Highlights From Governor Whitmer’s FY 20 Budget Proposal

Governor’s Road funding proposal

Issue: Experts claim that Michigan is still not allocating enough resources to its transportation infrastructure, primarily roads and bridges, despite a recent gas tax and license fee increase, and $600 million more being allocated from the state’s general fund.

Proposal: Governor Whitmer proposes a 45 cent increase in gas tax – dedicated to a new fund for roads called the Fixing Michigan Roads Fund.

• Goal: Interstates, freeways, and M-roads to 90% good or fair condition by 2029 (currently at 75%)
• Removal of the sales tax from the pump
• Reinstatement of the exemption on pension taxes

Alliance position: Developing a set of regional guiding principles for the impending legislative debate on road funding revenue increases.

 

Business Tax – Partnership, LLC, S-Corp changes

Before 2011, business income from partnerships, LLCs, and all corporations was taxed at the same rate. In 2011, the law was changed and reduced the rate for partnerships, LLCs, and S-Corps to 4.25%, while all other corporations were taxed at 6%.

As Michigan’s economic growth has continued to climb over the past decade, non-corporate businesses – most of Michigan’s small and mid-sized companies – have gone from contributing $400 million annually to $800 million in annual revenue to that state of Michigan. In short, it has been a win-win for Michigan small businesses and the State of Michigan.

Details on the Governor’s proposal:

◦ The proposal would tax pass-through business entities at 6% – up from 4.25%

◦ Will mean $280 million in new business taxes for partnerships, LLCs and S-Corps.

◦ The administration believes the cost to business will be much less, as business will be allowed a credit on federal taxes

◦ The proposal includes an individual income tax credit for owners to presumably avoid double taxation

◦ The administration believes this will largely cover the repeal of the tax on retiree pensions, which she has also proposed as part of the FY ’20 budget.

Alliance position: Opposed to any business tax changes at this time, especially those made in the 2011 tax reform law. Michigan went from a business tax climate grade of 49th in the nation in 2012 to consistently inside and around the Top 10 according to The Tax Foundation. We believe Michigan should continue to nurture and maintain that positive momentum.

 

2-Year Scholarships: The MI Opportunity and Reconnect skill and degree attainment program

Proposal: The Governor is recommending a two-year, tuition-free plan to ensure every Michigander has a real path to get the skills or education they need to land a good paying job. Under this plan, Michiganders will have the opportunity to improve their skills at any point in their life with two years of tuition-free postsecondary education or skills training.

The program consists of 3 components:

1) Michigan Reconnect Grant Program – tuition-free training for non-traditional students who are at least 25 years old to receive a credential, certificate, or an associate degree. (Summer 2019)

2) Michigan Opportunity Initiative – 2 years tuition-free at a community college. (Fall 2020)

3) Michigan Opportunity Initiative – 2 years of tuition assistance at a 4-year public or not-for-profit college. (Fall 2020)

Michigan Reconnect Grant Program

• The Michigan Reconnect Program will provide credential and degree opportunities for non-traditional students. This program targets students over the age of 25 who have a high school diploma but no further education. This program is modeled after the Tennessee Reconnect program. Eligibility criteria include:
• Age 25 or older
• High school graduate or equivalent, without associate or bachelor’s degree
• Michiganresidentforatleast1year
• Eligible programs would be offered at community colleges, technical programs, and community-based organizations (as determined by the Department of Talent and Economic Development)
• Eligible for funding for up to 2 years
• Considered last dollar, covering remaining tuition after all other financial aid, such as federal Pell Grants.

Michigan Reconnect Cost Estimates

The Michigan Reconnect grant program is expected to cost $50 million annually and will serve an estimated 51,100 students. A total of $110 million is being recommended for this program in an FY 2019 supplemental request. Of this amount, $60 million in unspent funds designated for the Marshall Plan will be repurposed for this program, and $50 million in general fund will be deposited into the Talent Investment Fund in FY 2019 to cover the remaining amount. This is projected to cover the costs of the program through FY 2021.

Michigan Opportunity Initiative

The Michigan Opportunity Initiative will provide graduating high school students with two years of tuition-free postsecondary education at a community college or tuition assistance for the first two years at a public or private not-for-profit four-year institution. This program will be available to students beginning Fall 2020.

Alliance position: Position under development

 

K-12 Per Pupil Funding = 1.5x 

The Governor proposes $235 million to increase the per-pupil foundation allowance by $120 to $180 per-pupil, distributed through a 1.5x formula at a cost of $235 million. Total state funding for the foundation allowance exceeds $9.4 billion. The minimum foundation allowance will increase to $8,051 per pupil, an increase of 2.3%; the basic foundation allowance will increase to $8,529 per pupil, an increase of 1.4%.

This reduces the gap between the minimum and maximum foundation allowance to $478 (A record low).

Alliance position: For now, we continue to support the 2x funding model. There is a strong precedent for 2x funding and we should continue that path.

 

Other Issues of Interest

• Retains the popular Going Pro training program
• $5 million cut to Pure Michigan
• Expands Child Care/Great Start Readiness program

 

Want More Information?

For more information on Governor Whitmer’s FY 20-21 budget proposal, consider the following resources:

• White Papers on the Governor’s key budget proposals
• Visit the State Budget Office Webpage