Lansing — Michiganians will be greeted by higher taxes at the pump and at the Secretary of State’s Office after the New Year, putting the Great Lakes State among the nation’s top five for gas tax rates.
The state tax on unleaded gasoline will increase from 19 cents to 26.3 cents per gallon on New Year’s Day— the first state gas tax hike in 20 years. It is part of a long-debated plan to patch up the state’s crumbling roads and bridges, eventually adding $1.2 billion a year in what Gov. Rick Snyder has called the largest investment in half a century in Michigan’s transportation system.
Michigan will have the fifth highest at-pump tax rate in the nation next year, according to The Tax Foundation. The ranking includes the new 26.3-cents-per-gallon gas tax plus the 6 percent sales tax, which the state applies to fuel purchases but does not use to maintain roads.
Michigan’s combined tax rate will total about 37.8 cents per gallon, according to The Tax Foundation, trailing Pennsylvania, Washington state, Hawaii and New York. It doesn’t include the federal gas tax of 18.4 cents a gallon. Only the state gas tax revenue will go toward road and bridge repairs.
“I don’t like it, but I will have to live with it,” said Rachel Gomillion of Royal Oak, who was filling up her gray Suburban sport utility Wednesday morning at the Royal Oak BP at 11 Mile and the Interstate 75 service drive. “We have terrible roads.”
Gomillion said she has family up north whom she, her husband and her four daughters like to visit. But she said she will now monitor her spending to make up for the gas tax hike, perhaps visiting her relatives once a month for a longer time rather than going up there twice a month.
Owners of diesel vehicles will see their state taxes increase for the first time in 33 years, with that 15-cent-per-gallon tax rising 11.3 cents to the same rate levied on regular gasoline.
Fees levied annually to register cars, vans, light trucks and commercial trucks will rise 20 percent. The average fee statewide is $120, so the average increase would be $24 to $144, said Secretary of State spokesman Fred Woodhams.
Gas-electric hybrid and electric vehicles also will experience increases — an added $47 and $135, respectively, Woodhams said.
The complicated strategy — the result of a compromise plan the Republican-controlled Legislature and Snyder struck over a year ago — includes an eventual general fund revenue shift that promises to create budgeting challenges for future lawmakers. But the new taxes and fees are what will catch the immediate attention of drivers and businesses.
“It’s a reasonable increase that’s shared by those who drive more, pay more,” said state Sen. Wayne Schmidt, a Traverse City Republican who voted for the tax increases. “We’re going to see those dollars put into local roads.”
Transportation officials warn the higher taxes won’t translate into better roads for years to come because the Legislature is gradually diverting $600 million in income tax revenue from the state’s general fund to repairing roads. Michigan won’t be spending the full additional $1.2 billion annually on roads and bridges until 2021.
The 2015 road funding plan calls for 61 percent of the new money to go to counties, cities and villages — the same proportion as allotted under current law.
“The biggest thing we’re going to see initially is work at the local level, where it’s needed the most,” said Mike Nystrom, executive vice president of the Michigan Infrastructure & Transportation Association, which represents road construction companies.
Road budgeting shift
While the road funding plan is designed to fill the state’s potholes, it also may create new holes in the state’s general fund budget in the coming years.
The Legislature’s earmarked dedication of general fund revenue toward roads will begin in the 2019 fiscal year at $150 million and increase to $325 million the following year before rising to the full $600 million in the 2021 fiscal year.
To get votes for the fuel and vehicle tax increases last year, the Republican-led Legislature also expanded the Homestead Property Tax Credit, which helps offset the cost of property taxes for lower-income residents.
The tax relief is expected to deplete the general fund by $205.8 million annually, according to a Dec. 19 report from the nonpartisan Senate Fiscal Agency.
David Zin, chief economist at the Senate Fiscal Agency, said by 2019 most of the state’s annual growth in tax revenue from modest economic expansion could be dedicated to the 2015 road funding plan and new property tax break.
“We’re giving all of that up in legislative changes,” Zin said.
How the increases work
The 2017 tax and fee increases are expected to generate $455 million in revenue, according to the nonpartisan House Fiscal Agency. But it essentially replaces $400 million the state dedicated from its general fund toward road improvements in the 2015-16 fiscal year, an amount that has disappeared in the current fiscal year.
“This next year, our construction program is about the same as last year. What this (tax increase) did was replace some of that general fund money,” said Kirk Steudle, director of the Michigan Department of Transportation.
About 85 percent of Michigan's trunkline roads – state and interstate highways – are rated in good condition. When fully implemented, the extra $1.2 billion will allow MDOT to “slow the deterioration” of state highways, Steudle said.
“We’ve said all along we’re not going to be able to turn that whole thing around, but we can maintain what we have and keep it from getting significantly worse,” he said.
Democrats have argued that eventually taking $600 million from the state’s main checkbook, the general fund, will pressure future lawmakers to cut funding for such competing priorities as health care, schools and public safety.
The plan raises too little, too late to meet the state’s road repair needs while saddling middle-class families with a “new birthday tax,” they argue, referring to the vehicle registration fee that is assessed annually when a driver’s tags are up for renewal.
Impact of tax, fee hikes
Vehicle owners whose registration expires by May 31 can avoid the 20 percent increase by paying the renewal fee before Saturday. The Secretary of State’s Office has been notifying vehicle owners about the registration fee increase in letters sent 45 days in advance of their birthday, Woodhams said.
Although the state is assessing the gas tax hike at the wholesale level, industry officials said consumers will likely absorb the increase that amounts to an extra 73 cents for every 10 gallons of fuel.
“It’s going to go up the amount of the tax. We can’t absorb and eat that,” said Mark Griffin, president of the Michigan Petroleum Association and the Michigan Association of Convenience Stores.
Owners of the state’s roughly 5,000 gas stations are concerned the higher fuel taxes may hurt sales inside their convenience stores, where they make their highest profit margins, Griffin said.
“That’s 75 cents less that a customer will have to come inside and buy a bottle of water,” Griffin said of the tax hike on roughly 10 gallons of gasoline.
Griffin’s organizations opposed the straight gas tax hike, in part, because it could create cash-flow problems for small convenience stores that have to buy fuel with all taxes built-in at wholesale prices that fluctuate daily.
Convenience store owners and petroleum distributors favored an earlier plan to remove the 6 percent sales tax from gasoline. Sales taxes in Michigan are mostly dedicated to public education and little of the tax ever goes toward transportation.
That plan was wrapped up in the failed statewide vote in May 2015 on a 1-cent sales tax increase that voters overwhelmingly rejected.
“We’re still funding schools now with taxes on motor fuel,” Griffin said. “That just doesn’t make sense.”
But the approved tax increase came as a surprise Wednesday to Gomillion and real estate agent Ken Hirschmann, 30, of Royal Oak, who said the tax and fee increases won’t change his driving habits because his job forces him to drive 25,000 to 30,000 miles a year.
He just hopes the revenue will improve the roads.
“The roads are just a train wreck,” Hirschmann said.
How to avoid registration fee hike
Michigan drivers with vehicle registrations that expire before May 31 can renew their registrations through Saturday and avoid a 20 percent increase in the fee that begins Sunday. Here’s how:
■Visit a Secretary of State’s Office on Thursday. Know at least your license plate number, but also try to bring your current registration for reference. The Secretary of State’s Offices are closed Friday for the New Year’s holiday.
■Go to a Secretary of State’s self-service station through Friday and renew there. Find self-service locations here: https://services2.sos.state.mi.us/servicelocator/
■Renew online at expresssos.com through Saturday.
Source: Michigan Secretary of State’s Office