Snyder signs road-spending bills with tax hikes

Gary Heinlein
The Detroit News

Okemos — Policymakers and transportation leaders predicted a road repair financing plan Gov. Rick Snyder signed into law Tuesday will spur jobs and economic growth, even as Democrats blasted it as inadequate and a burdensome middle-class “birthday tax.”

Denise Donohue, director of the County Road Association of Michigan, said the state will need more than the amount that will be raised to turn around a steady decline in road and bridge conditions but she was philosophical and hopeful.

“The studies say it was a $2.2-billion problem five and six years ago, ...(but) Michigan has been through a decade of recession and this is all we can bite off right now,” Donohue said. “This is a very, very significant step. It’s the first step in 18 years, so who can complain?”

She predicted jobs will be created as repair spending grows, the construction industry gears up and companies bring back crews now working in other states.

Gov. Rick Snyder, as promised, used his earliest opportunity to sign bills creating a long-term increase in Michigan road repair financing through budget earmarks and increased motorist fees and taxes.

The legislation is intended to meet the Republican governor’s goal of securing at least a $1.2 billion annual increase in road and bridge repairs throughout Michigan, but not until the 2021 budget year. A Detroit News analysis indicated the increase could fall short of that, even when fully funded.

“This is the largest investment in transportation in the last 50 years in the state of Michigan,” he told a crowd of dignitaries as traffic whizzed by on Interstate 96 in the background. “As you hear traffic going by, we’re going to be better off today.”

Lt. Gov. Brian Calley, who traveled the state last spring seeking to drum up support for increased road spending, called the plan “permanent, ongoing and structurally sound.”

Snyder signed the bills during a noontime gathering at the Okemos headquarters of the Michigan Infrastructure and Transportation Association.

The heavy-construction trade group’s political action committee poured nearly $5.5 million into the campaign backing Proposal 1, the earlier road-funding ballot proposal from Snyder and lawmakers that voters strongly rejected May 5.

This infrastructure improvement plan is programmed to reach its funding milestone two years after Snyder leaves office.

Lawmakers chose to phase-in the new road money, starting with $600 million increases in fuel taxes and vehicle registration fees in 2017 and followed by gradually earmarking another $600 million of existing income tax revenue in fiscal years 2019, 2020 and 2021.

In the 2019 fiscal year, $150 million in general revenue is to be earmarked for roads. In 2020, the general fund contribution is to increase to $325 million.

The compromise road funding plan, brokered by majority Republicans after months of negotiations, raises the gasoline tax by 7.3 cents a gallon and the diesel tax by 11.3 cents a gallon on Jan. 1, 2017. At today’s rates, Michigan’s aggregate state and federal gas tax — including sales tax — will jump from 52.24 cents a gallon to 59.54 cents, according to the American Petroleum Institute.

Registration fees on all passenger cars, vans and trucks will rise by 20 percent starting Jan. 1, 2017. The average amount per-vehicle due annually in each owner’s birthday month will jump $20 from the current $100 average.

Democrats say the $600 million earmark, coming from the state’s general fund, will pressure future Legislatures to cut funding for such competing priorities as health care, public safety and schools.

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 claim.

State Democratic Party Chairman Brandon Dillon said the party will run radio and internet ads in the districts of four Republican representatives accusing them of “giving gifts to the wealthy and sticking the middle class with the bill.”

The first ads will target GOP Reps. Holly Hughes of Montague, Tom Barrett of Lansing, John Bizon of Battle Creek and Jason Sheppard of Temperance, Dillon said.

He declined to reveal how much the party is spending but said the initial two-week media buy is “significant” and could be followed by similar ads running in other GOP lawmakers’ districts.

The fuel tax increase will generate $400 million more annually for road repairs and the higher registration fees would add $200 million to the long-underfunded transportation fund. Both increases kick in two months after incumbent House members face voters next November.

Snyder says the combination of gas tax and registration fee hikes will be $60 per year for the average motorist — an amount offset by savings from an accompanying increase in the homestead property tax credit available to low- and middle-income residents.

This income tax break related to primary residences, taking effect in the 2018 tax year, will be bolstered about $100 to $200 annually for an average family with an income in the $20,000 to $30,000 range, the governor says.

Another provision in the legislation mandates future cuts in the state’s 4.25-percent individual income tax, starting in 2023. The rate rollback will occur when annual tax revenues exceed projections under a prescribed formula of 1.425 multiplied by the rate of inflation. For example, if the rate of inflation is 2 percent, tax revenues have to exceed 2.85 percent to trigger a tax cut.

The plan also has an “innovation” requirement: the first $100 million raised each year from fuel taxes and registration fees will be locked away in a special fund for future use on new technology whose goal is to make road upgrades last 50 years.

Michigan will go from having the 12th highest taxes on gasoline in the country to the fifth highest, according to the American Petroleum Institute, based on rates in October. Unlike most states, Michigan levies its 6 percent sales tax on fuel, but most of that revenue goes toward schools and cities.

The expanded homestead property tax credit will lower tax revenues by $206 million annually starting in the 2019 fiscal year, according to the Senate Fiscal Agency.

House Democratic Leader Tim Greimel of Auburn Hills said while Democrats support a homestead credit hike, it will cost the general fund more than $200 million a year. Combined with the $600-million earmark in this plan, he charged, it will create an $800-million annual commitment that will “blow a hole in the (state) budget.”

It’s unclear how the income tax cut triggers lower revenues that fund other areas of state government. If the tax cut trigger had been in place for the 2013 and 2014 fiscal years, the state’s 4.25 percent income tax rate would have been slashed to 3.96 percent next year, resulting in a loss of $593 million in tax revenue, according to the Senate Fiscal Agency.