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Midwestern Voters Have Many Questions to Answer

CHICAGO – Voters across Midwestern states face a slew of tax, spending, and bond referendums Tuesday along with policy questions that pack a fiscal punch, including whether Michigan’s emergency management system should be preserved and the state’s ability to raise taxes be limited.

Michigan voters Tuesday face the state’s most crowded ballot since 1978. They will consider six high-profile proposals that, if approved, would bring significant changes to the state’s legislative and fiscal policies -- and could impact its credit, analysts say.

The referendums are among the most controversial in recent state history. Supporters and opponents together raised $134 million to tout their position on the measures, according to Michigan Gongwer News Service.

Gov. Rick Snyder Monday launched a bus tour across the state urging residents to reject five of the six ballot proposals, and support Proposal One, which asks voters if they want to preserve the state’s emergency management law overseeing distressed local governments. Proposal Two would enshrine collective bargaining rights by making them part of the state constitution, and Proposal Five would limit lawmakers’ ability to raise taxes or enact new ones.

In a series of blog posts, YouTube videos, and speeches across the state, Snyder has warned residents that credit analysts are watching the election results closely, and that they could reverse the state’s recent economic and fiscal progress.

Snyder on Monday in an interview with local reporters warned that enshrining collective bargaining in the constitution and restricting lawmakers’ ability to raise taxes would be “economically devastating.”

“We’re the comeback state,” Snyder said. “And Proposal Two, in particular, followed by Proposal Five, would be economically devastating in terms of derailing progress in our state.”

Another referendum would require a vote on the construction of international bridges, in an effort to halt progress on the $2 billion trade bridge with Canada that would be financed partly with toll-backed revenue bonds.

The other proposals would limit collective bargaining rights to home health care workers and require electric utilities to provide at least 25% of electricity sales from renewable sources.

For credit analysts, the measure requiring a legislative supermajority or public vote to raise new taxes could prove the most damaging to the state’s long-term credit.  Moody’s Investors Service said the measure, if enacted, could have “immediate practical consequences,” and the three major rating agencies warned it would limit the state’s fiscal flexibility and its ability to respond to downturns.

“In the event of a revenue downturn, revenue raising would become a much more difficult option, and budgets may need to rely more heavily on potentially politically difficult expenditure cuts or on one-time budget measures or accruals,” Standard & Poor’s said in report on ballot referendums in various states. Analysts said the measure could limit the state’s ability to offset revenues losses or gains and to obtain reauthorization for taxes scheduled to sunset.

An overturn of the state’s year-and-a-half old emergency management law could also impact the state’s credit, analysts and researchers have said. Public Act 4 features broad new powers for the state and emergency managers, including the ability to terminate or unilaterally amend union contracts of troubled local governments.

“Gov. Snyder has been unequivocal in his stance, as has the Treasurer, that Proposition 1 should be supported by voters around the state because of what it allow,” said Terry Stanton, spokesman for Treasurer Andy Dillon. “Without it, local governments risk falling into bankruptcy, and that’s a far worse outcome than an emergency manager in place that’s accountable to the governor and to the Legislature.”

Moody’s said Michigan’s exposure to struggling local governments like Detroit presents a challenge and that the loss of the law would create uncertainty over how the state will respond to local units’ fiscal stress.

Standard & Poor’s, however, downplayed the impact, saying it does not believe it would have a “major effect” on the state’s credit because it would affect a relatively small group of local governments.

At least three local governments under state-mandated emergency management are asking voters for tax increases.  Voters will also face a slew of local referendums on property tax increases and bond proposals dot local ballots.

Benton Harbor is asking voters to approve two separate property tax increases to fund operations, and Detroit Public Schools is requesting a 10-year renewal of an existing levy that the troubled district said would raise $81 million annually for operations, or 21% of its total budget.

The city of Pontiac, which is also under emergency management, is asking for a property tax increase to pay the health insurance costs of its retirees. Officials estimate they will collect $5.1 million in the first year of the new millage.

The City of Allen Park, which just got an EM appointed last week, will ask voters for a property tax increase to raise money for operations.

The Motor City is also asking voters to amend the city charter to limit the power of the corporation counsel. The measure comes after Detroit’s top lawyer challenged the city’s newly inked consent agreement with the state and refused to sign off on a bond issue despite Mayor Dave Bing’s pleas.

In Illinois, voters will be asked if the state constitution should be amended to require a three-fifths vote by the General Assembly to enhance public pension benefits.

Unions oppose the measure, particularly because only a simple majority would still be required to cut benefits. Unions argue that the state's pension crisis is due to payment holidays, not overly generous benefits.

The state is carrying $82.9 billion of unfunded liabilities, but Gov. Pat Quinn, a Democrat, has been unable to agree on pension reforms with state lawmakers.

The state’s mammoth obligations and growing annual payments have contributed to several rounds of rating downgrades. Standard & Poor’s rates Illinois A with a negative outlook. Moody’s rates the state’s $32.8 billion of general obligation debt A2 with a stable outlook and Fitch Ratings assigns an A rating and stable outlook.

“We believe that this measure could be a potential check on future increases in state and local government pension and other postemployment benefit liabilities,” Standard & Poor’s wrote.

In Ohio, voters will face a statewide question of whether to have a constitutional convention to revise or alter the state’s constitution. The question has appeared four times on the Ohio ballot, and defeated each time.

In Cuyahoga County, residents will consider a property tax increase to cover the budget for the Cleveland-Cuyahoga County Port Authority.

South Dakota voters will weigh in on whether to increase the sales tax to 5% from 4% to generate roughly $180 million annually for public education and state Medicaid reimbursements.

In top-rated Missouri where the cigarette tax is the lowest in the nation, voters are being asked whether the state tax rate of 17 cents should be raised to 90 cents to generate additional revenue for public education and anti-smoking programs.

Voters in 38 states face 174 statewide ballot measures, according to the National Conference of State Legislatures. More than $3 billion of bond referendum are on the November ballot nationally.

The ballot measure number is the highest since the 204 measures that appeared in 2006 as weak economic growth in many states after the recent recession has led to calls to increase taxes to supplement state and local government revenues, often for education, and countervailing efforts to restrict tax revenue growth, Standard & Poor’s said.

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