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    Q:  What exactly does the House Fiscal Agency do?

    A:  HFA provides non-partisan information to members of the House of Representatives.  A more complete picture can be obtained by visiting to our web site at:

    http://www.house.mi.gov/hfa/about.asp

    .

    Q:  What does the HFA provide for the House members?

    A:  Most of the things we’re asked are specific legislative requests. We have fiscal analysts that focus on appropriations (expenditure) issues and economists that look at tax policy and forecast economic conditions.

    Both parties in the House and the Senate have their own policy staffs that tend to focus most on the issues that they feel are have the highest priority.  Because the HFA is non-partisan, we can usually provide the insights that assist both sides on any specific issue.  Our job is to provide the best unbiased information that’s available.

    Q:  So there are two different parts to the HFA, what is the main focus of each side?

    A: The bulk of the agency is comprised of fiscal analysts that track the different budget areas (such as Judiciary, Human Services, Transportation, School Aid, etc.). They're assigned to individual budget areas and work with those budget subcommittees and go through the budget line by line.

    The state fiscal year runs from October to September, so we just completed the budget for the current fiscal year (FY2009-10) a couple of months ago and we're in the early stages of working on the budget for the 2010-11 fiscal year…So over the course of the next several months the fiscal analysts will be working with the chairs and members of their budget subcommittees, trying to formulate the budget for the upcoming year.   That is all on the appropriations side.

    On the revenue side we focus more on trying to forecast economic conditions, and how changes in the economy will alter tax revenue.  For example, how much revenue does each individual tax generate, are revenues as a whole staying on target, etc. Similarly, if a change is being proposed that could affect the revenue stream, what will the impact be?

    Q:  What are the main reasons that tax expenditures have been increasing over time. Is new legislative policy responsible or are there natural economic trends that have increased the value of previously passed tax benefits?

    A:  Both factors have played significant roles.  For example, look at slide 29 in Mitch Bean's presentation that's on our web site:

    http://www.house.mi.gov/hfa/PDFs/Michigan's Economy and Budget presentation Nov 2009.pdf

    It shows that sales and use tax collections as a percent of personal income have declined steadily over the past 30 years. In part, this is because we are now buying fewer goods (which are subject to the sales tax) and more services (which are generally exempt). This shift isn't really the result of any specific legislative policy, but rather it reflects the changing tastes and preferences in a dynamic economy.

    However, over the years the Legislature has also enacted various exemptions, deductions, and credits. Slide 33 of the same presentation shows how tax expenditures have risen while actual revenue collections have fallen.

    Q:  Can you explain a little of the HFA’s role in the budget process?

    A:  How the budget process works is that in January of each year, the House Fiscal Agency, the Senate Fiscal Agency, and the Department of Treasury host a Consensus Revenue Estimating Conference...the next one is scheduled for January 11th, 2010, and at that conference the agencies will present independent forecasts of the US economy, the Michigan economy, and what we foresee Michigan revenues being for both the current fiscal year as well as the upcoming fiscal year. The Governor will use those fiscal estimates to develop a budget recommendation which will be delivered to the Legislature in early February.

    The Legislature then goes to work and starts going through the different budget areas looking for any changes it feels are necessary. Each budget area has its own appropriations bill, and half of the bills will originate in the Senate while the other half begin in the House. The various subcommittees will then come up with their own recommendations, pass the bills through committee and the full chamber, send finally them to the other chamber for its evaluation.

    In May there will be another revenue estimating conference which will give updates on how we are doing in the current fiscal year as well as updating projected revenues for the following year. These estimates are used to fine tune the various budgets, and sometime by the end of September we pass the budget for the following fiscal year based on those numbers.  So when we have the revenue conference in January, it’s going to be updating the numbers that we did the previous May, and then making a first shot at the next year.

    Q:  What can you tell me about the surcharge?

    A:  The surcharge is unpopular, but as a non-partisan agency it’s not our role to determine whether or not the [MBT] surcharge is a problem. But, if the decision is made to get rid of it, there are basically only three choices: you can find some other source of revenue to replace the revenue that you lose, you can cut spending by the amount of revenue that you lose, or you can do some combination of the two.  In some respects it's that simple. Michigan has a balanced budget requirement in the Constitution, so if you're going to eliminate a revenue stream that brings in roughly $550 million then you either have to replace that revenue or figure out how to do without it.

    Q:  Can you discuss the current debate on the Michigan Earned Income Tax Credit (MEITC)?

    A: I can tell you how the EITC is structured, but we can’t take a political stance on whether it is a good policy or bad policy. For the 2008 tax year, the EITC in Michigan was 10% of the Federal credit, and it’s slated to increase to 20% for the current (2009) tax year.

    Q:  In closing, what can Michigan residents expect for 2010?

    A:  Most of the federal stimulus money is going to be gone, so we’re looking at a significant shortfall if we want to maintain the current level of spending. So, then the question becomes do you raise revenue, do you cut spending, or some combination of both?

    If the Legislature and Governor opt to cut spending then they will need to agree on the amount of spending to be cut, and which department and programs should absorb those cuts.

    If the decision is made to raise revenue, there aren’t many places to look that would generate enough to close the gap.  Some options would be increasing the income tax in some way (either increasing the rate or changing the structure) or increasing the sales tax rate, which would require a Constitutional amendment since we’re currently at the maximum rate allowed.  You could start taxing services, which has been proposed or you could increase business taxes

    Because the potential shortfall is so large, it would be difficult to accomplish much by applying small “tweaks” to lots of different taxes. If the decision is made to raise a significant amount of revenue, there are only so many ways you can do it.

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    The Michigan Policy Network is a student-led public education and research program to report and organize news and information about the political process surrounding Michigan state policy issues. It is run out of the Department of Political Science at Michigan State University, with participation by students from the College of Social Science, the College of Communication, and James Madison College. 

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    Meet your Policy Fellow: Nicholas Biondolillo

    Nicholas Biondolillo is tax policy correspondent for the Michigan Policy Network. Nicholas is a first-year student in Engineering at Michigan State University.