Michigan Senate OKs 6-month suspension of state gas tax, but veto is likely

Lansing — The Republican-controlled Michigan Senate voted Tuesday to suspend the state's 27-cents-per-gallon gas tax but failed to accelerate the bill's effective date, setting up a likely veto from Democratic Gov. Gretchen Whitmer.

GOP lawmakers argued the pause, which passed 24-14, is needed to provide relief amid rising prices at the pump. But Democrats countered that there are better ways to do it and that the drop in the gas tax could be devoured by the rising cost of fuel, meaning customers might not notice it.

The Senate move followed the House voting last Wednesday to suspend the state gas tax and Republican legislative leaders challenging Whitmer to join them in the effort.

The legislation debuted after Whitmer and five fellow Democratic governors requested Congress institute a pause on the 18-cent federal gas tax a week ago.

"I'm just following the governor's lead," Senate Majority Leader Mike Shirkey, R-Clarklake, told reporters Tuesday. "She asked the feds to do the same thing. We can't have any control over that.

"But if it's important enough to ask the feds to do, it must be important enough to do here."

As of Tuesday, Michigan's average gas price was $4.23 per gallon of regular fuel, up 26% from $3.35 per gallon a month earlier, according to AAA.

The 27-cent state fuel tax suspension proposed by Republicans would save the average driver about $75 over six months based on driving habits from 2019, said David Zin, chief economist for the Senate Fiscal Agency.

However, the suspension bill did not get enough votes — two-thirds of the Senate is required — to gain immediate effect. Under state policy, it wouldn't take effect until 90 days from the end of the session, which normally ends in mid- to late December.

Asked if that rendered the bill meaningless, providing Whitmer an out to veto it, Shirkey said the opponents of putting the bill into immediate effect would have to answer that question.

Whitmer offers negotiations

Whitmer spokesman Bobby Leddy highlighted the effective date issue in a Tuesday afternoon statement. Michigan residents need relief now, Leddy said.

"Unfortunately, the bill that passed the Legislature wouldn't even reduce the price of gas until next year at the earliest," he said.

"Gov. Whitmer is ready to bring together Republicans and Democrats to negotiate a bill that saves Michiganders money, just as she has done for the past 780 bipartisan bills," Leddy added.

For the vote on the bill, two Democrats, Sens. Dayna Polehanki of Livonia and Sean McCann of Kalamazoo, joined majority Republicans in supporting the measure.

Michigan Senate Minority Leader Jim Ananich, D-Flint, has floated an alternative plan of suspending the state's 6% sales tax on gasoline, which would net a savings of about 24 cents per $4 gallon of gas.

Ananich argued that the gas tax revenue goes to improving crumbling roadways and suspending the sales tax would be a better option given billions of dollars in surplus funds currently available to the state.

"I think that's a much better way of going without putting our road funding in jeopardy," Ananich said of a holiday on the sales tax on gasoline.

Whitmer hasn't said whether she supports or opposes repealing the sales tax on gasoline, Ananich told reporters.

"I am hopeful that I can convince her that this is a better way to go, at least in the short term, from a holiday standpoint," Ananich said. "Long term, we can talk about this tax. I'd be open to having both conversations."

Move on sales tax on gas?

Shirkey said he's also looking forward to action to remove the sales tax on gasoline and is anxious to get legislative leaders to move the change forward.

For years, there have been unsuccessful efforts in the Legislature to undo the sales tax on gasoline, which primarily doesn't fund transportation improvements. Supporters of the idea have argued that all of the tax revenue on gas should go to roadways, bridges and other transportation needs.

A suspension of the 6% state sales tax on fuel would have the biggest effect on the School Aid Fund — which currently receives nearly 75% of sales tax revenue —  followed by revenue sharing with local governments, the comprehensive transportation fund and general fund, said Zin of the Senate Fiscal Agency.

Shirkey said there's a large enough surplus in the School Aid Fund currently to fund the loss of the dollars for multiple years.

"I think it would give us plenty of time to A) determine if it needs to be backfilled and B) the proper and right way to do so," the Republican Senate leader added. 

In the meantime, the proposed suspension of the state gas tax from April 1 through Sept. 30 is expected to result in a revenue loss of about $725 million, which House leadership has indicated it would backfill with part of the general fund surplus.

Whitmer indicated Friday she was likely to veto GOP-led legislation seeking to suspend Michigan's gas tax.

When asked about the fate of the state gas tax plan at a press conference, Whitmer instead promoted her plan to give taxpayers relief through tax repeals for some retirement incomes and an increased Earned Income Tax Credit. 

Any sort of tax relief should have "a real laser focus" on those who are "struggling to keep their head above water," Whitmer said. When pressed again on whether she would sign the bill, the governor said: "It won't have lived up to any of those things I just said, so you can draw your own conclusions."

The elimination of the 27-cent state fuel tax would have possible effects on state bonding capacity and revenue to the Michigan Transportation Fund, the Senate Fiscal Agency's Zin said.

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