LANSING – Although the securitization of the state’s tobacco settlement money was touted as a huge step between the Republican and Democratic parties for the fact that Rep. Bill Huizenga (R-Zeeland) and Rep. Andy Dillon (D-Redford) crossed the aisle and put together the package, last week’s announcement by the House GOP that the legislation will be used in part to advance business tax cuts approved by the Senate has soured much of that sentiment in the Legislature.

That strain comes as officials try to determine how the proposal could work and whether it might create any problems if enacted. Huizenga and Dillon both sit on the House Banking and Financial Services Committee, as well as the House Commerce Committee, which Huizenga chairs.

During an interview with Gongwer News Service, Huizenga said the decision to use the securitized tobacco money for the tax cuts came from House Speaker Craig DeRoche (R-Novi). Huizenga said he supports the concept because, “I have said all along that I believe that are things in the state we need to deal with. To me, the most important aspect is the atmosphere created by the taxation levels.”

The House GOP proposal still would keep a portion, $300 million, of the $1 billion in tobacco money for the so-called 21st Century Jobs Plan, which invests in high-tech jobs in the state, which Huizenga supports.

However, his counterpart in the original securitization proposal, Dillon, does not feel the same way. Dillon said in an interview that if Republicans want to push for tax cuts, they should figure out a way to decrease government spending to pay for them.

Dillon, who served as CEO of Wynnchurch Capital before coming to the House in 2004, said, “I’ll be patient and see where it all percolates,” referring to the GOP proposal. The freshman Democrat said he was informed of the GOP proposal on Wednesday by Huizenga less than an hour before Republicans held a press conference.

Huizenga maintains that he wanted Dillon to know as soon as the Republican caucus was informed. Dillon did not want to comment on his current relationship with Huizenga. Huizenga was hesitant to say anything about the issue as well, but did add, “I consider Andy a friend. Andy has been a good working partner and I believe we are going to be able to continue to work together.”

Dillon has yet to formally take his name off the only bill he helped sponsor, HB 5048, which is one in the securitization package. Matt Resch, spokesperson for DeRoche, said that the speaker did work with Huizenga to formulate the new proposal. However, there have been some rumblings that the idea came from Republican gubernatorial-candidate Dick DeVos. Resch adamantly denied that rumor.

DeRoche in his comments to reporters on Wednesday said he saw a clear logjam between the Senate and the governor, and the House GOP proposal is a way to make both sides happy. Resch’s comment to whether the proposal is a form of political posturing or if it actually has legs was, “It’s a pretty bold solution to a political logjam.” He said the majority of the caucus is highly in favor of the proposal and business groups either support it or are catching on.

While Liz Boyd, spokesperson for Democratic Governor Jennifer Granholm said on Wednesday that “We are not interested in using securitization to fund tax cuts,” Resch said Granholm is alone in her anger toward the project.

House Democrats have been quiet about the Republican proposal, however, on Friday, House Democrat spokesperson Dan Farough added this to flurry of Lansing comments, “We see this as foot dragging (on the part of Republicans). The only people that pay are the citizens of Michigan.”

Senate Democrats have condemned the idea and Senate Republicans gave a cryptic message of support, although DeRoche said he spoke with Senate Majority Leader Ken Sikkema (R-Wyoming) before making his announcement.

While they want to see more on the proposal, representatives of the Michigan Chamber of Commerce and Michigan Manufacturing Association showed support for the proposal. Resch said the reworded legislation will be reintroduced and voted on by the House on Tuesday.

The novelty of the proposal is raising some questions among Wall Street analysts. A number of states have used tobacco securitization to help balance their budgets, including California and Wisconsin, although it helped drive down the credit rating in those states. A number of states are also bonding to help economic development, though so far none have used securitization for that purpose. And no state has used securitizing tobacco settlement funds for the purpose of financing a tax cut.

Jim Wiemken, an analyst who helps determine Michigan’s credit rating for Standard & Poors, one of the three major Wall Street rating firms, said the biggest question the state would have to resolve if the proposal became law is “what happens when the money runs out? $700 million will buy a tax cut for how long? Where do you get the revenue to replace it when the money does run out?”

Securitization is a form of one-time revenue, and replacing that revenue when it runs out is a primary concern of the rating firms, Wiemken said.

He would not say if such a financing plan could be a “credit factor” in changing Michigan’s bond rating, though the overall structural balance of the state’s budget is a factor when making rating decisions.

Terry Stanton of the Department of Treasury said the administration doesn’t view the securitization plan as feasible. “Securitization revenues should be used for economic investments like those the governor has proposed and not for permanent tax cuts,” he said.

Ari Adler, spokesperson for Senate Majority Leader Ken Sikkema (R-Wyoming), said the House securitization/tax cut plan shows the need for Granholm, DeRoche and Sikkema to develop a compromise.

Adler said he doubted the securitization/tax cut proposal will require a lot of debate because the final resolution will look like something else.

“Ken’s focus is how to provide a tax cut and diversify our economy,” Adler said. So far, Ms. Granholm doesn’t like either the Senate’s business tax plan or the House tax plan, and the Republicans in the Legislature don’t like the governor’s plan, so a compromise has to be found and found relatively quickly.

Sikkema still wants a plan to Granholm by November 11, before the Legislature breaks for the firearm deer hunting season and Thanksgiving. In fact, Adler sent a notice to reporters to be on alert for some action on the legislation during the next two weeks.

Sikkema got little more notice on the plan than anyone else. On Wednesday afternoon, Sikkema was briefed on the details of the proposal by DeRoche. And while the speaker’s plan seems a far cry from Sikkema’s plan, Adler said the securitization/tax cut plan actually uses the Senate plan that passed on Tuesday, Adler said.

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