Mid-May 2025 Newsletter

State Revenues Down, Which Could Factor Into Budget Fight Ahead
The Legislature will have $320 million less than expected in January to work with as it works to develop a budget for the 2025-26 fiscal year.

Members of the Consensus Revenue Estimating Conference met on Friday and revised their projected fiscal year revenue for the General Fund and School Aid Fund down by a combined $320 million from the last estimate in January. The officials revised revenue down by $136 million for the current 2024-25 fiscal year.

Higher than anticipated eligibility for tax cuts drove the decrease in revenue, along with softening corporate income tax and personal income tax revenues.

"I think we learned that we certainly need to be watching the budget and watching the numbers," House Appropriations Chair Rep. Ann Bollin (R-Brighton) said. "For me, it affirms that the path House Republicans are on through our appropriations process. We're on the right track to make sure that we're taking a deep dive looking at everything so that we can move forward with our 2026 budget."

All of the downward revision from January occurred in the General Fund – a $221.6 million drop for the current year and $363 million drop for the 2025-26 fiscal year. Revenues the School Aid Fund were slightly revised upward.

The changes mean the General Fund will fall in the current fiscal year from the 2023-24 fiscal year overall by 0.2 percent, though School Aid will be up 2.6 percent year over year.

Even with the downward revision, year-over-year revenues are still expected to rise in the 2025-26 fiscal year over the current year by 4.3 percent in the General Fund and 2.1 percent in the School Aid Fund.

The Senate has already passed its department budgets, but the House has not yet moved its proposed budgets out of subcommittees.

"We really needed the information from today to see where we're at," Bollin said. "We've been planning on cuts, not just so that we can fund the roads plan, but just in general. The sentiment should be no surprise to us. There is a sentiment that our revenue picture wasn't going to be as rosy as it's been in the past couple of years."

Bollin said that she expected subcommittees to start reporting their budgets "soon" but would not say if that would happen this month. She did say she hoped to pass the School Aid Fund budget prior to July 1. That is the statutory deadline for the Legislature to pass budget bills. School districts' fiscal years begin July 1.

Rep. Alabas Farhat (D-Dearborn), Appropriations minority vice chair, said that with the high degree of economic uncertainty and the slow pace House Republicans are taking with the budget, the Legislature will need an additional Consensus Revenue Estimating Conference.

"If Speaker Hall stays on his pace for the budget, we will have two more CRECs before we understand what a balanced budget requires," he said. "Between the uncertainty at the federal level and dysfunction in D.C., and no serious desire to get a budget done here in Lansing anytime soon, I will be calling for an additional Consensus Revenue Estimating Conference to happen the first week of September."

Generally, the Legislature holds two revenue conferences per year in January and May. In 2020, amid uncertainty because of the coronavirus pandemic, there was a third conference in August.

Sen. Sarah Anthony (D-Lansing), chair of the Senate Appropriations Committee, said the more conservative estimates were not a surprise.

"Our country has experienced significant changes since January, including shifting economic policies. The full impact of these changes is still unknown, so it's no surprise that the numbers presented at today's conference are more conservative than previous estimates," she said. "The numbers presented at today's conference highlight Michigan's resilience and strength. Some things are certain: our values are unwavering, and we have prepared our state well to face any challenges that may arise. Senate Democrats are ready to tackle any issues that come our way, and we will continue to advocate for and promote fiscally responsible policies that make life better for the people of Michigan. As Senate Appropriations Chair, I will keep using the budget to uplift and support every Michigander, from our students and teachers to our seniors, veterans, and everyone in between. As Democrats, we remain committed to investing in people, because every dollar spent helps build a future that Michiganders deserve."

Bollin said the Legislature will need to go through the budget mindfully and pointed to $2 billion in work projects on the books.

"I think every department should be required to dig deep and look at those," she said. "That's a lot of money, and as I go through them and look at some of the descriptions of them, I'm like, 'well, that doesn't even make sense.' … Some of them could be very good programs, but we should be measuring and making sure that we're making some progress on those before we fund them again."

Bollin said that the Legislature should pay extra attention to Medicaid and human services.

"We have $7 billion of extra money for DHHS in optional care, and things that I don't think that we want to cut out if the feds cut them out. Things like pharmaceuticals, for example," she said. "We want people to be on their insulin drugs and their blood thinners, so let's take a look at that."

Bollin said the Legislature was going to work hard to meet its commitment to fixing the roads and making sure people have their needs met, despite lower revenues.

"I don't know if we're going to have enough, but we are going to work very hard to make sure that we meet our commitment of fixing the damn roads and making sure people are taken care of – supporting law enforcement, education's got to work, we want access to affordable health care for the most vulnerable, for all of us," she said. "And we're going to keep working at it to get there."

Farhat said that the lower estimates should not be used as a reason to make cuts to important programs.

"State revenues are still strong, and we cannot let those who seek to cut life saving programs for tax cuts use this announcement as an excuse," he said. "We must make smart investments in this year's budget to support Michigan families and retain our state's talent and young people. Michigan is in a global competition for good paying jobs, educational opportunities and investments. I call on my colleagues to put aside partisan egos and come together so we can deliver real wins for Michigan."

The administration emphasized that although the current economic outlook was uncertain, the numbers from Friday's CREC indicated that Michigan was in a good place.

"The uncertainty, whether it's tariffs or taxes at the federal level, has been a main theme for today, I just want to emphasize it from a budget perspective, Michigan is in great shape," Budget Director Jen Flood said. "The numbers that we saw today affirm that our plan is working, and so we look forward to working with the legislature to pass the governor's seventh balanced, bipartisan budget on time."

Construction Employers Must Follow 'ABC Test' For Contractors Under Senate Bill
With new fines at stake, construction employers in Michigan will need to use a three-part "ABC Test" to determine whether their contractor is truly independent or a full-time employee under legislation moved Tuesday by the Senate Labor Committee.

On a party-line, the Senate panel moved SB 6 and SB 7 on Tuesday by Sens. Kevin Hertel (D-St. Clair Shores) and Darrin Camilleri (D-Trenton).

In the past, Democrats have attempted to require businesses to use the "ABC Test" when distinguishing full-time hires from independent contractors. To qualify as an independent contractor, the worker must be free from the payer's control and direction in connection with work performance, must do jobs outside the payer's usual course of business and must be "customarily engaged" in an occupation or business they established independently.

But unlike previous efforts, SB 6 was substituted to limit the test to the construction industry, as it is defined by federal job codes. For other businesses, they will use a six-factor "Economic Reality Test" to figure out how economically dependent the worker is on the employer.

Use of the "Economic Reality Test" was required by the U.S. Department of Labor starting in March 2024, during former President Joe Biden's administration.

"I think there (are) a lot of people that benefit from the gig economy. I think we want to make sure those workers are actually protected when doing that work, as well," Hertel said to MIRS. "What we've been focused on here is the wage theft that occurs by people misclassifying workers, and it happens in the construction trades predominantly, where we see people being taken advantage of."

The Senate Labor Committee heard testimony on SB 6 and SB 7 on May 1. During the meeting, Wendy Block, the Michigan Chamber of Commerce's vice president of business advocacy, explained that the state already follows the Economic Realities Test.

The Economic Realities Test, according to Block, "is a totality-of-the-circumstances type of test," not restricted to independent contractors needing to meet all three criteria like the ABC test.

Based on the Biden administration's write-up, the Economic Realities Test looks into whether the worker can independently choose assignments, ask for additional work from other clients and advertise services. It asks whether the employee is making entrepreneurial investments in themselves, and if their skills are dependent on training provided by the payer.

But at the same time, Block describes the ABC Test as messy and complicated in California, where it became effective in January 2020 with more than 100 industries receiving exemptions. According to a Labor Market Matters study published this year, California's recent independent contractor statutes have been linked to a 6.43 percent drop in self-employment, as well as a 4.79 percent decrease in employment overall.

"Michigan currently follows the Economic Realities Test. We do not believe that test is broken, and, in fact, that is the same test that the Biden administration put in place nationally in 2024," Block said. "So it becomes a question of, if that test was good enough at the federal level under a Democratic administration, why (do) we need to uproot Michigan's test?"

Block believes in strong enforcement and building better public awareness around Michigan's wage and fringe benefit laws. However, she noted to the bills' proponents that "we probably would differ in terms of approach on how you handle those enforcements."

Under SB 6, employers could face a five-year, $10,000 felony for the first found incident of not paying wages and fringe benefits worth $1,000 through $19,000 due to misclassification, or the employer might need to pay a fine equal to three times those wage and benefits spending on which is greater.

If it happens more than once, the employer will be slapped with a minimum 10-year, $15,000 felony.

"I think we can agree the state maybe needs to do a better job of trying to find these fly-by-night entities and to root out that problem," Block said. "But under the bills, you're talking about throwing business leaders in prison for upwards of 20 years, making that a felony, and it isn't even clear who would be guilty of these violations. Is it the payroll department? Is it the CEO? Is it the manager?"

Overall, Camilleri said SB 6 and SB 7 essentially codifies federal regulations for most industries in the state.

"I think there are some workers who are taken advantage of. I think there are some, (particularly) in the construction industry, who are not paying their fair share of taxes," Camilleri said. "If you are an employee who works 40 hours-plus per week, you're an employee. You're not an independent contractor, and being treated with more of a protective lens is better for that employee than what's currently taking place."

State Can't Bag Double Tax On Grocery Delivery Apps Under Repeat Senate Bill
Sometimes shopping from hometown grocery stores through delivery service apps, like Instacart and DoorDash, means a sales tax is charged twice. SB 229 by Senate Regulatory Affairs Chair Jeremy Moss (D-Southfield) looks to prevent such double taxation.

In June 2024, the same proposal passed unanimously in the Senate, but was not voted on in the House chamber before the end of last term.

In April, University of Michigan research found that 39 percent of residents in Detroit – the state's most populous city – said they used online grocery store delivery, especially if they faced transportation obstacles or had disabilities or "major health challenges."

During Thursday’s Senate Regulatory Affairs committee meeting, Moss explained that third-party delivery services, like the Shipt and Instacart apps, remit sales taxes while processing customers' orders.

"Major retailers like Meijer . . . have the ability to update or modify their point-of-sale software and systems to turn off the collection of the sales tax when the driver comes to pick it up, because it's already been remitted once it's on the app and ordered," Moss said. "But there are smaller retailers, like your hometown grocery store…(that) don't have the capabilities to afford a system to modify their existing point-of-sale system."

Instead of pressuring small retailers to have more advanced systems, Moss' SB 229 would allow the delivery service to claim on their annual returns to the state Treasury the second sales tax they were charged.

According to the Senate Fiscal Agency (SFA), SB 229 could possibly reduce Michigan's sales tax revenue by about $2 million in the next fiscal year.

SB 229 was moved to the Senate floor by Thursday’s panel unanimously, receiving endorsements from the Detroit Regional Chamber, DoorDash and Instacart.

"In this situation, both DoorDash and the merchant end up remitting sales tax to the state on the same transaction," said Evan Marolf, DoorDash's legislative policy advisor, to the committee on the current issue. "Obviously, it's an issue for small businesses in particular, but it even happens for us with some of our larger retailers on the platform."

Speaking to the committee via Zoom, Marolf noted that North Carolina "has adopted similar fixes to the same issue." He added that SB 229 "maintains the integrity of Michigan's sales tax system."

In other Senate news, the Senate Regulatory Affairs panel moved SB 157, setting Michigan's own pet cemetery regulatory act, ensuring that land dedicated to be a pet cemetery cannot be repurposed for other things without distinct court approval to lift the dedication.

Sens. Dan Lauwers (R-Brockway), Roger Hauck (R-Union Twp.) and Joseph Bellino Jr. (R-Monroe) opposed the bill, and Sen. Michael Webber (R-Rochester Hills) chose not to vote on it.

DCD OUT & ABOUT

Jake German and Senator Mat recently organized a Lansing day with the first class of medical residents from Honor Community Health's Residency Program. Senator Mat and Jake were instrumental in securing appropriations to make the program a reality and lawmakers were happy to meet some of the fine new doctors that will be taking care of the Pontiac community.

Jake German was happy to attend the 50th birthday celebration for Rochester Hills Mayor Bryan Barnett with Ken Roberts, CEO of Genuine Contracting in Troy.

DCD client, Ahmad Taylor, of the Pontiac Housing Commission was recently a guest on Chuck Moss's 'Eye on Oakland' television show where he discussed the recent Pontiac Pivot business roundtable and all of the great things the PHC is doing to attract business into Pontiac while working to create affordable housing for its residents.

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