LANSING – A $1 billion plan that securitizes the tobacco settlement and gives Michigan some economic punch in the high tech, life sciences, alternative energy and defense fields was given near-unanimous approval by the House on Wednesday. But the first use of the money is not anticipated until some time early next year.
The plan would sell to investors about a third of the state’s remaining $6.2 billion in tobacco settlement funds it is to receive over the next 20 years. How much is required to reach the $1 billion mark depends on market conditions, with consultants estimating the state will get anywhere from 50 cents to 70 cents on each tobacco settlement dollar.
The $280 million the state receives annually under the settlement, which now goes to the Michigan Merit Scholarship program, Medicaid and the Michigan Tri Corridor Fund, would be reduced to about $175 million.
Rep. Bill Huizenga (R-Zeeland), who paid tribute to Rep. Andy Dillon (D-Redford) for helping to devise the securitization approach, said the plan “injects $1 billion into new and growing areas. Today, we take a very important step to bringing Michigan’s economy back and creating jobs for people living here.”
The package creates the 21st Century Jobs Trust Fund within a renamed Michigan Strategic Fund that would be transferred to the Department of Treasury from the Department of Labor and Economic Growth.
The money would be handed out in grants and loans under two separate entities in HB 5047: a new 19-member strategic economic investment board would award money for commercialization of high tech, alternative energy, life sciences and homeland security ventures; the renamed Strategic Fund board (temporarily expanded by two members to 11) would hand out loans and award grants in private equity capital projects and through an economic stimulus program.
No more than 70 percent of the securitized funds could be used by the investment board; economic stimulus loans could eat up no more than 25 percent and the venture capital program would be capped at 40 percent.
SB 533, reworked from a Senate version that called for a $1 billion bond proposal, creates the new 19-member board that will direct the spending of the competitive edge technologies. It is directed to select those applicants that have a high probability to create jobs in Michigan and they must leverage other funds.
Gov. Granholm, who earlier traded insults with House Speaker Craig DeRoche (R-Novi) regarding the timing of the vote, said she was “thrilled” with the House action and expects it to be strengthened in the Senate.
“In the end, we know we’ll get a package that creates jobs now and diversifies our economy in the future. This is the first step – we’ve got three more, but we’re encouraged,” she said.
DeRoche, who views the jobs plan and the House-passed business tax cut as one package, said the securitization funds offer some hope of longer-term impact, but that the most immediate help will be from tax cuts.
The securitization funds, DeRoche added, will provide an incentive for advanced technology and other targeted businesses to take risks they might not otherwise take and may serve to attract out of state firms to invest in Michigan.
House Minority Leader Diane Byrum (D-Onondaga) said the package “will have a very positive impact. It will go a long way toward diversifying the Michigan economy and cause businesses to invest in this state.”
Companies receiving funds would have to abide by “measurable milestones” and clear objectives, and would be required to repay any public funds they received if they left the state within seven years.
Annual review of the contracts by the auditor general would be required and the legislation requires the board to work with a new compliance officer who would report to the Administrative Board, which is made up of representatives of the governor as well as the elected attorney general and secretary of state and the superintendent of public instruction. The compliance officer position is to be created in later legislation.
The House approved an amendment requiring the participation of at least one Michigan bank in the securitization transaction, which will require using three banks.
Although the bills are linked to the business tax cuts the Democrats opposed, Byrum said revisions are expected from Senate Republicans who shared similar concerns about the impact on the budget. “We can still support restructuring business taxes. We just have to wait and see what comes back from the Senate,” she said.
Granholm had decried the tax cut plan as irresponsible and Senate Republicans have said they need to take a careful look at how it would affect the 2005-06 budget. DeRoche said with passage of the $1 billion securitization plan, he can now work with the Senate on resolving issues in the tax package.
The only opposition vote cast on some of the bills came from Rep. Bob Gosselin (R-Troy) who said the better approach would have been to cut spending more in order to give all businesses lower taxes.
Other bills in the stimulus package, which are all tie-barred, are HB 5048, HB 5109, HB 5108, HB 4972, HB 4973, SB 298, SB 359 and SB 521.
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