News Story

Taxpayer Cost for Road Fix 'Compromise' Went from $0 to $1.9 Billion

Deal includes sales tax increase, $700 million more for non-road spending

The Michigan Senate’s plan to find more money for road repairs was a $1.2 billion gas and diesel tax increase.

The State House’s response was to shift some current state tax revenue to roads, with no net tax increase.

Leaders from both sides came up with a "compromise," which was adopted in the predawn hours of Dec. 19: Increase state taxes and spending by $1.9 billion, of which just $1.2 billion goes to fix the roads, and the rest for other areas.

“It appears that everyone was at the table negotiating except the taxpayers,” said Leon Drolet, chair of the Michigan Taxpayers Alliance. “And the deal reflects that.”

The latest round of efforts to find more money to "just fix the roads" began on Nov. 13 when the Senate passed its plan to increase gas and diesel taxes by that $1.2 billion over six years, with no reduction in other state taxes or spending.

Three weeks later, the House approved a comparable fuel tax hike, but with the increase offset by no longer imposing sales tax on fuel purchases. This would have increased road funding with no net increase in taxes.

According to Gongwer news, House Speaker Jase Bolger said, "It takes two to compromise, and while I'm ready to compromise, it will take all parties to come to the table…”

The "compromise" that was adopted is a ballot proposal that represents a net tax hike of $1.945 billion, of which some 38 percent goes to spending that is unrelated to roads.

According to the House Fiscal Agency, $300 million of the tax increase will go to public schools, $95 million to local government revenue sharing and an additional $130 million in subsidies to local bus agencies. Another $260 million will be used for payments to low-income wage earners, a concession added to get votes from Democratic lawmakers, said Jack McHugh, legislative policy analyst for the Mackinac Center for Public Policy.

However, there’s a catch: The deal also includes an increase in the state sales tax from 6 percent to 7 percent, which must be approved by voters May 5, 2015. If voters say "no" then none of the above will go into effect. Lawmakers will have to start over.

The deal also includes a measure imposing sales tax on purchases from out of state internet and catalog sellers with Michigan-based affiliates, the so-called “Amazon tax.” This is not contingent on the ballot initiative passing, and is projected to extract an additional $60 million annually from Michigan retail customers.

A House Fiscal Agency summary breaks the deal down as follows:

  • Sales tax increase (requires voter approval): $1.342 billion
  • Internet sales (“Amazon”) tax: $60 million
  • Net increase in tax on fuel purchases ($1.200 billion fuel tax hike, offset by a $752 million sales tax exemption for fuel purchases) : $448 million
  • Increase in vehicle registration taxes: $95 million

Net tax hike: $1.945 billion.

The State of Michigan’s total budget, including federal money, has increased $4.5 billion in two years from $47.8 billion in 2012-13 to $52.3 billion in 2014-15. Excluding federal money, state spending from state taxes has risen from $27.8 billion in the fiscal year that ended Sept. 30, 2013 to $30.0 billion in the current fiscal year.

Under the package the House and Senate have passed, that amount would increase by $1.945 billion, but only if voters approve a sales tax increase on May 5, 2015. If voters decline, none of the other tax and spending increases will go into effect either (except for the "Amazon tax" on internet purchases).

“The one silver lining from this deal is they force this on the ballot,” Drolet said. "It gives citizens a chance.”

Gov. Rick Snyder, Senate Republican Speaker Randy Richardville and House Republican Speaker Bolger all praised the tax hike in a press release.

“I’m pleased that even with this compromise, the key principles the House Republicans fought for remain intact,” Bolger said in the press release. “It was vital to us that all taxes paid at the pump go to roads, because that was the structural flaw that led to this problem. We also have an opportunity to once again significantly reduce the state’s debt so that we aren’t leaving our kids and grand kids with unpaid bills. I wish we could have achieved all of this legislatively, but that is not legally possible. Dedicating the taxes paid at the pump to fixing roads while protecting the revenue streams to schools and local governments is only possible with the 7 percent sales tax option, and that option requires a vote of the people.”

Editor's Note: This article has been slightly modified to add information on the $1.9 billion increase. Also, the date of the election was incorrect.


See also:

School Budgets Safe Under 'No New Taxes' House Road Funding Package

House Road Plan is Solid

Projections Show Schools Get Even More With Road Funding Shift

'Let's Make a Deal' Time on Road Funding?

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.