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— From the ashes of Proposal 1, a strategy is emerging driven by Michigan’s business community for a comprehensive road funding solution that relies heavily on tax hikes, despite the overwhelming rejection by voters earlier this month of a sales tax increase.

Business leaders don’t believe finding $1.2 billion in additional road funds without raising taxes is possible, a view shared by Gov. Rick Snyder.

“If you analyze the need, there is a strong argument for incremental revenue from fuel taxes and user fees,” the governor said in an interview with The Detroit News during the Detroit Regional Chamber’s policy conference here.

But how to get lawmakers — who read in the 4-to1 defeat of Prop 1 a strong public anti-tax sentiment — to raise taxes anyway is the focus of the strategy now under construction.

It starts with allowing the House, whose members and leadership are greener than their Senate counterparts, to go through what’s being called a “shredding process.” That means letting them suffer the firestorms generated by the unintended consequence of their proposed spending cuts. For example, a House proposal to gut funding for the Michigan Economic Development Corp. also killed the popular Pure Michigan tourism campaign, setting off howls of protest across the state.

Still, the House is expected to stick with an all-cuts approach, but far smaller than the $1.2 billion needed for roads. It will likely approve a package that raises roughly $600 million from spending cuts.

From there, the Senate will take over. Two-thirds of senators, mostly Republicans, are term-limited and won’t face voters again in their current posts. The hope is that they’ll feel more free to vote for tax hikes.

The Senate is expected to back a plan already floated to raise the fuel tax by 5 cents a gallon each year for three years. That 15-cent hike will ultimately produce $750 million, with additional money found by bringing diesel fuel taxes in line with those on gasoline, and perhaps raising vehicle registration fees.

Senators likely will also offer up spending cuts — largely from the estimated $500 million MEDC budget, including the symbolic elimination of much or all of the $50 million film subsidy. The cuts are expected to be about half what the House passes.

In addition, the spending reforms that were tie-barred to Prop 1, including warranty guarantees from contractors, are expected to be re-enacted.

Snyder said he anticipates the Senate producing a plan he can support. And then it will go back to the House.

“It’s a state House issue,” the governor said. “The message to them is that they’ll want to be an integral part of the comeback of Michigan.”

And if the House isn’t part of a solution, members are being warned they’ll bear the responsibility for the still-deteriorating roads, which could cost Republicans their House majority in 2016.

Republicans are also fearful a Democratic resolution to move Michigan to a graduated income tax from its current flat tax will become a populist petition drive in 2016.

Already, Democratic lawmakers and their union supporters are raising the call to get road funds by rolling back some of the business climate reforms Snyder put in place during his first term.

“If GOP lawmakers don’t act, they risk the more dangerous prospect of a campaign to punish the wealthy and job providers,” said Rich Studley, chief executive of the Michigan Chamber of Commerce. “That would put Michigan’s comeback out of business.”

A soak-the-rich ballot proposal on the 2016 ballot also could increase Democratic voter turnout, further damaging GOP hopes of holding the House.

The state chamber is urging Snyder not to sign any budget bills until a real road deal is in place to maximize his leverage. The governor, however, said he’s sticking to what has become a point of pride for him in getting a budget in place by the end of June, three months ahead of the true deadline.

Snyder said talks will continue outside the budget process, and he hopes to have a road solution in place by the end of summer.

And if the business community working on a strategy on Mackinac this week prevails, it will include a sizable hike in taxes and user fees.

nfinley@detroitnews.com

(313)222-2064

Follow Nolan Finley at detroitnews.com/finley, on Twitter at nolanfinleydn, on Facebook at nolanfinleydetnews and watch him at 7:30 p.m. Thursdays on “MiWeek” on Detroit Public TV, Channel 56.

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