Analysis: No roads deal due to shifting funds clash
Lansing — Michigan’s deteriorating roads will not be fixed anytime soon unless Gov. Rick Snyder and lawmakers resolve a major sticking point at the Capitol: how much money to permanently shift from other spending to the transportation budget.
Republican legislative leaders say $600 million is doable and, coupled with $600 million fuel and vehicle registration fee hikes, would generate the magic $1.2 billion infusion for roads and bridges. The GOP governor is not on board.
“I’m not willing to have a solution for transportation that jeopardizes … fiscal responsibility for the state for the long term,” Snyder said Thursday, a day after the House adjourned until September.
House Republicans were optimistic for a breakthrough in an abbreviated two-day session. But the so-called “600-600” compromise proposal — half new revenue, half from existing funds — never received support from all sides, including Snyder and Democrats who the majority GOP is hopeful will help pass a gas tax increase.
Snyder threatened a veto. Why?
At issue is the general fund, which will total $9.9 billion in the coming budget. It is Michigan’s second-largest account behind the school fund and is funded primarily with income taxes that Republicans want to divert to a road budget hampered by stagnant fuel tax revenue.
Snyder said he could agree to an ongoing $600 million fund transfer, but only if legislators address the potential loss of $400 million a year and extend and increase a health insurance claims tax for Medicaid beyond 2017. Otherwise, he could be OK with redirecting less in general funds to roads combined with larger tax and fee hikes.
The budget that takes effect in October already includes a record-high $400 million general fund transfer to transportation — the fifth straight year it is being done —prompting GOP legislators to say a $600 million shift is within reach.
The difference with a lasting road-improvement plan, though, is that the transfer would effectively be automatic every year. That alarms the accountant Snyder’s fiscal sense. He said only roughly a third of the $400 million in the 2015-16 budget is “ongoing” and available in the future.
The general fund pays for prisons, higher education and — with an assist from the U.S. government — public assistance programs such as Medicaid and welfare.
The fund is being squeezed by large and difficult-to-estimate tax credits given to the Detroit Three automakers and other large companies in the Great Recession. And in 2017, Michigan will start paying part of Medicaid expansion costs.
The nonpartisan Citizens Research Council will soon issue a report on the long-term budgetary impact of diverting more general funds to roads. The Medicaid expansion, a hospital tax issue and pending state employee contract renewals will put extra pressure on the budget to the tune of $171 million in the 2017 fiscal year, $300 million in 2018 and $450 million in 2019, said CRC senior research associate Craig Thiel.
Permanently earmarking $700 million a year in general funds for transportation would necessitate an estimated $260 million in cuts in the 2017 budget and $145 million in 2018, he said.
“The big thing is these things that are coming down the pike that they aren’t talking about,” Thiel said.
The political will has not existed to cut corrections, which means universities, community colleges and health/human services could bear the brunt of reductions unless lawmakers shift some spending into the school aid fund, he said.
“That’s why the Democrats are worried, right?” Thiel said. “The governor had to offer a budget that cut a lot in (fiscal year) 2012 and he probably doesn’t want to do that again in 2017 as he’s getting ready to get out of here.”
After voters’ resounding defeat of Proposal 1, House Republicans in June passed a roads plan that would largely cut or shift spending, bring the 15-cent diesel tax in line with the 19-cents-a-gallon gasoline tax and gradually boost them with inflation. In July, Senate Republicans voted to increase both fuel taxes to 34 cents and dedicate income tax revenue to roads while also triggering income tax cuts if revenues rise by more than inflation.
The latest proposal was GOP legislative leaders’ attempt to meet in the middle, though it remains uncertain if there would even have been enough support for a 5-cent gas tax hike combined with an unspecified change in license plate taxes. House Speaker Kevin Cotter did not welcome Snyder’s emphasis on issues such as the health insurance tax.
“My focus has been to pass a plan that is all about the roads and to keep the focus on the roads, to try to learn from the failure that Proposal 1 was,” he said.