Panel OKs road plan with gas tax hike, income tax cut

Chad Livengood
Detroit News Lansing Bureau

Lansing — The state Senate is poised to vote Wednesday on a $1.4 billion road funding plan that would hike the gas tax by 15 cents over three years and trigger future income tax cuts if revenue exceeds inflation.

The Senate Government Operations Committee approved the nine-bill package Tuesday, setting up a likely floor vote before senators recess for the Independence Day holiday weekend.

The centerpiece of the plan includes three 5-cent increases in the 19 cents-per-gallon gasoline tax, starting Oct. 1 and continuing on Jan. 1, 2016, and Jan. 1, 2017. The plan also would hike the 15-cent-per-gallon diesel tax to make that rate equal to the gasoline tax.

A 34 cents-per-gallon state fuel tax would generate at least $700 million a year in new revenue for roads, said Senate Majority Leader Arlan Meekhof, R-West Olive.

The legislation earmarks $700 million from existing tax revenue sources, which will require cuts to other parts of the state's $10 billion general fund budget starting in the 2017 fiscal year, Meekhof said.

Sen Mike Kowall, R-White Lake, left, goes over the details of a bill with Sen Goeff Hansen, R-Hart, on Tuesday during the Michigan Senate's Transportation Committee meeting in which it passed a package of bills that will raise the state tax on gasoline and diesel fuel and fund road repairs.

"There will be some challenges, there's no doubt about it," said Sen. Goeff Hansen, R-Hart, who chairs the K-12 school funding subcommittee. "But at the end of the day, it's doable."

The Senate panel also approved a House-passed bill eliminating the Earned Income Tax Credit for the working poor and redirecting the $123 million in income tax revenue toward roads.

Senate Floor Leader Mike Kowall, R-White Lake Township, said the state has to reprioritize its spending to avert an infrastructure disaster.

"We're basically one bridge collapse away from having complete tragedy on our roads and bridges," he said.

Kowall and Hansen both expressed reservations about eliminating the tax credit after Michigan Catholic Conference lobbyist Tom Hickson testified against the bill. Hickson acknowledged the state's roads face a crisis after years of declining revenue from a stagnant fuel tax.

"Michigan is also in a crisis of another kind and that's a crisis of poverty, and this legislation would worsen that crisis," Hickson said. "This crisis also deserves our immediate attention."

The committee's three Republicans approved the bills after their caucus met for four hours Thursday away from the Capitol to deliberate on Meekhof's road-funding plan. The panel's two Democrats voted "no" on all nine bills.

Senate Minority Leader Jim Ananich, D-Flint, said the Republican-authored plan would lead to reduced state taxpayer investment in "public safety, health care and education."

"This effort to fix our roads should start by not making things worse," Ananich said.

Earlier Tuesday, Meekhof said the proposed income tax cut coupled with the gas tax increase for road funding gives lawmakers an opportunity "to control the size and scope" of state government.

Meekhof wants future reductions in the 4.25 percent income tax cut to be contingent on general state tax revenue growth exceeding the rate of inflation.

"If we have an opportunity to control the size and scope of government, then we're going to get that as well," Meekhof told reporters Tuesday morning in the Senate. "It's good public policy."

The Senate leader did not say where the budget cuts would occur.

"That's to be determined through the appropriations process," Meekhof said.

Senate Republicans huddled Tuesday in an off-site retreat at a conference center on the campus of Michigan State University to debate Meekhof's road funding plan. The Government Operations Committee voted on the bills late Tuesday afternoon.

The Michigan Infrastructure & Transportation Association, a trade group that represents road construction companies, urged immediate passage of the bills.

"This proposal will help adequately fund Michigan's roads and bridges for decades to come," MITA executive vice president Mike Nystrom said in a statement.

Democrats in the minority are balking at the plan, which is the latest proposal from the GOP majority for solving the state's longstanding road funding deficit.

"This idea that we're going to say, 'We'll make up the rest of it in cuts, but we're not going to tell you what that is until later' should be disconcerting to people," said Sen. Curtis Hertel, D-East Lansing. "I'm not ready to vote for a plan not knowing what the ramifications of that plan are going to be in next year's budget cycle."

Hertel said major general fund expenditures such as public universities and health care programs for the poor would likely be the target of future general fund budget cuts.

"Are we ... creating potholes in other budgets in order to fix potholes (in roads)?" Hertel said.

House Republicans passed a $1.16 billion road funding package that relies heavily on $700 million in existing tax revenue and taps the Michigan Economic Development Corp. for $135 million. The proposed cuts to the MEDC's funds for attracting companies to Michigan has spurred pushback from Gov. Rick Snyder and the business community.

The Senate committee did not vote on the MEDC funding bills, and they are not tied to passage of the entire road funding package.

House Speaker Kevin Cotter, R-Mount Pleasant, welcomed the Senate panel's action.

"Today's vote is another step in the right direction, and it brings us another step closer to solving Michigan's road repair crisis," Cotter said in a Tuesday statement. "I am optimistic that we can find an agreement with our partners in the Senate that lives up to those standards and fixes Michigan's crumbling roads."

Snyder, who has long advocated for a general gas tax increase, remains "non-committal at this point" to the new Senate plan, Meekhof said.

Meekhof said he's not proposing a minimum rate for annual income tax cuts. Republicans have long desired to roll back a 2007 income tax hike and return the rate to 3.9 percent.

"If the growth in revenue is there, it could ultimately go to zero," Meekhof said. "It might take 100 years to get there."