As GOP preps road funding plan, lawmakers explore sales tax expansion

Jonathan Oosting
The Detroit News

Lansing — Republican legislative leaders appear close to finalizing their long-term road funding alternative to Democratic Gov. Gretchen Whitmer’s controversial fuel tax proposal, but the developing plan remains one of Lansing's most closely guarded secrets. 

As rank-and-file lawmakers await details, several acknowledge that officials have at least explored the possibility of expanding Michigan's existing 6% sales tax by applying it to transportation services. 

Whether the idea makes it into the GOP plan — or how much tax revenue it would generate to fix crumbling roads — is unknown.

Lawmakers are awaiting a road funding plan from Michigan's Republican legislative leaders, who have called Gov. Gretchen Whitmer's 45-cents-per-gallon fuel tax increase plan a non-starter.

“Transportation services could mean everything from Uber and Lyft to airplanes and pizza delivery,” said Sen. Curtis Hertel, D-East Lansing. “I’ve heard the rumor but have not been handed a plan of what actually would be included in that. I wouldn’t hazard a guess as to what transportation services fully means.”

Senate Transportation Committee Chairman Tom Barrett, R-Charlotte, said he is not particularly excited about the idea of expanding the sales tax base but is not writing it off.

“At first blush, it’s not something I have a strong desire for, but I want to make sure I hear the pros and cons before I throw any idea out,” he said Wednesday. “I think every idea deserves to be considered.”

Senate Majority Leader Mike Shirkey of Clarklake and House Speaker Lee Chatfield of Levering have said little publicly as they develop a response to Whitmer’s 45-cents-per-gallon fuel tax hike proposal and work to avoid the state’s first government shutdown since 2007 and 2009.

Whitmer has blasted the GOP-led Legislature for taking a summer “vacation” despite a looming Oct. 1 deadline to complete the state budget, which she wants to include major new money to “fix the damn roads.” The full House and Senate are expected to reconvene in late August. 

State Rep. Joe Bellino, R-Monroe, said he does not know any details about the pending GOP plan but expects House and Senate leaders to present something to Republican lawmakers this week or next.

“They’re meeting all the time, but it’s above my pay grade,” Bellino said. “When they get it done, they’ll show it to us, and we’ll go from there.”

Shirkey spokeswoman Amber McCann did not say whether a sales tax on transportation services could be part of a publicly released road funding plan.

“The caucus has discussed a number of options to generate revenue for roads but has not settled on a particular one,” she said.

Nothing is finalized and leaders are not expected to meet with caucus members this week, added Chatfield spokesman Gideon D’Assandro. “Still working on it.”

Larger road aid plan

The larger GOP roads plan is expected to include the elimination of the sales tax on fuel purchases and a teacher pension debt swap proposal that could free up nearly $1 billion annually to fix the state’s crumbling roads.

Whitmer and the Michigan Education Association union have already criticized the pension idea, and it remains unclear if Republicans could convince Democrats to strike a deal if it is a central component of their road funding plan.

Under the West Michigan Policy Forum proposal, the state would issue a 30-year pension obligation bond to borrow $10 billion that would be pumped into the Michigan Public Schools Employees Retirement System.

The idea hinges on the assumption — a risky one, critics say — that the pension system would invest that $10 billion and secure large enough returns to cover the cost of bond interest payments and pay down any remaining pension debt, eliminating the need for yearly state appropriations.

“I think that has some merit to it,” Barrett said. “It definitely forces us to make the disciplined approach to pay down that debt, which is significant ... and it would also free up some cash flow right now.”

Shirkey and Chatfield are lead negotiators on the road funding plan, but Barrett said he’s been tasked with figuring out ways to stretch existing resources, including different road building methodologies and public private partnerships.

“We’ll be introducing some legislation soon, but we’re looking at making sure we do get the best bang for our buck with the money that we are spending,” he said.

Republicans are also exploring ways to give local governments more options to raise their own revenue for road repairs, Barrett said.

“Right now, they’re limited in most instances to just a millage, but the value of the property doesn’t necessarily correspond with the use of infrastructure,” he said. 

Sales tax idea

The idea of expanding Michigan’s sales tax to include services is not a new idea and has gained traction amid a shift to an increasingly service-based economy.

Democratic former Gov. Jennifer Granholm and the Michigan Legislature agreed to an expansion in 2007 as part of a budget deal that ended a temporary government shutdown, but they ended up repealing the law before it took effect.

Granholm’s initial proposal called for taxing some transportation services, including taxi cabs and limousine operations. That plan predated ride-sharing services like Uber and Lyft, which a growing number of states and cities are now moving to tax.

Republicans have shown little appetite to increase gas taxes, but that remains "the best way to gain revenue from those who are directly using the roads," said Lance Binoniemi of the Michigan Infrastructure and Transportation Association. "It's one of the most traditional user fees you can come up with." 

Absent any movement on fuel taxes, House Minority Leader Christine Greig of Farmington Hills said Democrats are willing to discuss expanding and "closing loopholes" in the sales tax. 

Michigan does not apply the 6% tax to vehicle sales between relatives, certain types of agriculture and industrial machinery, groceries, newspapers, janitorial services and more.

“If it’s expanding what you apply sales tax to, or if it’s closing loopholes to get rid of past exemptions, I think it’s pretty smart to bring that to the table and look at it," Greig said.

Budget deadline

Republicans have called the governor's gas tax proposal a non-starter, but she's urged them to present an alternative and negotiate details of the fiscal year 2021 budget well before the new fiscal year starts Oct. 1.

“It has been 155 days since Gov. Whitmer introduced her FY 2020 budget, and 155 days without a comprehensive solution from the Legislature,” her office said Wednesday in its latest daily tally.

Whitmer press secretary Tiffany Brown declined to comment on what may or may not end up in the Republican road funding plan.

Senate Appropriations Chairman Jim Stamas of Midland and House Appropriations Chairman Shane Hernandez of Port Huron have developed a “good foundation” for the budget but have not yet provided spending targets to committee chairs, Stamas said Tuesday.

“We’re just trying to figure out where we go on road funding, which is probably the biggest question at this point,” he said.

Stamas is not directly involved in road funding negotiations but said he thinks Shirkey and Chatfield are “coming close” to finalizing a plan.

He and Hertel, ranking Democrat on the Senate appropriations committee, are optimistic that lawmakers from both parties will find common ground to avoid a government shutdown.

“Lord knows every idea that’s possible has at least been rumored at some point to be on the table. But we can’t budget on rumors, and we can’t fix the roads on rumors,” Hertel said.

“I feel very strongly that if you put leaders from our side and their side in a room, don’t feed us, turn the heat up and don’t allow anybody to leave to go to the bathroom, we’ll get a deal done pretty quick.”