and weaponize our legal system,” the caucus wrote. “We encourage you to instead focus your office’s time and resources on prosecuting violent crime, human trafficking, and fentanyl distribution.”

Senate Minority Leader Aric Nesbitt (R-Porter Township) said in a statement that Michigan needs leaders who are open to promoting a diverse state energy sector and policies that allow for affordable and reliable energy.

“Instead of attacking Michigan job creators and making it more expensive for Michigan families to pay their energy bills, the attorney general’s efforts would be better focused on defending the people of Michigan against real threats to their livelihood and well-being,” Nesbitt said. “The taxpayers of this state deserve better from their attorney general’s office than to have their hard-earned money irresponsibly wasted on personal political vendettas.”

Legislation creating an economic development fund designed to attract and retain younger companies, first floated by Gov. Gretchen Whitmer during her State of the State earlier this year, was brought before a House panel on Tuesday.

The House Economic and Small Business Development Committee heard testimony on HB 5651, HB 5652, and HB 5653, a package that would create the Michigan Innovation Fund program to support small business development. The committee also heard testimony on HB 5463, which would create a center for microenterprise development.

“We often talk about a lot of the tools we’re lacking in the state to really attract and retain business and talent here,” said Rep. Jason Hoskins (D-Southfield), who sponsors HB 5652. “The Michigan Innovation Fund, I think it’s going to be one of those tools that really sets us apart.”

The Michigan Innovation Fund would create funding through the Venture Michigan Fund for businesses in their early stages. The program would provide grants to certain venture capital funds and nonprofits to promote venture capital investment. HB 5652 and HB 5653 would amend the Michigan Early Stage Venture Investment Act and the Michigan Strategic Fund Act to create the program and provide funding through the Michigan Early Stage Venture Investment Fund. HB 5651 would make complementary changes to the Michigan Trust Fund Act.

Grants would be funded through money deposited into the 21st Century Jobs Trust Fund from the Michigan Early Stage Venture Investment Fund. For the 2023-24 fiscal year, the Michigan Strategic Fund would use 85% of the money deposited into the 21st Century Jobs Trust Fund to provide grants to qualified evergreen venture funds for eligible activities and the remaining 15% for grants to qualified nonprofits for qualified start-up support services.

Hoskins said that Michigan needs to step up its game to compete with other states when it comes to economic development.

“Ohio is really eating our lunch,” he said. “That’s why we need to be able to get into the game and create this fund to be able to help those entrepreneurs that just need that little step, that little bit of funding to help them really succeed here in the state.”

For too long, the state has focused on companies that are already established, Rep. Greg VanWoerkom (R-Norton Shores) said.

“We need to be focusing on the gardening aspect of economic development,” he said. “Here is a tool that I think is essential for us to start that gardening and get those next great companies because I truly believe the next great company here in Michigan already exists; they just need the help and support to make it happen.”

Rep. Alabas Farhat (D-Dearborn) said that although Michigan is home to great researchers, innovators, and industry disruptors, the state lacks the capital for startups.

“As we consider how we keep Michigan’s economy competitive, as we consider how we keep talent here, and our workforce here and our high-quality researchers here, this is a big tool in doing that,” he said.

Rep. John Roth (R-Interlochen) raised concerns about the fund, comparing it to the original goals of the Strategic Outreach Attraction and Reserve Fund.

“SOAR was supposed to go to small business activities, and that’s a joke. It never has,” he said. “What kind of mechanisms is there to ensure that our smallest of small businesses have the opportunity to get some money?” he said.

VanWoerkom said grant decisions wouldn’t be made by government officials influenced by lobbyists but by experts who would want to see returns on investment.

“They have the expertise. They have the resources. They have the ability to help these small businesses as they pursue and develop,” he said. ‘This is going away from the model of government knows best and putting it with the actual experts.”

Ara Topouzian, executive director of the Michigan Venture Capital Association, testified in support of the bill package.

“Michigan has a robust entrepreneurial community that we must support if we want to grow our innovation economy without our state,” Topouzian said. “Many of these innovating entrepreneurs require access to additional capital and investment. To stay competitive with other states…. Michigan’s funding and resources must step up to the plate to effectively provide resources to our founding community.”

Brandon Reed, director of external affairs at the Metro Detroit Black Business Alliance, also testified in support of the bills.

“The need to access capital is omnipresent for small businesses, particularly Black-owned small businesses,” he said.

Reed cited a study from the Brookings Institute that found that without additional support, Black-owned businesses won’t reach parity with the actual population percentage for another eight years.

“This delay is really detrimental to not only the entrepreneur ecosystem but the economy in Michigan as well,” he said.

Several other organizations also testified in support of the investment fund, underscoring the lack of available capital for startups in Michigan.

Farhat also testified in support of HB 5463, which would amend the Michigan Strategic Fund Act to create a Center for Microenterprise Development to be operated by the Michigan Strategic Fund.

The center would be authorized to seek new federal and private sources of funding to assist community-based nonprofit organizations with the ability to provide business development training, technical assistance, or business loans to microenterprise businesses or to the microenterprise businesses themselves, which would mean businesses headquartered in Michigan with 10 or fewer employees.

The goal would be to consolidate services for businesses.

“We’re not recreating the wheel,” Farhat said. “There’s programs and funding that is out there, but what is not out there is a consolidated, easy-to-find, concise spot for businesses to find that. And that is what we’re trying to accomplish here.”

Fiscal analysis is still in progress, but Farhat said the goal was to show small businesses in Michigan they had the support of the state.

“We do hear that they’re struggling,” he said. “We want to be very intentional, and our approach will be very thoughtful.”

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

On Thursday, both fiscal agencies forecasted modest increases in overall revenue estimates for the upcoming fiscal year but projected slight decreases in the School Aid Fund during the next several years.

On Friday, officials with the House Fiscal Agency, the Senate Fiscal Agency, and the Department of Treasury will meet to determine revenue estimates, including for the 2024-25 fiscal year, for which lawmakers are currently debating a budget.

For the current 2023-24 fiscal year, HFA said in its outlook that the General Fund is estimated to increase by $122.9 million, and the School Aid Fund is estimated to see $61.8 million less than the figures agreed on in January.

The SFA, in its outlook, is recommending a total $226 million upward revision for 2023-24, with $496 million more in the General Fund and $270 million less in the School Aid Fund.

The final 2022-23 year-end balance indicated by HFA is $3.9 billion in the General Fund and $2.2 billion in the School Aid Fund.

In the current 2023-24 fiscal year, the HFA-estimated unreserved balance in the General Fund is $1.4 billion, and in the School Aid Fund, $520.7 million. SFA is projecting a $1.8 billion balance in the General Fund and a $293.8 million School Aid Fund at the end of the 2023-24 fiscal year.

For the upcoming fiscal year, both agencies recommend upward revisions, with HFAs again recommending a smaller increase.

Both agencies also projected negative School Aid Fund balances based on the budgets passed by their respective chambers, something that will have to be addressed by lawmakers.

The estimated year-end unreserved balance based on the House-passed budget for the 2024-25 fiscal year is $265.3 million in the General Fund and a negative $92.6 million in the School Aid Fund.

On the Senate side, the projected year-end balances based on that chamber’s passed budget is $1 billion in the General Fund and a negative $344.2 million in the School Aid Fund.

HFA is estimating an overall uptick in revenues for the 2024-25 fiscal year of just $28 million. Compared to January estimates, the HFA is recommending a $110.6 million upward shift in the General Fund and an $82.6 million decrease in the School Aid Fund.

SFA is estimating an overall increase for the upcoming fiscal year of $337.6 million. According to SFA’s projections, General Fund estimates should be revised upward by $526.9 million, and School Aid Fund revenue should be revised downward by $189.3 million.

In 2025-26, HFA is projecting the trend to continue, recommending a $62.4 million increase in General Fund estimates and an $86.5 million reduction in School Aid Fund estimates for an overall decrease of $24 million in projected revenue.

The SFA differs more greatly here, estimating a $136.8 million overall increase with again increases in the General Fund ($333.3 million) and decreases in the School Aid Fund ($196.5 million).

Fifteen configurations for the Detroit-area Senate maps crafted by the Independent Citizens Redistricting Commission during the past few months were separated and named on Thursday, beginning the great culling of the nearly 30 maps it sent out for analysis this week.

Those maps were given bird names as part of this round’s naming conventions and were set aside so the commission could take the weekend to mull which maps might move forward for public comment.

Each of the maps identified on Thursday had U.S. Voting Rights Act scores of “three” or “four,” meaning those maps have as many opportunity-to-elect districts for Black candidates in Detroit’s Democratic primaries. Attorneys for the commission from the Baker Hostetler law firm presented the VRA analysis of the entire universe of maps prior to the first culling.

Several of them have closer to neutral partisan fairness scores, but many of them still favor Republicans, which was not much different than the Linden Senate map adopted in 2022 and subsequently jettisoned by a federal three-judge panel late last year.

The commission is in the throes of redrawing Detroit-area Senate districts after the panel ruled that the commission considered race as a predominant factor when it drew the 2022 Hickory House and Linden Senate maps. Commissioners have since completed their House map remedial redraw, and the map, Motown Sound, was approved by the court earlier this year.

Draft and alternate Senate maps drawn over the past few months are due to the court on May 22. That gives the commission a weekend and a few working weekdays to deliberate on which ones will make the cut.

The commission set aside the following maps, identified by their bird nomenclature and designation in the commission’s online mapping portal:

• Blue Jay;
• Cardinal;
• Crane;
• Dove;
• Eagle;
• Finch;
• Flamingo;
• Hawk;
• Hummingbird;
• Robin;
• Sparrow;
• Starling V1;
• Starling V2;
• Swift V1; and
• Swift V2;

Crane, Dove, Cardinal, Hummingbird, Robin, Sparrow, Starling V1, Starling V2, Swift V1, and Swift V2 all had four performing VRA opportunity districts.

Blue Jay, Eagle, Finch, Flamingo, and Hawk each have three performing VRA opportunity districts.

Mark Braden, the commission’s VRA attorney, said that four was a defensible number for maps that might be moved forward, but it wasn’t a magic number. Having just three would require him, as an attorney, to “roll up his sleeves” a bit to justify why those maps had so few, and the same was true for any number higher than four.

The partisan fairness analysis presented a more interesting picture and offered a new dilemma for the commission. Almost all the maps put forward for analysis still favor Republican candidates, but some were more neutral than others, and very few favored Democrats.

Adding another twist, Lisa Handley, the commission’s contracted expert, said the overall partisan fairness scores for the nearly 30 maps she analyzed had lower partisan fairness scores than the Senate map drawn and adopted by the then-Republican majority Legislature in 2012.

Commissioners did not discuss that as a factor, but it could lead to interesting public comment after the commission votes on its offerings next week.

Cardinal tried to approximate the Motown Sound House districts into Senate districts. It had partisan fairness scores of 3.6% Republican in the lopsided margin test, 2.6% Republican in the mean-median difference test, 0.8% Democrat in the efficiency gap test and 5% lean Democrat in the seats to votes ratio test.

Crane was described as one of the more unique map configurations. It had partisan fairness scores of 5.1% Republican in the lopsided margin test, 2.9% Republican in the mean-median difference test, 1.8% Democrat in the efficiency gap test, and 2.4% lean Democrat in the seats-to-votes ratio test.

Finch is a plan that wraps around Dearborn and has Highland Park and Hamtramck together with a central Detroit 8th District. It was described as more of an eastside Detroit-centric map but with changes up to Center Line and Warren. Sterling Heights, in this configuration, is paired with Troy and Madison Heights.

It had partisan fairness scores of 3.8% Republican in the lopsided margin test, 2.7% Republican in the mean-median difference test, 0.8% Democrat in the efficiency gap test, and 5% lean Democrat in the seats-to-votes ratio test.

Robin was noted to have changed 15 total districts compared to the 2022 Linden map. It had partisan fairness scores of 5.2% Republican in the lopsided margin test, 1.5% Republican in the mean-median difference test, 2.3% Republican in the efficiency gap test and 2.4% lean Democrat in the seats to votes ratio test.

Sparrow has Farmington split between two districts, but Northville is included in the 13th District on the western suburban edge of the Metro Detroit footprint. It had partisan fairness scores of 5% Republican in the lopsided margin test, 0.3% Republican in the mean-median difference test, 1.9% Republican in the efficiency gap test, and 2.4% lean Democrat in the seats-to-votes ratio test.

The Swifts, named for the high aerial birds and not pop phenom Taylor Swift, were close enough in configuration to warrant the same name. Swift V1 has Roseville in the 11th District, Franklin in the 13th District instead of Southfield Township, and Harper Woods was added to the 10th District. Swift V2 was almost identical but had different configurations for the 11th and 12th districts.

Swift V1 had partisan fairness scores of 5% Republican in the lopsided margin test, 0.9% Republican in the mean-median difference test, 1.9% Republican in the efficiency gap test, and 2.4% lean Democrat in the seats-to-votes ratio test.

Swift V2 had partisan fairness scores of 5.1% Republican in the lopsided margin test, 1.5% Republican in the mean-median difference test, 1.9% Republican in the efficiency gap test, and 2.4% lean Democrat in the seats-to-votes ratio test.

The Starlings also had close similarities. Commissioner Rebecca Szetela noted that the two versions had different configurations that the Asian-Pacific American community of interest in Canton might have strong opinions about and wanted both included.

Both Starling maps had identical partisan fairness scores of 5% Republican in the lopsided margin test, 1.4% Republican in the mean-median difference test, 1.9% Republican in the efficiency gap test, and 2.4% lean Democrat in the seats-to-votes ratio test.

Hummingbird had good scores on the VRA analysis and were included, with both Szetela and Commissioner Brittni Kellom agreeing that it should be named and separated. It had partisan fairness scores of 3.8% Republican in the lopsided margin test, 0.3% Democrat in the mean-median difference test, 0.8% Democrat in the efficiency gap test, and 5% lean Democrat in the seats-to-votes ratio test.

No explanations were given for the Blue Jay, Dove, Eagle, and Hawk configurations, but commissioners will likely describe each of the maps they want to move forward prior to a vote.

Blue Jay had partisan fairness scores of 4% Republican in the lopsided margin test, 2.7% Republican in the mean-median difference test, 0.8% Democrat in the efficiency gap test, and 5% lean Democrat in the seats-to-votes ratio test.

Dove had partisan fairness scores of 6.2% Republican in the lopsided margin test, 2.5% Republican in the mean-median difference test, 4.6% Republican in the efficiency gap test, and 0.2% lean Republican in the seats-to-votes ratio test.

Eagle had partisan fairness scores of 5.1% Republican in the lopsided margin test, 1.5% Republican in the mean-median difference test, 1.9% Republican in the efficiency gap test, and 2.4% lean Democrat in the seats-to-votes ratio test.

Hawk had partisan fairness scores of 5.2% Republican in the lopsided margin test, 1.5% Republican in the mean-median difference test, 2.2% Republican in the efficiency gap test, and 2.4% lean Democrat in the seats-to-votes ratio test.

Flamingo was a map started by Commissioner Janice Vallette and completed this week by Commissioner Elaine Andrade. The 10th District in this configuration still needed work, but this was a configuration contemplated a stacked district configuration rather than the wrap-around districts the commission fashioned in other plans. It also takes into consideration feedback from residents at a public meeting held recently on the campus of Wayne State University.

It had partisan fairness scores of 6.3% Republican in the lopsided margin test, 3.4% Republican in the mean-median difference test, 4.5% Democrat in the efficiency gap test, and 0.2% lean Republican in the seats-to-votes ratio test.

There was also a debate about whether flamingos were birds, but various online resources note that flamingos are “wading birds of the order Charadriiformes, commonly found wading along shorelines and mudflats in order to forage for food crawling or burrowing in the mud and sand, usually small arthropods such as aquatic insects or crustaceans.”