Raising Taxes for Roads Faces a Test in Michigan
By Paul Egan
Important statewide elections don't normally happen in May, but Tuesday's vote on Proposal 1 is a blockbuster -- and not just for Michigan's battered roads.
It's the largest tax hike proposed for the state since at least 1967, when Michigan introduced both the personal income tax and a corporate income tax to avert a fiscal crisis.
Though opposition among voters to Proposal 1 crosses party lines, the fact that a net $1.9-billion tax hike is supported by prominent elected officials in both the Democratic and Republican parties highlights the seriousness of Michigan's crumbling infrastructure problem.
That means the story doesn't end Tuesday. Experts say regardless of the outcome, the fallout from Proposal 1 will likely be felt in the next election for governor, in 2018. And if the proposal fails, unless the state's roads and bridges are to be ignored, there will need to be either significant tax hikes elsewhere, or major shifts in spending priorities with cuts to existing programs, or some combination of both.
"There's a consensus among the public that we do need some new spending on roads -- the discussion is about how to do that," said Bob Schneider, director of state affairs for the nonpartisan Citizens Research Council, which has taken no position on Proposal 1 but published reports and made presentations to community groups in an effort to educate voters.
Michigan hasn't had a state fuel tax increase since 1997, under former Republican Gov. John Engler. Back then, the state hiked the tax on regular fuel to 19 cents a gallon from 15 cents but left the diesel fuel tax at 15 cents.
The flat cents-per-gallon tax has meant the fuel tax revenues used to fix and maintain roads have not increased with the price of fuel. Proposal 1 would equalize the fuel taxes on regular and diesel fuel and switch to a percentage-based tax that increases with inflation, but with caps to prevent price spikes.
Based on current prices, the pump price would increase about 7 to 9 cents a gallon if Proposal 1 passes.
In addition to hiking the sales tax to 7% from 6%, the proposal would remove the sales tax from fuel sales and use the part of the pump price formerly occupied by the sales tax to significantly increase the fuel tax -- which, unlike the sales tax, gets spent on transportation, primarily roads.
The plan is expected to generate close to $1.3 billion extra per year for roads. When fully implemented, the plan also would generate about $200 million a year more for schools, $116 million for transit and rail, send $111 million more to local governments, and give a $260-million tax break to low- and moderate-income families through restoration of the Earned Income Tax Credit.
"There are probably 10 or 15 Plan Bs, but you don't just need a Plan B, you need a plan that can work and that can get a majority in both the House and the Senate, plus the signature of the governor," said Schneider, who used to work for the House Fiscal Agency.
Tuesday's vote and its aftermath could affect political careers. Two likely Republican candidates for governor in 2018 are split on the issue, with Lt. Gov. Brian Calley in favor and Attorney General Bill Schuette opposed.
Supporting tax hikes is politically risky, and "politics has been the critical driver for most facets of this plan, regardless of the real need we have in this state to improve our infrastructure," said T.J. Bucholz, president of the Lansing consulting firm Vanguard Public Affairs.
On the Democratic side, the party's legislative leaders withheld support for the plan in December until it included restoration of the Earned Income Tax Credit, plus hundreds of millions of dollars in extra revenue for schools, local governments and public transit. But once the deal was sealed, the Michigan Democratic Party took no position on Proposal 1 and hasn't made an effort to help pass it.
Republican Gov. Rick Snyder, who can't seek re-election as governor because of term limits but is hinting at possible ambitions for national office, has been the plan's main cheerleader. But the Michigan Republican Party has remained neutral, the newly elected party chairman has spoken out against the plan, and several GOP congressional districts have passed resolutions to oppose it.
Despite the high stakes, experts say as few as one in five Michigan voters might cast ballots in Tuesday's election.
The vote could mark a new low point for trust in Michigan government. Voters say they feel Michigan lawmakers failed to do their jobs when they didn't come up with a legislative solution to the road-funding issue. And many say that if they approve the new revenues, they don't trust their elected officials to spend the money the way it should be used.
An increase in the sales tax must be approved by voters under Michigan's constitution. So if a sales tax hike was going to be part of the road-funding fix -- in this case it was needed to replace school and local government revenue lost by removing the sales tax from fuel sales, allowing for higher fuel taxes -- it had to go to the voters.
"What they've done is basically spend the money on other things and use that as leverage to try to get more," said Jim Haun, a former GM worker in Pontiac who moved to Skanee in Michigan's Upper Peninsula after he retired in 2000.
Snyder and other proponents of Proposal 1 deny that, but say applying the sales tax to fuel -- something few states do -- has contributed to public confusion. They say Michigan has about $1 billion less to spend on its roads than neighboring Ohio does and increasingly has had to dip into the state's general fund to get the maximum amount of federal matching dollars Michigan is eligible for, because the money raised by fuel taxes has not been sufficient.
Mark Henne, an environmental consultant in Williamston, said he's voting yes. He's not crazy about Proposal 1 but said the roads need to be fixed and the plan is "probably the best that we're going to get out of this Legislature."
"I'm not excited about it, but I've also been warned that if this doesn't pass, the fix might be far worse than this solution," and involve using School Aid Fund money to fix the roads -- a feature of a plan that earlier passed the House but not the Senate -- Henne said.
The yes side is badly trailing the no side in public opinion polls, despite a huge spending advantage.
As of Friday, the Safe Roads Yes committee had raised $9.3 million to spend on the yes effort, with $5.8 million of that coming from a road builders' lobbying group, the Michigan Infrastructure & Transportation Association, with many individual road contractors and suppliers making additional donations.
The main no committee, the Coalition Against Higher Taxes and Special Interest Deals, reported raising just under $500,000 as of Friday, with nearly all of that coming from the group's chairman, Saginaw County businessman and Republican congressional candidate Paul Mitchell.
The yes side has mostly focused on TV ads, the no side on a mix of TV, radio, Internet, social media and town hall meetings.
(c)2015 the Detroit Free Press