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Michigan GOP senators want Whitmer to produce new budget plan pending income tax ruling

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Michigan GOP senators want Whitmer to produce new budget plan pending income tax ruling

Feb 26, 2024 | 1:01 pm ET
By Jon King
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Michigan GOP senators want Whitmer to produce new budget plan pending income tax ruling
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Gov. Gretchen Whitmer delivers her proposal for the state's Fiscal Year 2025 budget on Feb. 7, 2024. (Andrew Roth/Michigan Advance)

Michigan Senate Republican leaders have requested that Democratic Gov. Gretchen Whitmer present a contingency budget recommendation based on a pending legal decision. 

In a letter sent on Tuesday, Senate Minority Leader Aric Nesbitt (R-Lawton)  and Senate Appropriations Minority Vice Chair Jon Bumstead (R-Newaygo) asked that Whitmer present a second budget recommendation to the Legislature before the Michigan Court of Appeals renders a decision on whether a state income tax rollback was temporary or permanent.

Michigan GOP senators want Whitmer to produce new budget plan pending income tax ruling
State Sens. Jonathan Lindsey (R-Coldwater) and Aric Nesbitt (R-Porter Twp.), March 14, 2023 | Laina G. Stebbins

“If the courts were to provide a favorable ruling for the people of our great state by protecting families and small businesses from an income tax increase, the budget you presented this month would be out of balance,” the letter states.

Earlier this month, Whitmer presented an $80.7 billion budget proposal for Fiscal Year 2025 starting Oct. 1. The Legislature is now considering budget bills in Appropriations subcommittees.

At issue is a legal opinion issued by Michigan Attorney General Dana Nessel last March which determined that the 4.05% income tax for 2023 triggered by the state’s record budget surplus was only temporary. Accordingly, the rate returned to 4.25% for 2024. 

While Nessel’s opinion was later confirmed by a Court of Claims decision in December, that ruling is being appealed by the free-market Mackinac Center for Public Policy, which brought the suit on behalf of Sen. Ed McBroom (R-Vulcan), Rep. Dale Zorn (R-Ida), as well as the Associated Builders and Contractors of Michigan, the National Federation of Independent Business, and six taxpayers from across the state.

The appeals court has said it will decide on the appeal by March 11, with a March 25 deadline for any appeal of that decision to the Michigan Supreme Court.

If the final decision by the courts were to reinstate the lower rate, it would create an approximately $700 million hole in the currently proposed budget.

A request for comment was sent to Whitmer’s office, but has not been unreturned.

In their letter, Nesbitt and Bumstead contend that the budget recommendation Whitmer made on Feb. 7 “irresponsibly spends $670 million that state law requires as payments to strengthen the teacher pension fund, which is still $34 billion in debt.”

The $670 million being referenced is a proposed one year diversion of money normally paid into the Michigan Public School Employees’ Retirement System (MPSERS) to help reduce that fund’s pension liabilities. That process began during Republican former Gov. Rick Snyder’s administration, with the most recent data from the Michigan Office of Retirement Services showing it 99.2% funded through the 2022 fiscal year. An audit due in the next several weeks is expected to indicate MPSERS will be fully funded by the end of the 2023 fiscal year. 

FY25 Budget Book

 

Whitmer has compared the reduction in the liability to “paying off your mortgage early,” with the redirected funds going right back into her education priorities, including free pre-K and community college.  

“There’s no investment with a greater return than investing in our kids,” said State Budget Director Jen Flood at the budget rollout. “When you look at early childhood, when you look at K-12 and how do we make Michigan a top 10 state, now is the time to inject those resources into our schools.”

Republicans, however, see the scenario differently, and call for the money to instead be used to make payments toward the MPSERS pension fund, the debt of which is now in excess of $35 billion, although it is on track to be paid off by 2038. 

Nesbitt said the diversion “raids the state’s pension fund for teachers,” and called it a “shell game to spend tax dollars down to the last penny for short-term political ambitions …”