Gas tax hike squeaks through Senate

Chad Livengood
Detroit News Lansing Bureau

Lansing — The Michigan Senate needed the help of Lt. Gov. Brian Calley to narrowly pass a 15-cent gas tax increase Wednesday that could make Michigan's fuel taxes the second highest in the country by 2017.

Calley cast rare tie-breaking votes to help get the $822 million tax hike out of the Senate and back to the House, where conservative Republicans have resisted a major tax hike to address Michigan's road funding woes.

"It was important that we move the package forward so we can start the final negotiations between the House and the Senate and the governor," Calley told reporters. "At the end of the day, I want to get our roads fixed."

The gas tax increase — phased in over 15 months — is part of a $1.5 billion road funding package the Republican-controlled Senate assembled in response to voter defeat on May 5 of the Proposal 1 sales and gas tax increase.

The amended legislation would hike the 19-cents-per-gallon gasoline tax starting with four-cent increases on Oct. 1 and Jan. 1, and ending with a seven-cent jump in the tax rate on Jan. 1, 2017.

Once the 6 percent sales tax is tacked on — which doesn't go toward roads — Michigan motorists would be paying 66.5 cents per gallon in state taxes at the pump in 2017 based on today's prices.

It would make Michigan's pump taxes second in the country to the 70 cents per gallon charged to Pennsylvania drivers, according to the American Petroleum Institute.

"If this became law, it would be 7.5 cents higher than what the voters voted down on Proposal 1," said Mark Griffin, president of the Michigan Petroleum Association, which represents wholesale distributors and gas stations.

The bill also hikes Michigan's 15-cents-per-gallon diesel tax for the first time since 1982 to make the levy equal to the gas tax, which lawmakers last increased in 1997.

The tax on diesel would rise six cents on Oct. 1, followed by a six-cent increase on Jan. 1 and a seven-cent hike on Jan. 1, 2017.

Starting in 2017, the final seven-cent fuel tax revenues would be contained in what the Senate legislation calls a "50-year roads lock box fund."

The Michigan Department of Transportation and county road agencies would have to prove to lawmakers that they're building roads to last a half century to gain access to the money in the "lock box," said Amber McCann, spokeswoman for Senate Majority Leader Arlan Meekhof.

Sen. Marty Knollenberg, R-Troy, was among the eight first-term Republican senators who voted for the tax increase. He called Michigan's roads "embarrassing."

"People want the roads fixed," said Knollenberg, who campaigned on a plan to increase funding for roads without a tax increase. "This certainly wasn't perfect, but it will get us to a place where we can feel proud of the road conditions soon."

Meekhof, R-West Olive, paired the gas tax increase with a separate bill that would trigger future reductions in the 4.25 percent individual income tax reductions in any year when general revenue exceeded the rate of inflation.

The long-term impact of the potential tax cuts to the state's general fund were murky in the Senate Fiscal Agency's analysis of the proposal.

Under one scenario, the fiscal agency said, if the tax rate rollbacks had been in place before the 2012 fiscal year, it would have produced an $82 million tax cut this year.

No vote tax credit for poor

The full Senate did not vote Wednesday on the House's proposal to eliminate the Earned Income Tax Credit for the working poor, which would produce $123 million annually in new revenue. A Senate committee approved the bill Tuesday.

Advocates for the poor, including the Michigan Catholic Conference, lobbied heavily against it.

"There is some heartburn in our caucus over the EITC," McCann said. "Right now is not the time to take up that issue."

But eliminating the tax credit could be used as a bargaining chip in negotiations between Gov. Rick Snyder and House and Senate Republican leaders.

"We're going to continue to keep any eye on that," said Tom Hickson, vice president of public policy at the Michigan Catholic Conference. "People who have children really benefit more from it."

The Senate and House differ greatly in the amount of new taxes the two chambers want to levy.

While the Senate's gas tax hike would generate $822 million by the 2018 fiscal year, the House did not increase the gas tax, but did add an inflationary factor to the levy so it can rise with the price of fuel.

The House-passed plan raises $119 million in new tax revenue from a new fee for hybrid and electric vehicles, an increase in the diesel tax rate from 15 cents per gallon to 19 cents and future inflationary increases in fuel taxes.

Under the House plan, the rest of the new road money would come from existing revenue sources, likely triggering deeper cuts to the general fund and the Michigan Economic Development Corp.'s budget, which Snyder has said would hinder the state's job creation efforts.

Sen. Virgil Smith of Detroit was the only Democrat to join with 18 Republicans in voting "yes" on the fuel tax increase. Nine Republicans and 10 Democrats voted no.

Sen. Patrick Colbeck, who voted no, said other areas of the state budget can be cut without raising taxes to fund road repairs.

"It comes down to a discussion of priorities," said Colbeck, R-Canton.

No Dem plan yet

Democrats said the road funding plan doesn't hit businesses hard enough to pay for fixing the state's highways and bridges. But they haven't put forward their own specific plan.

"It doesn't require corporations to give back even a fraction of the close to $2 billion tax break we've given them over the years," Senate Minority Leader Jim Ananich, D-Flint. "Time and again, we see it — working families bear the burden."

Democrats decried dedicating $700 million in existing tax revenue for roads because it would require corresponding cuts to the state's general fund budget, which supports prisons, public universities, health care, municipal revenue sharing and other state government programs.

"We cannot fill potholes by cutting the investment in our future and our children's future," said Sen. Curtis Hertel, D-East Lansing.

Snyder's chief lobbyist also expressed concern about having to cut $700 million elsewhere from the state's $10 billion general fund to redirect the money to transportation projects.

"We're never comfortable going all that way, but I think what we're comfortable with is this is a great step forward, and there's a lot of new revenue for transportation, and we're willing to look at whatever they bring," said Dick Posthumus, Snyder's senior adviser for legislative affairs.

The proposal phases in the general fund reductions over two years, with a $350 million earmark for roads in the 2017 fiscal year followed by the full $700 million in 2018.

"What we have here is a recipe for disaster," Ananich said. "Mark my words: This is not the last time we'll be back here raising taxes on working families."