House GOP budget ditches Whitmer fuel tax plan for sales tax shift

Beth LeBlanc
The Detroit News
AAA Michigan says average gas prices statewide have fallen about 11 cents in the past week to about $2.99 per gallon.

Lansing — Michigan's Republican-led House on Thursday unveiled a plan to boost road and bridge repair funding by redirecting hundreds of millions of dollars in sales tax revenue from fuel purchases currently dedicated to schools and local governments.

The fiscal year 2020 spending plan, advanced by a budget panel, proposes a series of complicated shifts that would free up $542 million in additional revenue for roads next year.

GOP lawmakers say their plan would “hold harmless” K-12 schools and local governments that currently rely on the sales tax revenue, but their budget proposes across-the-board cuts for administration and information technology in most other state departments.

The sales tax shift is a small but integral piece of a yet-to-be revealed road funding plan the House is expected to propose as an alternative to Democratic Gov. Gretchen Whitmer’s push for a 45-cent fuel tax hike opposed by top Republicans, including House Speaker Lee Chatfield of Levering.

“The speaker and I have been saying all along that we don’t want to have conversations about additional funding and other revenue until every penny paid at the pump goes to our roads, and we’re taking that first step today,” said Appropriations Chairman Shane Hernandez, R-Port Huron. “We’re willing to continue working forward.”

The House plan would shift revenue from the 6% sales tax on fuel purchases to roads over two years. It would do so by exempting fuel purchases from the sales tax and then replacing it with an equivalent fuel tax of some kind that would generate dedicated revenue for the roads, which would require a separate vote by the Legislature. 

Whitmer's plan would generate $2.5 billion in new and annual revenue once fully implemented by 2021. She wants to boost road spending $1.9 billion over current levels and end a General Fund diversion that would free up $600 million for schools and other budget areas.

House Republicans would protect K-12 school funding in 2020 by ending a $500 million School Aid Fund earmark for universities and halting a $170 million diversion of revenue from online sales tax revenue approved last year.

But public education advocates appeared unimpressed by the school aid budget, which would increase classroom funding $226 million instead of the $507 million proposed by Whitmer. The GOP-led House abandoned Whitmer's plans to put additional dollars towards special education, at-risk and career technical education students.

“Lawmakers have repeatedly broken the promise to Michigan’s voters by diverting money out of the School Aid Fund,” George Heitsch, Farmington Schools superintendent and president of the Tri-County Alliance for Public Education, said in a statement. “The only difference in this proposal is the money gets diverted out of the School Aid Fund before it even gets there instead of after.”

Whitmer had little to say Thursday afternoon about the House budget.

 “I think we’re in like the fourth inning right now,” the governor told reporters, using a baseball analogy to suggest an early start to nine-inning negotiations. “That’s all I’ll say at this juncture."

Whitmer has challenged Republican leaders opposed to her fuel tax proposal to come up with an alternative road funding plan but has generally discouraged the sales tax shift because of the way it could impact other budgets.

The shift is a "non-starter unless you find the funds" to make up school and local unit losses, Budget Director Chris Kolb said earlier Thursday during a taping of “Off The Record on WKAR-TV.  “We're not going to rob Peter to pay Paul. We need to address roads, schools and water.”

The House transportation budget would have a ripple effect across state government. Public universities, for instance, would see a $5.3 million funding boost instead of the $43.7 million Whitmer had proposed. The proposed higher education increase of 1.4% would likely be less than the rate of inflation.

Most other House budgets include a variety of cuts, including a 3% administrative cut and 25% information technology cut in every department.

The Whitmer administration continues to call for $2.5 billion a year in new revenue, which is roughly the same amount a task force created by former Gov. Rick Snyder had recommended for roads in 2018. 

"We've had eight years of Republican control of state government," Kolb said. "If they could have solved this problem with the current funds, they would have done it."

The budget director predicted Republicans will eventually agree to some form of fuel tax increase.

"I just think we all know" it's needed, Kolb said. "The business community is talking to them. The local communities are talking to them. Everyone understands that if we had the money in our budget today, we would have fixed this eight years ago."

The House panel on Thursday also approved a transportation budget that would explore the sales of the Blue Water Bridge, eight state-owned welcome centers, four state-owned airports and a state-owned rail line between Grayling and Gaylord.

The potential sales are one of many money-saving moves that could help lawmakers sidestep the proposed 45-cent-a-gallon gas tax increase, said House Transportation Appropriations Subcommittee Chairman Matt Maddock, R-Milford.

Boilerplate language in the transportation budget directs the Michigan Department of Transportation to solicit proposals or bids for the facilities.

The Blue Water Bridge in Port Huron includes two spans over the St. Clair River and is owned jointly the Michigan and Canadian governments. The House-proposed budget language indicates any purchase proposals should be for the “state’s interest” in the bridge.

But Kolb called the idea a “gimmick” that would not reverse past “disinvestments” in roads and schools or address long-term revenue needs.

"Even if you did it, it's a one-time influx of cash,” Kolb said during the TV show taping. “It doesn't help you next year, and it doesn't give you enough money to fix the roads."

Rep. Leslie Love, D-Detroit, asked what the potential implications were of selling a bridge that is co-owned with Canada. Maddock said the department would explore that issue as part of the due diligence process.

“I think we have an obligation to avoid a gas tax increase and I'm willing to look at any option we have, including perhaps selling the bridge," Maddock said, adding "Should the state of Michigan be in the bridge-owning business?”

Maddock said he’s heard from some parties and investment funds interested in the bridge’s purchase. He said the current owners of the Ambassador Bridge in Detroit, the Moroun family, were not among those who have inquired.

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