Whitmer to propose 45-cent gas tax hike, $507M boost in K-12 spending

Jonathan Oosting
The Detroit News
Michigan Gov. Gretchen Whitmer

Lansing — Gov. Gretchen Whitmer's first executive budget will propose phasing in a 45-cent-per-gallon fuel tax increase to "fix the damn roads" while adding $507 million in new classroom spending to benefit K-12 schools. 

The East Lansing Democrat will outline her proposal to lawmakers Tuesday morning in Lansing and then embark on a statewide “road show” to sell it to the public in coming weeks, a source familiar with her planning told The Detroit News.

While she’ll visit such liberal cities as Detroit, Whitmer is also expected to pitch her budget priorities in more conservative parts of the state represented by Republican lawmakers as she urges action by the GOP-led Legislature on what she has called infrastructure and education crises.  

The 45-cent gas tax increase would be phased in over three separate intervals, beginning in October, said Whitmer spokeswoman Tiffany Brown. The rate would rise again in April 2020 and be fully phased in by October of that year. 

The governor's budget will also include "protections to help offset the cost to people's pocketbooks, which she will talk more about tomorrow," Brown said. 

The fuel tax plan would generate upwards of $2 billion a year in additional revenue for roads, which is near the $2.2 billion recommended in 2016 by a 21st Century Infrastructure Commission created by former Gov. Rick Snyder, a Republican.

It would also give Michigan one of the highest fuel tax rates in the country. Motorists here pay a 26.3-cent-per-gallon state gas tax, but because Michigan also applies its 6 percent sales tax to fuel purchases, total at-pump costs are already the sixth-highest in the nation. 

It's not clear if Whitmer will attempt to exempt fuel from the state sales tax, a potential solution pushed by House Speaker Lee Chatfield, R-Levering. Doing so could lessen the burden on motorists but create a $900 million hole that lawmakers would have to fill to prevent cuts to schools and local governments that rely on sales tax revenue. 

While Senate Majority Leader Mike Shirkey, R-Clarklake, has said that new revenue may be needed to fix Michigan roads, he and Chatfield last month both criticized a bipartisan proposal offered by former legislators to raise the gas tax by 47 cents over nine years.

Shirkey called that trial balloon "crazy" and said he does not think gas taxes are a "long-term" solution to road funding because of increasingly fuel-efficient and electric vehicles.

But officials say gas taxes remain one of the most immediate funding sources and note that electric vehicles account for just a fraction of all cars using Michigan roads. Lawmakers raised gas taxes by 7.3 cents as part of a 2015 law signed by Snyder, but the state projects that Michigan roads will continue to deteriorate without additional spending. 

Whitmer's proposal is "big, bold and it solves the problem," said former Senate Majority Leader Ken Sikkema, a Republican co-chair of the Michigan Consensus Policy Project group that pitched a 47-cent gas tax increase over nine years. 

"By front-loading it as much as she is, you’re able to accomplish more right away," Sikkema said. 

But Michigan Republican Party Chair Laura Cox panned Whitmer's fuel tax proposal, saying in a statement that residents "deserve real solutions on this critical issue, not a tax and spend solution which places the burden on the states overtaxed families."

Chatfield's office declined to comment Monday ahead of Whitmer’s formal budget presentation, but a Shirkey spokeswoman said Senate Republicans would first like to work with the governor on reforming the state's no-fault auto insurance law.

"Saving people (money) is the caucus priority before considering a gas tax increase," said Amber McCann. "Past that, (Shirkey) and his colleagues will wait to hear complete details of the governor's budget during tomorrow's presentation."

As a candidate, Whitmer said she would ask the Legislature to fund road repairs through "user fees," the most common of which are registration fees and gas taxes.

“The fact of the matter is that word (taxes) has been vilified, and it’s destructive to a conversation,” the governor said Sunday in an interview with WDIV-TV (Channel 4). “We have to talk about investing in ourselves. If we want anyone to come and invest in Michigan, we’ve got to invest in ourselves.”

Fixing roads will only get more expensive the longer the state waits because it costs more to replace a failed road that to maintain a decent one, Michigan Department of Transportation Director Paul Ajegba said Monday. The department needs $1.5 billion a year for state roads, he said. Whitmer's proposal will address local roads as well.

"It’s been a long overdue thing we have to tackle. It's not sustainable," Ajegba said after a panel discussion hosted by Business Leaders for Michigan.

The business group, which represents executives at some of the state's largest companies, is backing calls for additional road funding and release a "call to action" report Monday. Bad roads cost the average motorist $686 a year in vehicle damage and increased fuel consumption, according to the report.

"Business Leaders for Michigan is not an organization that likes to talk about raising taxes," President and CEO Doug Rothwell said. "But we’re on record saying we need to make significant increases in investment, and we believe user fees — which could be a gas tax — is the best and fairest way to do it."

School funding

Whitmer's budget will propose a $507 million increase in classroom spending and move the state toward a "weighted per-pupil funding system" that includes additional spending on special education and low-income students, according to an outline obtained by The News and first reported by the Associated Press.

Whitmer will propose a per-pupil increase of between $120 and $180, depending on current district funding levels. The minimum allowance would rise from $7,871 to $8,051 per student, while the maximum would rise from $8,409 to $8,529.

In addition to the increase in per-pupil funding, which would total $235 million, Whitmer will propose a $120 million bump for special education, $102 million more for at-risk students and a $50 million increase for career and technical education students.

It’s not immediately clear how Whitmer will fund the K-12 plan or other major education priorities, including a new skills training initiative and college scholarship program. School Aid Fund revenue is expected to climb $376 million in fiscal year 2020.

As a candidate, Whitmer criticized recent state budgets that have used the School Aid Fund to support universities and community colleges, including roughly $900 million in the current fiscal year. Shifting that money back to K-12 schools could create a budget hole for higher education.

“She’ll talk about that tomorrow,” budget spokesman Kurt Weiss said, “and I think she’s shared her vision.”

Public school groups are excited about Whitmer’s education funding plan but will be watching her roads plan carefully to see if it includes a sales tax component that could impact schools, said Peter Spadafore of the Michigan Association of Superintendents and Administrators.

The proposed increase for K-12 classrooms “is huge,” Spadafore said.

Whitmer's budget appears to incorporate recommendations by the School Finance Research Collaborative, a group of education, business and civic leaders that has pushed to base K-12 funding on actual costs of educating students.

“It looks like this proposal leans heavily toward those recommendations,” Spadafore said.

Whitmer will propose tripling the number of literacy coaches in K-12 schools, which would be a "critical step in helping educators enhance their skills and ensure that every student becomes a strong reader for life," Michigan Education Association President Paul Herbart said in a statement. 

Beyond K-12 education, the governor is expected to detail spending plans to boost skilled trades, community colleges and university access. In last month’s State of the State address, Whitmer set what she called an “aggressive goal” to boost from 44 percent to 60 percent the rate of residents between the age of 16 and 64 with a post-secondary credential.

Whitmer’s “Michigan Reconnect” program seeks to help train adults for in-demand industry certifications or associate’s degrees. Her MI Opportunity Scholarship program would guarantee two years of debt-free community college or tuition assistance at public universities for students who graduate from a Michigan high school with at least a B-grade average.

Budget crunch

The governor’s push to boost spending in various areas will be complicated by a sluggish budget outlook for the state. Revenue flowing into the general fund, the state government’s main source for discretionary spending, has essentially been flat since 2000 and is projected to grow by just 0.2 percent in 2020.

General fund revenue is expected to reach $10.9 billion by 2021, compared with $10.6 billion in fiscal year 2000, according to Treasury data presented last week to lawmakers. Adjusted for inflation, general fund revenue is down roughly $3.6 billion over that span.

Those stagnant revenues are the result of both economic and policy factors, said Deputy Treasurer Jeff Guilfoyle.

While the state economy has improved over the past decade, it has not yet fully recovered from the Great Recession, he told lawmakers, noting Michigan’s per-capital tax burden has also declined relative to other states.

“Right now, the economy is about as strong as it gets,” Guilfoyle said. “We have an unemployment rate of about 4 percent, things are humming along, but you really see very little in the way of revenue growth.”

Looking for waste, fraud or abuse in state government is not a realistic solution to funding road repairs and would be a tough argument for GOP lawmakers to make "because they've been in total control for eight years," Sikkema said. "If there's a lot of it there, why didn't you go after it?"

While Snyder had pushed for additional dollars, he hailed the 2015 road funding law he signed as the largest investment of its kind in 50 years. The law raised fuel taxes and registration fees to generate $600 million in new revenue and began an annual general fund shift that will reach $600 million by fiscal year 2021.

But "many knew then — and we all know today — that just wasn't enough," said Mark Davidoff, a managing Michigan partner for Delloitte, Monday at the Business Leaders for Michigan event. 

Nearly one in four state-operated roads was graded in poor condition last year by the Michigan Transportation Asset Management Council. Roughly half of those roads are expected to be in poor condition by 2025.