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State of Michigan Election, COVID-19, and Budget Update

Not much going on in Michigan these days, unless you consider being a Presidential battleground state with a foiled kidnapping plot against the Governor to be newsworthy! But seriously….

There is a lot going on in Michigan, and we cover developments through a number of attorneys in the Detroit Office and through our relationship with Michigan Legislative Consultants in Lansing. On the State election level, this is considered something of an “off year” as the Governor, Attorney General, and Secretary of State (all Democrats) are not on the ballot, nor is the Republican-controlled Senate.

On the other hand, all 110 House seats are being contested this year, and there is a potential for change from the current Republican control. In fact, some national Democrats view the Michigan House as one of the top five state legislative houses most likely to flip. The Republicans currently hold a slight 58-52 advantage, therefore their majority is at risk if four seats flip. On the Senate side, the Republicans have held a majority since 1984, which currently stands at 22-16. Michigan state senators serve four-year terms, with all seats up for election every four years. Senate elections took place in 2018. As in most Presidential years, these “down ballot” races are expected to be heavily influenced by the top of the ticket, which also includes a hotly contested U.S. Senate race between incumbent Gary Peters and challenger/businessman John James. In 2016, President Trump won Michigan by just over 10,000 votes (which took him from 288 to 304 Electoral votes when Michigan was dead last in certifying its results). This year, Michigan again is a hotly contested Presidential battleground state, with both campaigns and parties scheduled to invest heavily in advertising and time in the state between now and November 3rd.

In addition, this will be the final Michigan election before Michigan’s Independent Citizens Redistricting Commission takes over the drawing of state legislative and Congressional Districts, which have, throughout recent history, been drawn by a Republican-controlled legislature, resulting in a favorable electoral map for Republicans.

As in most states, CV-19 and the State’s response to the pandemic has been a major landscape feature of this year’s Michigan races. On October 2nd, the Michigan Supreme Court invalidated all of Governor Whitmer’s CV-19 emergency orders when it found that a 1945 law upon which she relied constituted an unconstitutional delegation of authority. Motions for reconsideration were denied and the case and other companion cases have now been disposed of adversely to the Governor. Over the last two weeks, several of these emergency orders have been backfilled through other administration actions, including by the Michigan Department of Health and Human Services and more recently by the Michigan Occupational Health and Safety Administration (MIOSHA) under existing authority of those agencies to protect public health and workplace safety. Similarly, some of the larger counties in Michigan issued health orders which had some of the same effects as the rescinded Executive Orders. At the same time, the Legislature and Governor agreed on a package of bills reinstating certain enhanced Unemployment Insurance benefits and also adding certain employer liability protections to the landscape, in addition to other agreed-upon restorations of invalidated emergency actions. To date, there has been minimal cooperation between the Governor and the Legislature on the scope of the emergency orders, which is not expected to change before the election.

On the budget front, the State came through the FY20 budget cycle (which ended September 30th) far better than projected in the spring as CV-19’s impact was hitting hardest in the state. In 2019, the Governor and the Legislature failed to cooperate on a budget which resulted in the Governor vetoing $947 million of items from a roughly $60 billion budget and making controversial departmental transfers of more than $600 million, negatively impacting the working relationship between the bodies. In 2020, better than expected tax collections and the permitted use of CARES Act money permitted the Governor and Legislature to come together with a supplemental budget bill closing the holes created by CV-19. On the heels of this success, for the new budget year beginning October 1st the Legislature and Governor were able to come together on time for a roughly $62 billion budget that included only about $250 million of “hard cuts” and even a small contribution to the “Rainy Day” fund, based on stronger than expected tax collections and other factors. In the event Congress and the President can come together on a stimulus plan that includes some funding for state and local governments, that picture may be expected to look even better going forward for Michigan. In addition, Michigan’s long-term budget picture continues to benefit from some of the structural reforms implemented by former Governor Snyder, including reductions in the long term liabilities of the State and more discipline in the budget process.

From a tax perspective, the Budget Stabilization Fund has a balance of $900M going into the FY 2022 budget. There has been no discussion of potential rate or base changes to meet 2022 budget needs, but additional revenue will likely be sought due to increased expenses. The Department of Treasury has announced that it will continue to work remotely into the beginning of 2021 and will be shortly rolling out an enhanced customer service system to respond to taxpayers’ needs. However, critical notices and mailings still use the U.S. postal service and the Department will be exploring ways to communicate more effectively using electronic means. Business should remain vigilant as to critical notices received from state taxing agencies.

Finally, a group called Fair and Equal Michigan recently filed 493,000 signatures on a petition to change Michigan’s Elliott-Larsen Civil Rights Act to include protections based on sexual orientation or gender identity expression. While the U.S. Supreme Court recently prohibited such discrimination in hiring under Title 7, this decision did not cover all employers and a hole in coverage against LGBT discrimination still exists in Michigan and about 20 other states. If the petition in Michigan is certified, the Legislature will have 40 session days to adopt it or it will go on the 2022 statewide ballot, where it is expected to have broad business and individual support.

Overall, Michigan can be expected to be a hotbed of activity as the election approaches, and afterwards as the Legislature enters its “lame duck” session, although with a split government the potential for end of year surprises will be diminished as compared to some prior periods.

© 2020 Foley & Lardner LLPNational Law Review, Volume X, Number 296
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About this Author

Steven H. Hilfinger, Foley Lardner, Senior Lender Counsel, Global Finance Lawyer
Partner

Steve Hilfinger is a partner and business lawyer with Foley & Lardner LLP. He has more than 25 years of transactional and finance experience, including representing private and public companies, senior lenders, mezzanine lenders and borrowers, venture capital funds and private equity funds, automotive suppliers and other manufacturers. Mr. Hilfinger focuses his practice in corporate and securities law matters, including mergers and acquisitions, corporate restructurings, private equity and venture capital transactions, debt and equity finance transactions, business...

313-234-7123
Lynn A. Gandhi Business Attorney Foley & Lardner Detroit, MI
Partner

Lynn A. Gandhi is a partner and business lawyer with Foley & Lardner LLP. Lynn is based in the firm’s Detroit office where she is a member of the Tax, Benefits, & Estate Planning Practice. 

Lynn has acquired more than three decades of experience as a tax attorney, including 14 years as corporate in-house counsel. She advises her clients on sophisticated multistate tax planning, audits, appeals and litigation and represents them in legislative and policy initiatives across multiple industry platforms. In addition, Lynn provides transactional support on the multistate tax...

313-234-2715
RobNederhood, business lawyer
Senior Counsel

Robert Nederhood is a senior counsel and business lawyer with Foley & Lardner LLP where he focuses his practice on mergers and acquisitions, and represents public and private companies in connection with transactions, corporate restructurings, and commercial contracting. He also has experience representing both debtors and purchasers in connection with the sale of companies in bankruptcy, and assists clients with a variety of Michigan state government matters.

313-234-7154
Kenneth A. Johnson Business Attorney Foley & Lardner Detroit, MI
Associate

Kenneth Johnson is a business law associate with Foley & Lardner LLP. He is a member of the firm’s Transactions Practice.

Previously, Ken served as a summer associate at Foley’s Detroit Office. Prior to joining Foley, Ken worked as a summer associate assisting with bond issuances and real estate matters for public schools. He was also a founding member of the University of Michigan Health System Finance Development Program, where he worked as a finance and strategy consultant prior to law school.

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