Lansing — Barring any issues that come up during a technical review, Gov. Rick Snyder said Wednesday he intends to sign the new $1.2 billion road funding package put forth by the Legislature.
In an interview Wednesday morning on WWJ-AM (950), he said that while the plan isn’t perfect, it offers state residents more clarity than the failed Proposal 1 transportation package shot down by voters in May.
“Short of some surprise… I plan to sign this package,” Snyder said. “I think a lot of hard work went into it.”
The governor said the financial impact on Michigan drivers and residents would be in the neighborhood of $60 a year, from registration fees and tax increases. But he was less clear on how the money generated by those means would be spent.
Pressed to say that the entirety of the revenues would go to roads, he deferred.
“The vast majority, in terms of percentage, goes to road projects … with the next biggest piece going to transportation,” he said.
Snyder’s comments come the morning after state lawmakers finally ended years of debate over road funding Tuesday when they narrowly approved the $1.2-billion plan that calls for $600 million in higher taxes and $600 million in budget shifts or cuts.
The Michigan House gave final approval around 10:30 p.m. to a package of bills the Senate passed by thin margins in the afternoon. The plan doesn’t fully meet the goal of $1.2 billion in new annual funding for road and bridge repairs until after 2021, but more aggressive plans in the past consistently failed.
House Speaker Kevin Cotter, R-Mount Pleasant, called it a “fiscally responsible” plan that “splits it down the middle” between added tax revenue and redirecting money to roads within the $10 billion general fund, the state government’s main checkbook.
But Democratic Leader Tim Greimel, D-Auburn Hills, blasted it as “a mockery of policy” that “pretends to fix the roads” while delaying needed repair revenue and putting future state money for schools, public safety and health care at risk by creating a budget squeeze.
Snyder also vowed Tuesdasy to sign the bills into law in a public ceremony soon after the paperwork reaches his desk. Despite the compromises he made, he took pride in completing a grinding, multi-year process that finally led to a key goal he set near the start of his first term in 2011.
“If you look back in history, you’ll find that this is the largest investment in transportation in the last 50 years in the state of Michigan,” the Republican governor told reporters at his Capitol office following the House votes Tuesday night. “This was a great exercise in relentless positive action.”
He noted the plan mandates the first “major” motor vehicle registration fee increase in 30 years — 20 percent, or $20 a year on Michigan’s current average annual rate of $100 per vehicle.
Snyder said the combination of gas tax and registration fee hikes will be $60 per year for the average motorist — an amount offset by savings from an accompanying increase in the homestead property tax credit available to low- and middle-income residents.
The income tax break could be bolstered by $100 to $200 annually for an average family with an income in the $20,000 to $30,000 range, he said.
The compromise road funding plan, brokered by majority Republicans after months of negotiations, would raise the tax on gasoline by 7.3 cents a gallon and hike the diesel tax by 11.3 cents a gallon on Jan. 1, 2017. At today’s rates, Michigan’s total state and federal gas tax including sales tax would jump from 52.24 cents a gallon to 59.54 cents, according to data from the American Petroleum Institute.
The plan increases vehicle registration fees on all passenger cars, vans and trucks starting on Jan. 1, 2017.
The fuel tax increase would generate $400 million more annually for road repairs and the higher registration fees would add $200 million to the state’s long-underfunded transportation fund. Both tax and fee increases would kick in two months after incumbent House members face voters next November.
Starting in 2022, the 26.3-cent state fuel tax would increase based on the rate of inflation, with increases capped at 5 percent annually.
A new wrinkle added to this plan is an “innovation” requirement: The first $100 million raised each year from the higher fuel taxes and registration fees will be locked away in a special fund for future use on new technology whose goal is to make road upgrades last 50 years.
Michigan will go from having the 12th highest taxes on gasoline in the country to the fifth highest, according to the American Petroleum Institute, based on rates in October. Unlike most states, Michigan levies its 6 percent sales tax on fuel, but most of that revenue goes toward schools and cities.
The tax increases represent double the amount of new revenue coming from taxes at the pump and half the vehicle registration fee increase that the House approved last month.
“If you vote no and don’t have an alternative plan, you aren’t part of the solution,” said state Sen. Marty Knollenberg, R-Troy, who voted for the tax increases.
To soften the blow of the tax increases, the Senate approved bills implementing future cuts in the individual income tax starting in 2023 and sweetening the homestead property tax credit for lower-income households starting in the 2018 tax year.
The GOP’s compromise income tax rate rollback would only kick in when annual tax revenues exceed projections under a prescribed formula of 1.425 multiplied by the rate of inflation. For example, if the rate of inflation is 2 percent, tax revenues would have to exceed 2.85 percent to trigger a tax cut.
“It’s a way to show the citizens of Michigan we’re going to control the spending,” said Senate Majority Leader Arlan Meekhof, R-West Olive.
The expanded homestead property tax credit would lower tax revenues by $206 million starting in the 2019 fiscal year, according to the Senate Fiscal Agency.
It’s unclear how the income tax cut trigger would lower revenues that fund other areas of state government. If the tax cut trigger had been in place for the 2013 and 2014 fiscal years, the state’s 4.25 percent income tax rate would have been slashed to 3.96 percent next year, resulting in a loss of $593 million in tax revenue, according to the Senate Fiscal Agency.
“This plan won’t fix our roads,” said Senate Minority Leader Jim Ananich, D-Flint. “It will, however, create new problems that will need to be fixed later.”
Under the plan, the final $600 million for the $1.2 billion road funding plan would come from existing tax revenue sources in the state’s $10 billion general fund — a component of the plan Democrats slammed in floor speeches Tuesday.
But to placate Snyder’s concerns about a near-term strain on the general fund, lawmakers put off fully tapping that funding source for four years.
In the 2019 fiscal year, $150 million in general revenue will be earmarked for roads. In 2020, the general fund contribution will increase to $325 million.
Starting in the 2021 fiscal year, the Legislature wants future lawmakers to contribute $600 million in general government tax revenue toward roads and bridges.
“It’s slowly phased in so we can plan for it,” said Senate Appropriations Committee Chairman Dave Hildenbrand, R-Lowell. “It won’t be easy, but it’s doable.”
Democrats slammed the GOP majority for pledging future tax revenue toward roads, which lawmakers can’t technically do because no Legislature can dictate how a future Legislature spends money.
“These bills rely on cuts to be determined by some future Legislature, but don’t say where those cuts are coming from,” said Sen. Curtis Hertel, D-East Lansing. “You are once again just kicking the can further down the crumbling road. You are voting to raise taxes to keep the roads exactly as they are — poorly maintained and riddled with potholes.”
Meekhof acknowledged the road funding package will need improvements “to come later.”
Sen. Virgil Smith, D-Detroit, was the lone Senate Democrat to vote for the tax hikes and said they were necessary to save drivers money on vehicle repairs.
“How many more Detroiters are we going to saddle with expensive (car) repairs that we don’t need and can’t afford because the Legislature can’t work together and find a way to fix our roads?” Smith said.
Smith’s votes for the tax and fee increases proved vital as those bills narrowly passed on 20-18 votes with 19 Republicans voting “yes.”
But most Democrats criticized the road funding plan after bipartisan talks with Snyder and GOP leaders broke down three weeks ago. They have unsuccessfully sought a massive increase in the corporate income tax to help fund road and bridge repairs.
Democrats expressed concerns about the budget implications of transferring general funds that pay for health care, revenue sharing for local governments, and other programs.
“This is a tax nightmare that are our successors will have to untangle years from now,” said Sen. Vincent Gregory, D-Southfield.
Staff writer Jim Lynch contributed.
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