Lansing— A state income tax cut, more road repair money and an array of localized spending options are on the table as state lawmakers open the year with a potential surplus of more than $1 billion.
How to spend the projected extra revenue will be a dominant issue as the Legislature resumes today. There is a strong push among majority Republicans to roll back the 4.25 percent income tax, which they see as fulfilling a promise from the state’s 2007 deficit settlement/government shutdown when the tax rate was hiked from 3.9 percent.
“It’s something I’ve always felt strongly about,” said Sen. Jack Brandenburg, R-Harrison Township, whose tax-cut bill introduced almost a year ago would cut the rate one-tenth of a percentage point per year until it hit 3.9 percent.
“I think we’ve taken care of business tax relief,” Brandenburg added. “We’ve done a lot to make Michigan a more competitive state. The promise is out there to roll it back to 3.9 percent. Let’s do it now.”
The idea appeals to House Speaker Jase Bolger, R-Marshall, who is weighing options for a revenue surplus “if there indeed ends up being one,” spokesman Ari Adler said.
“A key component for him will be tax relief for individuals,” Adler said Tuesday. “After all, a surplus to the state is actually extra money from taxpayers.”
Democrats say their priorities include increased public school aid and increasing the state Earned Income Tax Credit. A little more than a year ago, Gov. Rick Snyder and legislative Republicans slashed the tax break for needy families to 6 percent of the rate used for a similar federal income tax break, down from 20 percent.
“Rolling back the income tax is election-year governing at its finest,” said Robert McCann, spokesman for Senate Democratic Leader Gretchen Whitmer of East Lansing. “Unfortunately, it would do little to help those that have been hurt the most by the agenda the Republican leadership has pushed over the last few years, particularly seniors, working families and students.”
House Democratic Leader Tim Greimel of Auburn Hills has school aid at the top of his list.
“After that, we would love to see a solution that focuses on middle-class families and seniors by restoring tax fairness ... by giving tax relief to those who have been hurt by the Republican tax hikes,” said Greimel spokeswoman Katie Carey.
The spending debate stems from optimistic Senate Fiscal Agency projections in December that the state will exceed prior revenue projections by $434 million this budget year, $327 million in 2013-14 and $514 million in 2014-15 — a total of $1.3 billion.
A House Fiscal Agency report released Tuesday estimated revenues in the General Fund, the main state checkbook, will rise from $9.56 billion this budget year to $9.6 billion in 2013-14 and $10.14 billion in 2014-15. School aid revenue will go from $11.3 billion to $11.58 billion to $11.95 billion, according to the projection.
Snyder, who will unveil his plans in his Jan. 16 State of the State address and early-February budget proposal, is cautious. Sara Wurfel, a spokeswoman for the GOP governor, said surplus talk is premature with official January revenue estimates — combining Treasury, House and Senate fiscal agency forecasts — coming on Friday.
“That said ... fiscal responsibility and smart, structurally sound budgeting ... has helped make Michigan the comeback state with more available resources to strategically invest in key priorities,” she added. “The governor is always open to and looking for ways that could best help Michiganders and build for the future.”
Senate Appropriations Chairman Roger Kahn, R-Saginaw, said lawmakers in both parties might agree on a plan to use additional revenues to meet several needs, including a limited tax cut and possibly an Earned Income Tax Credit hike. Kahn’s examples include:
■Boosting the state rainy day fund, now at nearly $600 million when it should be in the billions of dollars.
■Increased road repair spending, although lawmakers are unlikely to meet Snyder’s goal of at least $1.2 billion more per year.
■A $130 million appropriation to draw $400 million in federal matching funds and fix a state shortfall for the Medicaid health care program for the poor.
■Some of 30 local requests to fund projects such as an improved terminal at West Michigan Regional Airport in Holland; boosting the state’s $100,000 beach grooming fund; perhaps meeting a Democratic request for $300,000 for a pre-college engineering program in Detroit.
“There is something there for everybody ... not using the money for a single purpose but several purposes,” Kahn said. “If somebody wants to use it all for one purpose, that’s going to be difficult.”
Former House Fiscal Agency Director Mitch Bean suggested caution about committing to long-term income tax cuts.
The billion-dollar surplus is made up of about $300 million a year in overages, he said, while each tenth-of-a-percentage-point drop would reduce state revenue about $200 million. It ultimately would lead to around $1 billion in annual revenue reductions for the state, Bean estimates.
“The fallacy of gradual reductions ... is that they’re going to hurt when things go south,” said Bean, who now is a Lansing economics consultant.
It happened once. After legislation during the governorship of John Engler gradually dropped the rate to 3.9 percent, lawmakers backtracked and boosted it to solve a $1.8 billion budget shortfall in 2007.
Brandenburg said he believes there’s enough money to accommodate his tax cut plan and other priorities.
“If you follow the auto industry ... a big contributor to our state revenues, they’re saying nothing but positive things about 2016 and beyond,” he said. “I’ve got to believe we’re going to see even bigger surpluses than we are now.”