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Steve Myers
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Do not activate state of michigan
Chris Christoff & Kathleen Gray, Detroit Free Press
Created: 3/29/2007 10:17:17 AM
Updated: 3/29/2007 11:06:17 AM
Lansing - Democratic House Speaker Andy Dillon is drafting a plan for a novel but controversial tax on electric utility companies as part of a sweeping proposal to erase the state's deficit and stabilize its finances for years to come.
In return for the utilities agreeing to the tax, the state would change the law to effectively eliminate competition for the two major utilities - DTE and Consumers Energy - to encourage them to build new power plants, said people familiar with the plan who spoke on condition of anonymity. One expert said the utilities would expect to pass the tax cost along to customers.
The Free Press learned of the utility tax plan Wednesday as Lansing buzzed with the news that Gov. Jennifer Granholm had ordered department heads to come up with contingency plans for a partial shutdown of government services in May, when the state expects to run out of money to pay its bills if nothing is done. The state faces a $940-million deficit unless Granholm and lawmakers agree to a bailout.
The utility tax would generate as much as $1 billion annually, said the people familiar with the concept. Dillon outlined his plan Wednesday for executives at Consumers Energy in Jackson.
The tax would be a controversial alternative to Gov. Jennifer Granholm's proposed 2% tax on services, which has been declared dead by legislative Republicans and Democrats alike. It would generate revenue for the state without a general tax increase. The Michigan Public Service Commission would have to approve any rate increase linked to the tax. The PSC has called for new power plants to replace the state's aging ones and meet the state's growing energy appetite within eight years.
Don Reading, an economist specializing in utility regulation for Ben Johnson Associates Inc. in Boise, Idaho, said a utility is more likely to be willing to risk a major investment if it has a monopoly in a regulated setting, but it would try to pass that cost along, too.
"That utility isn't going to do it if it can't pass it on," Reading said.
The concept is certain to be opposed by smaller companies that built power plants since a 2000 law opened the state's electricity markets to competition. Other Midwest states with so-called energy-choice laws are Illinois and Ohio.
Advocates say choice has resulted in slightly lower rates. Dillon's plan would reverse the 2000 electric-choice law, which would make it easier financially for DTE and Consumers Energy to build new power plants.
The House has already begun hearings on whether to change or rescind the law.
Dillon declined comment. It was not known whether the utility tax would be part of a budget plan he is to announce today. Consumers Energy officials had many questions after hearing about Dillon's idea.
"We recognize that the state faces a serious fiscal challenge," said spokesman Jeff Holyfield. "We're ready to work with the speaker, legislative leaders and the governor's office to talk about this plan and other options to resolve the problem."
He added, "We want to make sure this approach would allow us to keep our rate competitive."
Drama over the state budget continued to unfold at the state Capitol on Wednesday.
Granholm told state department heads Tuesday to draw plans to suspend some state services in May. The House has yet to approve Granholm's executive order last week to cut $344 million from the budget. And she opposes more than $900 million in budget cuts approved by the Senate.
The cash flow problem will peak May 20, when the state is scheduled to pay more than $1 billion to the state's 565 school districts.
"That will leave us with about $387 million in obligations that we won't have the cash to pay for," Chief Deputy Treasurer Mark Haas told members of the Senate Appropriations Committee on Wednesday.
Haas said that as revenues remain stagnant or decline, the problem only gets worse. He said the state cannot borrow money to offset the lack of cash, and that even immediate employee layoffs won't have much impact. The Legislature could delay payments to schools by a few days to avoid the shortfall. But they'd face the same problem in June.
Republicans, who head the committee, scoffed at the notion of a government shutdown, saying they have offered a budget-cutting plan to avoid a crisis.
"Shutting down the government is not even an option," said Sen. Michelle McManus, R-Lake Leelanau. "There are ways to fix this without it being a crisis."
Still, treasury officials have asked Attorney General Mike Cox to determine whether there are any payments the state can legally delay or avoid.
Republicans also proposed rescinding a pay increase in state employees' 3-year contract, saving the state $110 million in the next fiscal year.
But the move was largely symbolic. Two-thirds of the House and Senate would have to vote to reduce or reject the wage hike by April 8, and Democrats said they don't support the proposal.
The Senate Appropriations Committee didn't vote on the proposal Wednesday, and the full Senate will begin a two-week spring break after its session today.
"These employees have already given $300 million in concessions and to ask them to take even more hits seems like a very, very tall order," said State Employer Scott Bowen.
Contact CHRIS CHRISTOFF at 517-372-8660 or christoff@freepress.com.
http://www.wzzm13.com/news/news_article.aspx?storyid=73252 |
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Steve Myers |
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Fri Mar 30, 2007 10:06 pm |
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