Democrats push nearly $1B tax hike on firms for roads

Gary Heinlein and Chad Livengood
Detroit News Lansing Bureau

Lansing — Democrats called for a $955 million business tax hike to fix Michigan roads Tuesday as major business and municipal groups criticized key provisions of House and Senate Republican plans for ending at least a $1.2-billion shortfall in road repair funding.

The proposal unveiled by House Democrats relies heavily on a business profits tax increase to 9 percent, up from 6 percent. It includes a $20 -million decrease — gained through a proposed renegotiation — in tax credits owed to businesses for expanding or relocating in Michigan.

“It protects Michigan families and provides a balanced playing field,” said House Democratic Leader Tim Greimel of Auburn Hills.”

Democrats argued that businesses need good roads even more than middle-class Michiganians and should pay a bigger share of the repair tab after getting between $1 billion and $2 billion in tax reductions from Gov. Rick Snyder’s and GOP lawmakers in 2011.

Their $1.2 billion plan, which also would raise $133 million from vehicle registration fee changes but no increase in fuel taxes, quickly was dismissed by majority GOP leaders.

House Appropriations Chairman Al Pscholka, R-Stevensville, called the Democratic plan “a non-starter ... ill-informed and a little embarrassing.”

The skirmish occurred after nine major organizations unveiled a report Tuesday that says Republican House and Senate road funding proposals could pressure future Legislatures to slash state services by a half-billion dollars and lay off government workers.

The groups, including city, county and township associations, said they have serious concerns about proposals by both chambers to redirect at least $700 million of state income tax revenue to roads from other budget areas.

“We urge you to work toward a common plan that does not fix one problem by creating others,” they wrote in a letter to House Speaker Kevin Cotter, the Mount Pleasant Republican who was huddling with his GOP majority caucus on roads funding plans Tuesday at a site outside the Capitol.

“If this plan passes, we’re going to end up with a very weak solution,” Business Leaders for Michigan President and CEO Doug Rothwell told The Detroit News. “Our concern is now we’re going to end up in a year or two arguing about the budget cuts along with roads.”

John LaMacchia, legislative associate for the Michigan Municipal League, said the letter signers “want to find a (road funding) package we can support” and are ready to back higher taxes.

He said their polls have shown voters also are willing to pay more for a straightforward road repair strategy.

State police and firefighter organizations, the Michigan Association of Counties, the Townships Association, the League for Public Policy and the Presidents Council, State Universities of Michigan also signed the letter.

By contrast, the Michigan Chamber of Commerce said Monday the House and Senate plans provide “responsible, straightforward solutions to (the) road funding problem.”

The state business group said it supported the Senate’s phased-in 15-cents-a-gallon gasoline tax increase and believes Senate and House leaders can forge a compromise solution before Labor Day.

Before he left to meet with his caucus on the House majority plan Tuesday, Cotter said he’s open to some new tax revenue as part of a compromise leaders of the two chambers will have to reach on $1.2 billion to $1.5 billion more in spending needed annually to fix the state’s crumbling roads.

House Republicans and Democrats have fought over getting the minority-party votes that are likely necessary to pass a roads plan because several House GOP members don’t want to vote for a tax increase. Democrats have complained they haven’t been approached, while Cotter said he wouldn’t negotiate with them unless they have their own complete funding plan.

The House majority plan would rely on budget shifts and projected annual increases in state tax revenue to enhance the annual road repair budget. It would end an income tax credit available to low-income Michiganians costing $117 annually and about $135 million a year in grants to businesses creating jobs.

The Senate GOP majority’s plan would generate half of the needed money, or more than $800 million, through fuel tax increases.

Business Leaders for Michigan wasn’t among the signers of Tuesday’s letter, but its corporate leaders said they also can’t support the House GOP strategy and issued their own letter Tuesday.

Criticism from the nine groups is based on an analysis from former House Fiscal Agency Director Mitch Bean.

His report says the state already faces revenue pressure from tax changes scheduled in the 2017-18 state budget year, when the House plan would be fully implemented. Bean also noted expected federal policy changes that will require more state support for basic human services by then.

If the Senate plan becomes law, Bean says, the likely impact would be $450 million to $550 million in cuts to other state programs in 2018.

The state would have to slash between 11 percent and 13 percent from each department, even if they could reduce prison and health and human services spending a combined $100 million, he says.

While their approaches differ in several ways, separate House and Senate proposals depend on at least half the additional money for road repairs by squeezing at least $700 million out of the state General Fund.

The General Fund is a $10 billion portion of the $52 billion annual state budget supporting government functions such as prisons and state universities over which lawmakers have the most discretionary control.

Lawmakers have mixed views about the proposals.

Rep. Jeff Farrington, chairman of the House Tax Policy Committee, said he thinks the Senate’s plan of generating about half of $1.5 billion from spending cuts and half from a tax increase offers a “balanced approach.”

“When you look at it both from a policy approach and a political approach, it makes sense,” said Farrington, R-Utica.

But House Republicans and Democrats alike are wary of approving $700 million in future spending reductions to state government without specifying which programs will get axed.

“Until they show us where this money is going to be cut, to me it’s just kicking the can down the road so they can say ‘Well, we’ve solved the problem,’” said Rep. Sam Singh, D-East Lansing.

Rep. Pat Somerville, R-New Boston, said the Senate’s plan to decide on the cuts in future years is “being a little bit irresponsible.”

“Why not just cut it now?” Somerville said. “Why pass it on to a future Legislature to make those kinds of decisions?”

Rep. Peter Lucido, R-Shelby Township, said he wants to see a detailed list of budget cuts before he would agree to the Senate’s plan.

“I don’t think any representative … should be voting for things that they don’t know the consequences and the repercussions of,” Lucido said. “That’s just not good statesmanship.”

Rep. Todd Courser, a Lapeer Republican who has been a vocal critic of GOP legislative leaders, predicted the debate over cutting $700 million in existing state spending to help pay for roads would be short-lived and lead to even higher taxes than the Senate is proposing.

“I don’t see that there’s really the political will at this point … to make the cuts and prioritize spending,” Courser said. “The idea of $700 million in cuts is laughable when you just created the biggest budget in the state’s history only two months ago.”

Rep. Mike Callton of Nashville, calling himself the most-moderate House Republican, said he’s willing to vote for “some” fuel tax increases and negotiate with Democrats over their ideas.

Callton said at least a dozen GOP members oppose any tax increase, meaning the House is unlikely to pass a plan without help from the other party.

“Just watching everything, I believe what you’re going to see out of the House is no major increase in taxes,” Callton said. “But maybe both sides can back down from their ideologies and politics a little bit to solve this.”