CHICAGO — Michigan Gov. Jennifer Granholm urged legislators this week to send her a tax cut package that she can sign — a statement made after an oversight by lawmakers allowed her to separate Republican-sponsored tax cuts from a tobacco securitization plan the governor signed into law Monday.
Legislators had attempted to “tie-bar” or link the two plans this week, but Granholm, a Democrat, only signed the securitization into law while vetoing several provisions in the tax cut plan. Though the move allows a jobs creation program including the issuance of $400 million of tobacco bonds to go forward, the details of the final tax cut bill remained uncertain.
The state will issue the $400 million in debt backed by Michigan’s share of the Master Settlement Agreement between tobacco companies and states. In addition, the jobs package legislation allows the state to use $600 million of tobacco settlement revenue over eight years to fund grants and loans for companies that want to expand or invest in the state to create jobs.
The state will use the net proceeds from the sale of bonds to fund the jobs program, create a liquidity fund, and pay the cost of issuance, said deputy treasurer Cynthia Faulhaber. Michigan may need to capitalize interest, she added.
The legislation sets up an authority to issue the bonds, Faulhaber said. The Tobacco Finance Authority will have seven members, Faulhaber said. Two ex-officio members — the state treasurer, Jay Rising, and the director of the Department of Labor and Economic Growth, David Hollister — will serve on the board.
Granholm will appoint the other five members, with two of those being recommended by each house of the Legislature. The appointees must have knowledge of, or experience in, finance or business, she said.
Once the authority is set up, the Legislature must hire an independent financial adviser to help the authority make decisions about how to structure the deal and when to issue the bonds, Faulhaber said. The legislature is expected to put out a request for proposals once the authority comes online, she said.
“I am sure [Granholm’s] going to work as fast as she can to get those people appointed,” Faulhaber said.
Beginning in 2008 and lasting through 2015, the state will deposit as much as $75 million of the tobacco settlement it receives into the 21st Century Jobs Trust Fund, she said. Those will be from the non-securitized portion of the funds. The state receives about $285 million of tobacco settlement revenue each year, she said.
“It would be fair to say that everybody would like to get the $400 million into the economy as soon as possible,” Faulhaber said. “We will follow all of the steps, though, before we get there.”
Lawmakers had been working on the tax cut and jobs packages since February. The Republican-dominated Legislature wanted to keep the two packages together in order to force a compromise, but when the final version tied some tax cut items with others, Granholm was able to veto the ones she didn’t want, thus making the others void.
Granholm supported a reduction in the single business tax, but rejected lawmakers’ attempt to have the tax expire in 2009. She also supported cuts in personal property business taxes.
“Because the vetoed bills were tie-barred to the tax cut bills, the tax cuts will not take effect until the Legislature submits legislation to the governor that will offer tax cuts for manufacturing without harming citizens,” a statement from the governor’s office said. However, the securitization legislation was separated and approved.
“It was kind of surprising,” said Mitchell Bean, a legislative analyst with the House. “The way the Legislature tied it together allowed her to unravel it, in a very unexpected manner.”
The Legislature will return next week in an attempt to reconfigure the tax cut legislation.
