Voters to decide fate of sales tax increase 2015.04.15

By DAVID GREEN

Everyone agrees that Michigan's roads are in need of maintenance, but there's no agreement on what to do about the problem.

One proposal will be placed on the May 5 ballot to give the state's voters the opportunity to make a decision about increasing the sales tax from 6 to 7 percent. The change would indirectly deliver more than a billion dollars for road work, but there are many other facets of the ballot proposal—something for everyone to disagree on.

Proposal 1 would increase state taxes and spending by about $2 billion in 2016, sending $1.3 billion for road repair. Other bills were tacked on to the proposal in an effort to gain support in the legislature. Public schools will receive an additional $300 million and local governments would get an additional $100 million in revenue sharing funds. 

In addition, the Earned Income Tax Credit would be restored to the 2011 level—at a cost of $260 million to the state—to help balance the expense of the sales tax increase for lower-income residents who are hit harder by a "regressive" tax.

Morenci resident Scott Merillat, who serves as managing director of the Lenawee County Road Commission, is speaking to government units around the county to provide information and answer questions about road funding and the proposal.

Although the legislation may come across as complicated, he said, it actually will simplify the issue of road funding.

"This will correct a fundamental flaw in our state spending," Merillat said. "It will constitutionally guarantee that gas tax revenue will be spent only for roads."

Currently only half of that goes for roads. The other half of taxes paid at the pump goes to schools, the state's general fund and other local revenue sharing.

Michigan's total fuel taxes are among the highest in the nation, he said, but ironically, less is spent per capita on roads than any state. Ohio, for example, spends about a billion dollars more every year.

None of the 6 percent sales tax on gas goes toward Michigan's roads.

Merillat said the Road Commission has sought additional funds for the past 10 years due to declining revenue and increasing materials cost. Revenue began to fall in 2004 and reached the lowest point in 2009. There's been some slow growth since then, but costs have continued to increase.

"We're putting less and less into roads," Merillat said. "Current revenue is equal to what it was in 2003 while material costs have gone up two to three times."

The percentage of Michigan roads eligible for federal aid that are in poor condition has gone from 10 percent in 2004 to 33 percent in 2014, Merillat said. Local roads not eligible for federal aid are much worse. Additionally, he said, one in eight bridges in Michigan is structurally deficient.

Michigan's 19-cents-per-gallon gas tax—only a portion of what drivers pay at the pump beyond the cost of the fuel—is equivalent to about 13.5 cents at today's prices, according to the Senate Fiscal Agency. At the same time, the fuel efficiency of passenger vehicles has increased, leading to less consumption of gasoline and less revenue for roads. Michigan's flat 19 cent tax stays the same regardless of the price of fuel.

Following are details about the proposal:

• FUEL TAX—The current sales tax on gasoline would be eliminated—it doesn't support roads anyway. The current motor fuel tax would be replaced with a 14.9 percent tax on the wholesale cost of gas. Total fuel taxes would not go below 41.7 cents a gallon and would not increase by more than 5 percent in a year if fuel prices increase. As fuel costs go up, Michigan's price at the pump would be less compared to many other states. 

Initial spending would be divided between road repair and paying off the debt for borrowing on previous repair—a move that will free up millions of dollars from annual debt payment.

This action will also prevent a crush of road projects that the construction industry won't be ready to tackle all at once.

• FEES—The registration fees for commercial trucks will increase on a sliding scale for vehicles weighing more than 26,000 pounds, bringing in about $50 million.

• REGISTRATION—Vehicle registration costs would no longer decrease as a vehicle ages. In addition, a compromise in the legislative process would lead to an annual surcharge of $75 on electric cars and $25 on hybrid vehicles, making Michigan the sixth state to do so. Fuel-efficient vehicles contribute less to road maintenance, but still use the roads.

The registration changes would bring in $10.9 million in new revenue.

Passage of the proposal would bring in about $4.8 million of new funding annually by 2018 for the Lenawee County Road Commission. Merillat has estimated that about twice that amount is needed to put the county's roads in good condition. 

The City of Morenci will have received about $110,000 in additional transportation funding by 2018. Revenue sharing increases are estimated to bring in an additional $20,000 to the City of Morenci, $10,500 to Medina Township and $11,800 to Seneca Township.

And what's the cost to taxpayers? Total taxes and fees paid at the pump will increase by about 3 to 10 cents, depending on the cost of fuel, while the sales tax increase varies depending on spending habits.

One estimate Merillat has seen places the predicted cost to a family with an income of $50,000 at $267, increasing to $384 for an income of $80,000.

Balance that with an estimate from TRIP—a conglomerate of insurance companies and road construction agencies—of $357 annually for repairs to vehicles caused by bad roads and time stuck in traffic due to road conditions.

Proposal 1 was a long time in the making and failure at the polls will likely lead to years more of bad roads, Merillat said. Although several alternatives have been talked about, he's yet to see one that would come close to matching the revenue that would be generated by Proposal 1.

Merillat would like to see elected officials show some legislative leadership and tell why they placed the proposal on the ballot. Instead, many tend to shrink from the issue because they want no part in raising taxes.

Former Michigan House Speaker Jase Bolger did make a statement in the Detroit News on March 5: “It is clear to me that to achieve these three things: make our roads and bridges safer, guarantee the taxes paid at the gas pump go to fix our roads, and protect funding sources for our schools and local police and fire, Proposal 1 is the best and only realistic chance we likely have for many years to come.”

Merillat says that everyone seems to agree that roads need a lot of work—at least the roads that each taxpayer routinely drives—but that can't happen without a cost.