A law signed by Gov. Rick Snyder that restricts the Treasury Department's ability to hold corporate officeholders liable for taxes owed by corporations is a major reason for a sharp drop in projected state tax revenues, officials said Thursday. / Carlos Osorio/AP
LANSING — A law signed by Gov. Rick Snyder that restricts the Treasury Department’s ability to hold corporate officeholders liable for taxes owed by corporations is a major reason for a sharp drop in projected state tax revenue, officials said today.
State officials agreed at a conference today that the general fund and School Aid Fund will take in $986.5 million less in the 2014, 2015 and 2016 fiscal years than officials estimated just four months ago.
And of that drop, $280.4 million is the result of Public Act 3 of 2014, which Snyder signed Jan. 30 and which took effect Feb. 6, according to consensus numbers reached by the Snyder administration and the Legislature’s two fiscal agencies.
The law, among other measures, amended provisions that made an officer, manager or partner personally liable for unpaid taxes of a business. The changes limited that liability to people responsible for paying taxes or filing returns who willfully failed to pay, and put a four-year time limit on Treasury going after that person. The law also put in measures making it easier to fight the assessment.
Democrats railed at Snyder on Thursday over the drop in projected revenue, but they are not in much of a position to complain about Public Act 3, sponsored by Sen. Jack Brandenburg, R-Harrison Township. The bill passed both chambers without a single vote cast against it, 108-0 in the House and 36-0 in the Senate.
A Senate Fiscal Agency analysis said it would “potentially ... reduce state revenue,” but the impact was “indeterminate.”
When Snyder signed the bill, he announced it in a news release headlined, “Snyder signs bill improving corporate tax collection.”
“I am confident the changes in this bill will bring more fairness to the process and help establish a more positive business tax environment, which will help our economy grow and thrive,” Snyder said at the time.
The law “addresses concerns that new officers who were not at a firm or in a position of responsibility at the time a liability was incurred, were being left with potentially significant personal liability when former officers who were in charge or responsible left a company,” the release said.
Karen Holcomb-Merrill, policy director at the Michigan League for Public Policy, said it will be interesting to see whether Snyder and lawmakers are as enthusiastic about the legislation now that the fiscal impact is understood.
“It appears to me to be another $100-million-plus tax cut for businesses,” Holcomb-Merrill told the Free Press. “It’s not clear to me that when the legislation was being passed that it was understood that this was going to create another hole in the budget.”
Treasurer Kevin Clinton said his department wasn’t enthusiastic about the bill because “we wanted the ability to be able to go after some people.” However, “we helped negotiate the best we could get at the time,” Clinton said.
Snyder’s spokeswoman Sara Wurfel said Snyder vetoed an earlier version of the bill that went too far.
The new law was cited as the second-biggest single factor in a sharp drop in expected revenue since January. The biggest factor, which will cost the state an estimated $223 million in 2015 alone, is an unexpected drop-off in personal income tax payments, combined with bigger refunds.
There, the most dramatic fall is in capital gains taxes. A rush to take capital gains late in 2012 — when higher income tax rates were anticipated at the time of the “fiscal cliff” crisis in Congress — had pumped up Michigan tax receipts in 2013. State officials knew those capital gain tax receipts would fall off and planned for that, but they fell off much more than anticipated, by about 35%, officials said.
A third factor was higher than anticipated payments this year to companies for tax credits held under the old Michigan Business Tax, officials said. About $6 billion in business tax credits are still held by Michigan companies, and it’s impossible to predict exactly when those credits might be cashed in over the next 15 years, said Jay Wortley of the Treasury Department.
Administration officials stressed that the Michigan economy continues to grow and although tax revenue will be less than expected, it will still be up about 4% in both 2015 and 2016.
But Democrats seized on the revised numbers to criticize Snyder and the GOP-controlled Legislature.
“These facts show that what Gov. Snyder is doing isn't working,” said Lon Johnson, chairman of the Michigan Democratic Party.
“Michigan families are struggling to get ahead because of Rick Snyder’s policies of taxing the middle class and retirees and cutting education, all to give corporations more tax breaks.”
Officials split the difference among three different estimates and concluded that combined general fund and School Aid Fund revenue will be $317 million less than forecast in the current 2013-14 fiscal year; $299.1 million less than forecast in 2014-15; and $370.4 million less than forecast in 2015-16.
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Budget Director John Roberts said adjustments may be needed to the 2014-15 budget, but “our priorities are definitely Detroit and transportation.”
Roberts said he doesn’t expect the lower revenue projections will prevent lawmakers from appropriating $195 million from the state Rainy Day Fund to help settle the Detroit bankruptcy case.
“Everybody knows how important Detroit is to the governor,” Roberts said. “We’re at a historic moment where we can not only help the city, but help the state,” and “I don’t think this is going to play into it.”
George Fulton, director of the University of Michigan Research Seminar in Quantitative Economics, told the conference the strong job growth in Michigan in 2012 and 2013 won’t be repeated in 2014, but that’s largely because of a sluggish start to the year because of the unusually harsh winter weather.
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