Michigan Gov. Rick Snyder to Sign 7.3-cent Gas Tax Hike Today

After years of debate, Republicans from both chambers agreed to a transportation plan raising the gas tax 7.3-cents and registration fees by 20 percent, effective 2017. Democrats objected to the amount of general funds that will be directed to roads.
November 10, 2015, 9am PST | Irvin Dawid
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"It took four years to plan and over 12 hours to execute, but Michigan's Republican-led Legislature on Tuesday (Nov. 3) night sent a long-term road funding plan to Gov. Rick Snyder's desk," writes Jonathan Oosting, capitol reporter covering statewide politics for MLive Media Group on the breakthrough legislation that also increases the diesel excise tax by four cents to match the gas tax.

The long-sought deal will pump $1.2 billion a year into Michigan's crumbling infrastructure by 2021 through a combination of dedicated tax increases and re-prioritized spending

Snyder has been a longtime supporter of increasing the tax to fix the state's roads. The Republican governor will sign the bill this afternoon, according to The Associated Press.

The legislature has been trying to approve new transportation funding for the last five years, including a complex ballot measure last May defeated by 80 percent of voters.

Oosting wrote about the historic passage of the bill in a series of article.

"Bipartisan road funding talks broke down last month, so Senate Republicans mostly went it alone," he wrote after the bills passed the Senate last Tuesday. "Only one Democrat — Sen. Virgil Smith of Detroit — supported the main gas tax or registration fee bills, which passed in a series of 20-18 votes."

"Votes did not come easy in the House, where the Republican majority approved the main revenue generating bill in a 55-52 vote at around 10:15 p.m., more than seven hours after the Senate sent over the plan," he later wrote.

Democrats object to drain on General Fund

"Michigan already set aside $400 million in general fund money for roads this budget year," writes Oosting. "The state would eventually shift $600 million a year from the general fund, which has traditionally been used to fund other government services around the state."

That would start with $150 million in fiscal year 2019, $325 million in 2020 and then $600 million in 2021 and beyond."

By comparison, new funding from fuel tax and registration fees is projected to be only $400 million its first year of collection, 2017. 

Increase Gas Tax, Reduce Income Tax

One objection to raising gas tax and registration fees is that they are regressive, i.e., motorists regardless of income pay the same amounts. The Republican plan reduces the income tax, considered a progressive tax, in a pattern reminiscent of other state funding measures in Republican states that reduce income taxes at the expense of increasing sales taxes

Beginning in 2023, the state would reduce its 4.25 percent income tax rate after any year that general fund revenue growth exceeds inflation times 1.425. In other words, general fund revenue would have to grow by more than just inflation.

If the same trigger were already in place, the income tax rate would have automatically dropped from 4.25 percent to 3.96 percent in tax year 2016, according to the (House Fiscal Agency) analysis, reducing available state revenue by $593 million.

Mass transit will see a smaller bump

An earlier form of the bill would have allowed "Detroit to spend 20 percent of its portion of the proceeds on transit. Detroit has been funding transit only through its general fund — with no dedicated revenue stream — and it has arguably the worst transit system of any major city in the nation," wrote Angie Schmitt for Streetsblog USA last year.

Without commenting on that provision, Oosting writes that "(t)he plan will devote less new money to mass transit than some previous road funding proposals because the general fund money will go straight to roads and bridges, bypassing a traditional transportation funding formula."

Once fully phased in, the $1.2 billion plan would include $54.6 million a year for public transportation, $433.6 million for state highways, $426.6 for county road agencies and $238 million for cities and villages, according to the (Michigan Senate Fiscal Agency).

Fuel taxes were last raised by four cents in 1997. As of Oct. 1, total state gas taxes and fees are now 33.84 cents per gallon, according to (pdf) the American Petroleum Institute. The diesel tax is 30.19 cents per gallon.

With Snyder's signature, Michigan joins the growing list of states, many with Republican trifectas (i.e., Republican controlled legislature and governor) that have voted to increase gas taxes. The last gas tax increase legislation was an 11.9-cent bill signed by Gov. Jay Inslee (D-Wash.) in July. 

Hat tip: AASHTO Journal

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