Added on June 10, 2019  Sara Swanson

Michigan House GOP plans to replace sales tax on gasoline to fund roads

by Lindsay VanHulle (Bridge)

House Republicans propose phasing out Michigan’s sales tax paid on gasoline, replacing it with a higher state gas tax dedicated to fixing roads.

The plan — which has not yet been formally introduced as legislation — would phase out the first 4 percent of Michigan’s 6 percent sales tax on gasoline in the first year, with the remainder following the next year, according to GOP lawmakers.

The state’s 26.3-cent-per-gallon gas tax would be increased by the same amount the sales tax is reduced, so drivers would see no net increase in what they pay at the gas pump under the proposal.

The House GOP proposal would raise $542.5 million in 2020, according to a House budget proposal for the Michigan Department of Transportation that passed out of a budget subcommittee Thursday. 

That is nowhere near the $2.5 billion additional revenue that experts say is needed annually to repair the state’s deteriorating roads. 

Of the amount projected to be raised under the House plan, $212.1 million would go to state-owned highways and $330.4 million would be dedicated to county and city roads.

The concept has been a priority of House Speaker Lee Chatfield, R-Levering, who has said the state’s primary road-funding issue is that the revenue from Michigan’s sales tax collected from drivers filling their cars’ gas tanks does not go to roads. Rather, it is distributed elsewhere, namely to K-12 schools and local governments as revenue sharing.

“We are in a road crisis, and we’re doing our best as a Republican caucus to avoid another gas tax increase,” state Rep. Matt Maddock, R-Milford and chairman of the House transportation budget subcommittee, told reporters Thursday.

But some Democrats criticized the House roads budget because it doesn’t indicate how the state will replace the lost sales tax revenue for schools and municipalities.

The amount of money being generated from the sales tax shift still falls short of the more than $2 billion Gov. Gretchen Whitmer and independent experts have identified as needed to get most roads into good and fair condition within a decade, said state Rep. Leslie Love, D-Detroit, a subcommittee member.

“I remain concerned that this budget will have serious consequences for the people of this state,” Love said. “This is not a strategic plan to help us reach our transportation funding goals.”

Gideon D’Assandro, a spokesman for Chatfield, said schools and local governments will be protected from lost revenue, but declined to provide specific details before they are revealed in the full House appropriations process. House budgets for some other state departments have included funding cuts.

The sales tax generates an estimated $894 million in annual revenue from gasoline sales. At least one independent analysis, from the nonpartisan Citizens Research Council of Michigan, has considered the idea as a potential road-funding option.

“We can shift out the sales tax at the pump and replace it with a revenue-neutral gas tax,” Chatfield told reporters Thursday. “That is a responsible first step in ensuring that our roads are properly funded.”

Whitmer proposes a 45-cent-per-gallon gas tax increase, phased in over a year, that would raise about $2.5 billion for roads. The administration’s plan would give the most funding to the state highways and roads that carry the most traffic, and would get 90 percent of roads in good or fair condition by 2029.

GOP House and Senate legislative leaders, meanwhile, have not included Whitmer’s gas-tax proposal in their roads budgets, saying average Michiganders can’t afford a hike that steep.

Whitmer’s office did not immediately respond to a message seeking comment.

“There’s a huge safety component that goes with not shoring up our roads and bridges, and what the House has proposed doesn’t raise the $2.5 billion in new and sustainable revenue that we need,” MDOT spokesman Jeff Cranson told Bridge Thursday. “We’re certainly going to watch closely as this process unfolds.”

The House proposal also includes language requiring MDOT to request proposals about selling some state-owned assets, including the Blue Water Bridge that connects Port Huron with Sarnia, Ontario in Canada, along with some airports and rail services.

Maddock, the subcommittee chairman, said he doesn’t believe those services should be state priorities.

“We have an obligation to avoid a gas tax increase, and I’m willing to look at any option that we have, including perhaps selling a bridge,” he said. “Should the state of Michigan be in the bridge-owning business?”

The Senate recently passed its transportation budget. The Senate version speeds up the phase-in of $600 million in diverted income tax dollars for roads as part of a 2015 legislative road-funding package, using $132 million in one-time funding.

Once passed, the separate House and Senate budgets ultimately will be negotiated to come up with a final compromise version; that in turn must be negotiated with the governor’s office.