Nov. 15, 2024 | This Week in Government: Economic Development Bills Move Through House

The House passed a slew of economic development bills during session on Thursday, many of which had bipartisan support.

“We really want to start looking at economic development as a whole-of-state approach,” Rep. Alabas Farhat (D-Dearborn) said. “All of our state has to participate in the 21st century economy, and that means investing in every part of our state.”

The House passed HB 4906, part of the much-belabored data centers package. The bill would exempt data centers from the sales tax. It passed 64-45, with plenty of opposition from Democrats.

The opposition was primarily due to environmental groups opposing the bill, but ultimately, Michigan will have the most environmentally protected data centers legislation in the country, Rep. Joey Andrews IV (D-St. Joseph) said.

“With the municipal water requirement we have built in there, the rate payer protection and the sunset? This is a model now for other states to copy,” he said. “This wasn’t really about creating a good piece of legislation, it’s just that (the environmental groups) wanted to kill this to prove that they could, and thankfully, they couldn’t.”

The House also passed HB 5100 and HB 5101, which amend the Income Tax act to allow the Michigan Strategic Fund to grant research and development tax credits to businesses with fewer than 250 employees.

Both bills passed 86-23.

Legislation to provide for the Michigan Innovation Fund, which was created by this year’s budget, also passed the House. HB 5651 passed 74-35, HB 5652 passed 71-38 and HB 5653 passed 71-38. Members adopted floor substitutes for both HB 5652 and HB 5653. The substitute to HB 5652 included technical changes to the language and a 2025 sunset was added to HB 5653.

“We have a quality-of-life crisis going on right now. We have an affordability crisis,” Farhat said about the economic development bills passed Wednesday, “We know that this has been the case, and so this majority has been focused on, since day one, is investing in our state’s working class, and the right to organize, and the right to raise a family and in their means to flourish in the state of Michigan.”

A plumbing supply company asked the Michigan Supreme Court on Wednesday to overturn a Court of Appeals’ decision that held a fire inspection permit fee for businesses in Detroit was not a tax in violation of the Headlee Amendment.

Justices heard oral arguments in Midwest Valve & Fitting Company v. Detroit (MSC Docket No. 165726) during an afternoon session of its November case call.

The lawsuit involves the city’s imposition of annual charges on owners of commercial property and multiunit residential property within the city’s limits. The plaintiff, an owner who paid the charges, claimed they are taxes in violation of the Headlee Amendment. The city, however, said they were permit fees. The trial court granted partial summary disposition to the city on the Headlee claim but dismissed the plaintiff’s remaining claims.

The plumbing supply company appealed, but the Court of Appeals affirmed the trial court in a published opinion. The high court was asked to address whether the challenged annual charges violate Headlee, the Prohibited Taxes by Cities and Villages Act or both.

Greg Hanley, representing Midwest Valve & Fitting Company, clarified that the lawsuit started because the company got billed every year for a city fire safety inspection that it did not receive for years on end. Once the lawsuit was filed, Hanley said the city averred that the fees were for inspections but also to fund direct and indirect costs of Detroit’s entire fire inspection program.

Hanely told the justices when the company demonstrated that it was billed for 57,000 inspections that never occurred, the city began referring to the charges as permit fees.

“At the end of the day, we took the position that it doesn’t matter. If you want to call them permit fees, you want to call them inspection fees, it’s the nature of the fee that matters,” Hanley said. “These charges are much different, and they simply can’t survive scrutiny as permit fees. Long before the Headlee Amendment, this court recognized that license and permit fees could be abused by municipalities because of a disparate bargaining power. You go to the government, and you want the right to do something, the government says you have to pay for that right, and that right can be abused.”

Hanley argued that by claiming the fees were charged so the business could operate was just a crafty way of getting around Headlee with an impermissible tax.

Answering a question from Justice Brian Zahra, who said this case represented the kind of disputes that ultimately led to the passing of Headlee, Hanley stated that there was no dispute the funds collected from the fees fund Detroit’s fire marshal and the division, including the training of arson investigators, inspection activity, and the entire operational budget of the fire prevention program.

Although Hanley said the city did not use the funding each year in a discretionary fashion, which would be a clear violation of Headlee, the fact that it was funding the entire program and not just individualized fire inspection activity for the company made the fees a tax.

“The question is not whether they’re using it for the fire inspection program. The point is that the fire inspection provides no particular benefit to the people who pay the fee and don’t get an inspection,” he said. “They’re funding a general governmental obligation. Fire prevention is about as core a public function as you can have.”

Justice Megan Cavanagh posited whether these larger businesses in the city presented different fire risks than single-family or residential properties. She said it appears that even though the company paid for inspections but didn’t get them, others in the area may have and there was a shared benefit of fire prevention, and that was a clear benefit as a payer of the permit fee.

Hanley said the important point to take away from her reasoning was that the plumbing supply company was benefiting in no way different than the public.

“That’s the whole point,” he said. “If the public benefits and are getting that particular benefit, then it’s a tax.”

Eric Gaabo, representing the city of Detroit, said the plaintiff had wrongly characterized fees at issue as a core fire prevention and protection service, in which he cited former Justice Stephen Markman’s dissent when he was a member of the Court of Appeals, that these types of core services should be paid for by taxes and not fees.

Gaabo said the court in question did not adopt that reasoning when it issued its decision in the case, but more importantly, the case didn’t involve core fire services.

“Core fire services are firefighters. They are fire trucks, fire stations, fire hydrants. They’re responding to accidents, disasters, emergencies, EMS services,” Gaabo said. “These are the core fire protection services that are provided by every community everywhere, and they’re provided to all citizens in those communities. These are funded by taxes, and they’re funded by taxes in the city as well, because none of these functions, none of them, are paid for with the fees at issue in this case.”

Gaabo said that the city’s fire budget bears out that evidence, noting that the record of Fiscal Year 2017, which became an exhibit in the lawsuit, shows the fees in question amounted to 2.5% of the total budget and only went to the fire prevention unit. The other 97.5% paid for those core services he mentioned, like actual firefighters.

“It is not devoted to this specialized program that was enacted just to assist this specific subset of companies. I think it’s also helpful to consider what would happen if plaintiff did not pay the fee,” Gaabo said. “If the plaintiff didn’t pay this fee and had a fire, what would happen is, the fire department would send out its firefighters from its fire stations in its fire trucks and put the fire out using fire equipment all paid for by taxes.”

Chief Justice Elizabeth Clement asked what the company would not receive if it decided to stop paying the fee. Gaabo said they wouldn’t be able to hold their occupancy or use the property for a particular purpose, again likening it to a license or permit.

Zahra, who said he had concerns about the Court of Appeals’ decision in the case and signaled his leaning to overturn the ruling, said they might not get inspected, either.

“It appears to reason that the imposition of this fee is not a tax because it’s paid in exchange for a permit to do business,” Zahra said. “That can’t possibly be the way around Headlee, right? ‘If you get a permit to do business in our state, it’s not a tax.’ Is that the rule of Headlee?”

Gaabo said no, to which Zahra thanked him for agreeing with him that the scenario presented was not the rule of Headlee, which he further noted was the basis of the appellate court’s ruling.

Gaabo said Zahra was misreading the ruling.

“That’s not correct. You have authority to use your property for a specific purpose, but there may be other requirements you need to follow, as well, before you can actually do business,” Gaabo said. “Some of these entities have to get a license. This is not one of them. In fact, the vast majority of these entities out there don’t have to get a license and don’t pay a license fee.”

Zahra said that didn’t provide him any more comfort regarding the appellate court’s holding.

Detroit Mayor Mike Duggan launched what may be the first volley in the 2026 governor’s race by announcing Wednesday that he would not seek a fourth term as mayor in 2025.

Duggan, long seen as a top potential candidate for the Democrats, gave no indication as to whether he would like to succeed Gov. Gretchen Whitmer, who cannot seek reelection because of term limits. But he also hinted that some type of announcement on his future isn’t far off.

“Today is not going to be about my future. I’m going to discuss that in the coming months,” he said.

He told The Detroit News in an interview he might announce plans in a couple weeks.

Should he seek the Democratic nomination for governor in 2026, he would immediately vault to a top contender. With his near universal name recognition and popularity throughout metropolitan Detroit, where the bulk of the votes in a Democratic primary are cast, combined with his proven fundraising ability, he would be formidable.

He could, however, face stiff competition for the Democratic nomination from people like Lt. Gov. Garlin Gilchrist II, Secretary of State Jocelyn Benson, and perhaps outgoing U.S. Transportation Secretary Pete Buttigieg, who is registered to vote in Traverse City. Genesee County Sheriff Chris Swanson and state Sen. Mallory McMorrow (D-Royal Oak) also have been mentioned as possible candidates.

Candidates surely have the example Whitmer set in 2017 in mind.

Then, as now, Donald Trump was about to take office as president, and Democrats were demoralized. Whitmer was expected to run for governor in 2018 but surprised the political community by announcing her bid on the first business day of 2017.

Whitmer had the field to herself for months, built her campaign, generated goodwill by getting into the fight first and serving as something of a vessel for Democratic anger about Trump in the White House. Her top potential rival, U.S. Rep. Dan Kildee, decided not to run, and other top contenders like attorney Mark Bernstein also backed out of Whitmer’s way.

Duggan has long been more of a centrist Democrat and would face the potential challenge of having to fend off challenges from his left, though the more candidates running to his left, the better for him.

Should Benson, McMorrow or another woman run, Duggan also would be seeking to become the first man to win a competitive statewide Democratic primary with a woman in the field since 1994, when Howard Wolpe and Bob Carr won the gubernatorial and U.S. Senate primaries (Debbie Stabenow was in the governor’s race and Lana Pollack in the U.S. Senate race).

Duggan has been a hugely visible figure on the state’s political scene for decades, first as the right-hand man to the late Wayne County Executive Ed McNamara, then during a brief stint as Wayne County prosecutor, next leading the Detroit Medical Center and for the past 11 years as Detroit mayor.

In a speech to city employees, Duggan recounted a multitude of successes and his belief the city has a deep bench of future leaders.

“As I thought about it, I realized that I had done what I set out to do,” he said in remarks at city hall, the Coleman A. Young Municipal Center. “With that realization, I realized it’s time.”

Legislation that’s been in the works for more than a year that would make significant changes to the state’s workers’ compensation law was introduced as lame-duck session began. The bill sponsor hopes to see movement on it soon even as one business group plans to fight.

Proponents of the legislation said the changes in SB 1079 and SB 1080 would improve employees’ access to benefits without going through as many hurdles.

Business groups have countered the bills would raise premiums for employers and gut existing provisions in law, which they say strike a balance providing benefits and keeping costs on employers from spiraling out of control.

SB 1079 and SB 1080 were introduced last week, and Sen. John Cherry (D-Flint) hopes to see movement on them before the end of the year.

Drafts of the legislation have been in the works since last year and have drawn a divided response among stakeholders since earlier this year (See Gongwer Michigan Report, Jan. 26, 2024).

“The big piece, the most important piece, deals with unwinding this ‘phantom wage’ issue,” Cherry told Gongwer News Service on Tuesday.

Generally, injured Michigan workers receive 80% of the after-tax value of their average weekly wage, defined as the highest 39 of the previous 52 weeks of earnings prior to the date of their injury.

Benefits are capped at 90% of the state average weekly wage, which as of early 2024 was $1,259, making the cap at that time $1,134 per week.

The law also considers post-injury earning capacity. If someone is injured at work and has the ability to do a lesser paying job, even if they cannot find that job, their compensation can be reduced by 80% of the average earnings for that position.

Supporters of proposed changes refer to the provision as the “phantom wage,” and say it undermines benefits for many claimants.

“That’s not the way the worker’s compensation system is. It just essentially is a near-elimination of it for a lot of people,” Cherry said Tuesday. “Unwinding that phantom wage out of the statute is important so that people have access to a basic worker’s comp benefit in the event that they are injured.”

With the changes, Cherry said that employers who want to deny a worker their benefits would have to ensure they offer the employee an accommodation job that they can perform under their disability.

Cherry was asked if the legislation could be worked out and passed during the lame duck session.

“It would be my hope,” Cherry said.

Wendy Block, senior vice president of business advocacy with the Michigan Chamber of Commerce, in a statement said the group will defend the existing law.

She said Michigan’s workers’ compensation law has long been a model of quick and efficient provision of benefits to employees while balancing reasonable rates and costs required of employers.

“Unfortunately, SB 1079 threatens to destroy fundamental principles of the law that have made this possible,” Block said. “Workers’ compensation losses (and premiums for employers) would increase significantly if this legislation were to be passed, making Michigan a less competitive and desirable state in which to create or grow a business.”

Block said proponents of the legislation have stated that the bill would restore the law to where it was prior to 2011 statutory changes. She said it would do much more.

“SB 1079 destroys many of the foundational principles of Michigan’s Workers’ Disability Compensation Act going back to its inception in 1912 by redefining the definition of disability, gutting partial disability, retroactively apply the changes back to 1985, and gutting the work search requirements,” Block said. “Taken as a whole, the bill and its intent are jaw dropping.”

As introduced, SB 1079 contains several other provisions.

Under the bill, the maximum weekly rate of compensation for injuries occurring during a calendar year would rise to 100% of the state average weekly wage as of the prior June 30, adjusted to the next higher multiple of $1.

If a person’s health or dental insurance or both are discontinued during the disability, the value of the lost insurance would also have to be included in the calculation of the employee’s average weekly wage, regardless of whether the calculation results in an amount that is greater than two-thirds of the state average weekly wage at the time of the injury.

Language setting the weekly loss in wages as of the time of the person’s injury is also deleted under the bill.

The second bill, SB 1080, would make changes to compensation for death resulting from personal injury.

Wayne County voters may be asked to take another look at regional transportation.

The House Local Government and Municipal Finance Committee reported HB 6088, which would end community opt out for public transportation in Wayne County.

Instead, the bill would ask all Wayne County voters to decide, collectively, whether they want to invest in transit.

“One of the big things folks are looking for is the ability to get from point A to point B, as fast, as safely and as reliably as possible,” bill sponsor Rep. Alabas Farhat (D-Dearborn) said. “The legislation before us today will empower the voters of Wayne County to choose, collectively, to invest in a transit system that can take them from point A to point B.”

The current system allows communities in Wayne County to opt out of public transit, creating a discontinuous transportation network. More than one third of the county’s municipalities opt out of SMART. Detroit has its own public transportation system.

“How can we be in a major metropolitan area in the biggest county in the state, and there’s no busses to get our resident, to get workers, and so they have to go though extraordinary efforts to set up all sorts of shittles and stuff… In a major county like Wayne County, public transit should be an essential service,” said Megan Owens, director of Transportation Riders United, a public transit advocacy organization. “We believe, even in the Motor City, where we love our cars, driving shouldn’t determine your destiny in life.”

Brad Williams from the Detroit Regional Chamber also testified in support of the legislation.

“Businesses can only succeed when we can get our products to market, but more importantly for this conversion, when we can get workers and customers in the door,” he said. “We have had, for too long, a patchwork of transit services throughout our region.”

Williams noted that both Macomb and Oakland County have passed regional transit millages, and in 2016, Wayne County had the highest voter turnout or a regional transit millage.

“Wayne County voters, while it was eight years ago, have spoken overwhelmingly that they do support transit. The do support more transit options,” he said.

If the bill is passed, Williams said stakeholders in Wayne County would likely spend the next year understanding what system would work best for the area.

“We want a system that actually works for people,” he said.

Some members of the committee raised concerns about overriding local control and the voice of voters who chose to opt out of the system.

“You’re taking the voting rights away from the people that made these decisions for these communities,” Rep. Bob Bezotte (R-Howell) said. “I think that’s going to be a huge issue.”

Farhat said that by putting the question back to voters, the change would be empowering a direct democracy.

“We’re going straight to voters, so we’re empowering them,” he said.