LANSING – House Republicans are considering selling Michigan?s $8 billion share of the national tobacco settlement, scheduled to be paid over several decades, for an upfront payment that would fund the business tax cuts they want to pass, but possibly jeopardize the state?s credit rating.

The House GOP already was weighing using one-quarter of the tobacco settlement money in this manner, which is called securitization, to pay for its alternative to Democratic Gov. Jennifer Granholm’s proposal to invest $2 billion from bond sales to lure cutting-edge businesses to Michigan. With securitization, the state would sell the rights to its share of the tobacco settlement (estimated to be $287.5 million for the 2005-06 fiscal year) to investors in exchange for one immediate payment.

But that immediate payment would be considerably less than the $8.2 billion plus interest that the state estimated it would receive over the first 25 years when it announced it had signed onto the settlement in 1998. Under the settlement, revenues to the state continue in perpetuity as long as the tobacco companies exist.

Now a broader securitization proposal, with some of it paying for the proposed Republican business tax cuts – to satisfy Granholm’s requirement that a business tax plan be revenue-neutral – is under serious consideration, top House Republicans told Gongwer News Service on Tuesday. And a key Democrat said the House GOP has been in talks with Ms. Granholm on the idea although she remains noncommittal.

The Republican alternative to Granholm’s plan on business taxes is expected to provide about $150 million in relief to businesses on the personal property tax. It also is expected to include Ms. Granholm’s proposal to base the Single Business Tax entirely on a business’s sales, a move the administration estimates would reduce revenues by $40 million.

Besides the use of securitized tobacco settlement revenues to fund the tax cuts, the House GOP also will consider eliminating some of the so-called tax expenditures as Granholm has recommended.

Granholm’s plan would cut the Single Business Tax rate from 1.9 percent to 1.2 percent, change the tax’s formula to base it 100 percent on sales, provide a credit to manufacturers on personal property taxes paid, end some current credits like those for unincorporated companies and create a 2 percent tax on insurance companies’ premiums (SB 295, SB 296, HB 4476, HB 4477). The administration says the plan would reduce taxes for 76 percent of businesses that pay the SBT and especially aid struggling manufacturers.

Republicans have objected to the pieces of the governor’s proposal that would raise revenues, especially on insurers.

Time is running short. The House GOP wants to pass its business tax proposal by Thursday to give the Senate time to act next week. The Legislature is scheduled to adjourn for its summer recess until the end of August after its June 30 session.

Plans clearly remained fluid Tuesday as the House Tax Policy Committee canceled its scheduled Wednesday meeting. It is still scheduled to meet Thursday. A motion to discharge the governor’s plan from the Tax Policy Committee was postponed, but remains available for use if necessary.

But key House Republicans are touting the securitization idea to pay for the tax cut.

“It is one of the main options,” said Rep. Fulton Sheen (R-Plainwell), the Tax Policy chair.

Said Rep. Leon Drolet (R-Clinton Township), an influential Republican on the tax talks: “Securitization is a good option for us to look at here as long as questions about our credit rating and our percentage return on the overall investment are answered to our satisfaction.”

Indeed, credit rating agencies have downgraded several states that have securitized their tobacco settlements, causing higher interest payments for those states on their debt.

So serious are the discussions that Drolet and Rep. Paul Condino of Southfield, the top Democrat on the tax subject in the House, were on the phone at 10:30 p.m. Saturday talking about the issue, Condino said.

Condino said House Republicans presented the concept to the Granholm administration. The big questions he has are how much money the state would receive from securitizing its share of the settlement and would the state’s credit rating be jeopardized, Condino said.

“They’re very noncommittal … but willing to listen,” he said of where the administration stands. “They need to be convinced.”

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