Gov. Gretchen Whitmer to propose 45-cent hike in fuel tax to fund Michigan roads – Detroit Free Press

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Where do potholes comes from? According to the Michigan Department of Transportation, it all starts with melting snow and ice. Detroit Free Press

LANSING — Gov. Gretchen Whitmer will propose in her Tuesday budget a 45-cent increase in the fuel tax — phased in over a one-year period — to raise more than $2 billion to fix the state’s crumbling roads, a spokeswoman said Monday.

Tiffany Brown, a spokeswoman for Whitmer, said the first 15-cent increase would take effect Oct. 1, with another 15-cent hike in six months, and the third increase on Oct. 1, 2020.

The Senate Fiscal Agency estimates each one cent increase in the fuel tax would raise about $46 million to fix roads, so a 45-cent hike would raise close to $2.1 billion for roads.

The proposal is expected to be a tough sell in a Republican-controlled Legislature that barely passed a much more modest hike in the fuel tax — 7.3 cents for regular fuel — in 2015.

Brown said Whitmer would also propose unspecified measures to lessen the impact of the proposed increase on the pocketbooks of Michiganders.

In seeking more than $2 billion for needed road repairs, Whitmer has three primary options — higher fuel taxes, higher vehicle registration fees, and state borrowing.

Kurt Weiss, a spokesman for the Department of Technology, Management and Budget, confirmed Monday that borrowing is not part of Whitmer’s plan. He would not comment on whether a hike in registration fees is proposed.

Whitmer is to present her road funding plan to a joint meeting of the House and Senate appropriations committees at 11 a.m. Tuesday.

Transportation Director Paul Ajegba recently told state lawmakers that while it may be worthwhile to look at more innovative funding mechanisms in future — such as charging vehicles for each mile driven — the traditional funding sources such as fuel taxes and registration fees are the ones on the front burner today.

A recent report from the Citizens Research Council of Michigan gave a similar message.

“Additional  road  funding  can  come  from  three  main sources: new taxes, diverting existing state revenues and/or borrowing,” said the February report. “Each track presents its own set of advantages and obstacles.”

Fuel taxes

The fuel tax, last increased by 7.3 cents per gallon for regular fueland 11.3 cents per gallon for diesel fuel in 2015, now sits at 26.3 cents per gallon for both regular and diesel fuel.

Each one-cent hike in the fuel tax raises about $46 million for road repairs, according to the Senate Fiscal Agency.

That means a 22-cent hike could raise about $1 billion.

Whitmer could propose an option that would minimize the impact of such an increase, and even make a larger fuel tax increase feasible, by removing the sales tax from fuel sales, but Weiss said that is not part of the current plan.

Michigan is one of only a handful of states that charge sales tax on fuel sales. Unlike money raised from fuel taxes, money raised from sales tax does not go to pay for road repairs.

At a $3 pump price — which is a little higher than current prices — sales tax makes up more than 15 cents of what motorists pay. That means that if fuel sales were exempted from the sales tax, the state could then increase fuel taxes by about 15 cents — raising about $690 million for road repairs — without noticeably impacting the pump price of fuel.

But Weiss said Monday the 45-cent hike is proposed on top of the taxes that are there today, meaning there is no current plan to take the sales tax off fuel sales.

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It’s also worth considering that Ohio Gov. Mike DeWine, a Republican, recently proposed an 18-cent-per-gallon increase in the fuel tax there. In Wisconsin, another neighboring state, Democratic Gov. Tony Evers has proposed an 8-cent-per-gallon increase.

Registration fees

Michigan’s vehicle registration fees were hiked 20 percent under the 2015 road funding package, and many motorists now payabout $150 per vehicle.

Michigan’s registration fees — which raise close to $1.4 billion annually for road repairs — are already on the high side in national rankings, so there is likely less room for Whitmer to propose the type of significant increases being proposed for fuel taxes.

Michigan charges additional fees for hybrid and electric vehicles, based on the rationale that owners of those vehicles pay little or nothing in fuel taxes. Hybrid vehicles pay a $47 surcharge, and electric vehicles pay a $135 surcharge, according to the Citizens Research Council report.

Borrowing

Weiss said Monday that borrowing is not part of the budget plan and Whitmer is not considering the options outlined below.

Whitmer could issue bonds for up to about $1 billion through the State Trunkline Fund  —without requiring approval of the Legislature or Michigan voters — and pay the money back over 30 years, according to the Citzens Research Council analysis.

Hiking fuel taxes and/or registration fees could allow for a higher amount of bonding, since the state would then be borrowing against higher anticipated revenues.

Whitmer could also propose issuing general obligation bonds to pay for road repairs. Those would require voter approval.

The problem with either type of borrowing is that required interest and principal payments would annually reduce the amounts that could otherwise be spent on roads.

Spending more on roads and infrastructure would make Michigan a more attractive place for businesses to invest, and also stimulate the economy, Business Leaders for Michigan said in a report released Monday.

“Investing an additional $1.6 billion in state highway and bridge infrastructure annually would create or sustain 18,000 jobs, increase the state GDP (gross domestic product) by $1.5 billion annually and increase real personal income by $1.1 billion annually,” the business group said.

Contact Paul Egan at 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.

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