Voters will be asked for tax increase to fix roads

Lansing — Lawmakers prepared to vote late Thursday night on a road funding plan that would ask voters to raise Michigan's 6 percent sales tax to 7 percent in a deal that would boost aid for highways, bridges, local roads and public schools.

Gov. Rick Snyder and legislative leaders from both parties backed a complex plan that would increase annual road spending $1.2 billion, provide $260 million in tax relief to low-income residents and raise $1.34 billion in taxes on purchases if voters approve a 7 percent sales tax.

Public schools stand to gain at least $300 million — or $200 per student — as part of the new revenue from what would be the first sales tax increase since 1994.

The deal, negotiated during the past three weeks, contains provisions designed to entice members of both parties to support the plan. But leaders stressed the ballot plan was the only way to reach a consensus.

"In no way is this punting anything down the field," said Senate Majority Leader Randy Richardville, R-Monroe.

House and Senate leaders prepared to bring the package of bills up for a vote on the last night of the Legislature's "lame-duck" session after two years of debate about how to raise more money to repair the state's bumpy roadways.

The sales tax ballot initiative needed two-thirds support by members of both the House and Senate. Late Thursday evening, lawmakers were preparing to work into the early morning hours of Friday.

The sales tax boost would generate revenue partially dedicated to replacing $752 million in revenue for schools and cities lost by repealing the sales tax on fuel, according to the plan unveiled by Snyder and lawmakers at a mid-day press conference.

A 7 percent sales tax would put Michigan in line with Indiana (7 percent), Ohio (7.11 percent), Minnesota (7.19 percent), but still below Illinois' highest-in-the-region rate of 8.16 percent.

"We would remain competitive in terms of our sales tax," Snyder said.

Complicated plan

The complicated deal hinges on voters approving an amendment to the state constitution increasing the sales and use tax on May 5.

If voters approve the 17 percent increase in the sales tax rate, a new percentage-based fuel tax that would be the equivalent of the current per-gallon fuel taxes would be implemented on Oct. 1, 2015, according to the plan.

"The challenge with this is it requires more work, but isn't it good that we asked our citizens to participate in this process?" Snyder said at a Capitol press conference.

To offset the impact of a sales tax increase for low-income residents, the deal calls for $260 million to be dedicated to returning the state's Earned Income Tax Credit to 2011 levels, before Republicans reduced it to help balance the state budget.

"If this ballot proposal passes, they will actually see a net decrease in their tax burden," House Minority Leader Tim Greimel, D-Auburn Hills, said of low-income residents.

The sales tax increase would generate an extra $300 million annually for schools.

"If this ballot proposal passes, it will be a big win for schools and education in our state," Greimel said.

Sen. Jack Brandenburg, R-Harrison Township, sat through Snyder's presentation of the plan to reporters and said the 11th-hour plan was "complicated and convoluted."

"When you go talk to people about it, it's difficult to explain," Brandenburg said.

Others liked the compromise.

"I think it's great. I hope the voters approve it," Rep. Mike McCready, R-Bloomfield Hills, said after a House GOP caucus meeting.

Fuel tax shift

Under the plan, the sales tax on gasoline and existing fuel taxes would be swapped for a new motor fuels tax entirely dedicated to roads, eventually generating $1.2 billion in new annual funding for roads and bridges and another $100 million for mass transit in three years.

The head of an anti-tax conservative group said lawmakers were handing road builders, labor unions and business groups an early Christmas gift.

"Lawmakers who support putting a massive tax hike on the ballot are just passing the ball so special interests can score a touchdown," said Scott Hagerstrom, state director of Americans for Prosperity.

The plan calls for a gradual three-year increase in road spending: $400 million the first year; $800 million the second year and $1.2 billion by the third year.

The remaining $1 billion would be used to pay down the $2.5 billion in debt the state borrowed in the late 1990s to fund road construction projects, said Kirk Steudle, director of the Michigan Department of Transportation.

Paying down the debt faster, Steudle said, will lower the $220 million annual debt payments MDOT makes "before we plow one road, fill a pothole or mow the grass."

The package of bills also would raise $45 million in vehicle registration fees through the elimination of discounts for new vehicles and $50 million in additional fees for heavy commercial trucks, Snyder said.

The legislation would allow the governor to pull forward every year $400 million to ensure spring road construction isn't held up, said House Speaker Jase Bolger, R-Marshall.

"With this passing, we will not miss another construction season," Bolger said.

If voters reject the plan, Snyder said, "We have to start over again."

Deal fulfills principles

The compromise proposal met the principles set by Snyder and legislative leaders. They generate more road funding; protect aid for schools, localities and mass transit; dedicate transportation taxes to road and bridge repairs; keep competitive prices at the pump; and supply tax relief for low-income residents, the governor said.

"Compromise isn't a dirty word," Snyder said. "Compromise can actually make sure that you're working together."

Novi resident Chuck Tindall, 60, said Thursday he does not favor an increase in the sales tax. He calls the plan a Republican "bait and switch."

"I think Snyder took a plan from the (former Gov. John) Engler playbook," Tindall said "You let roads get so drastically bad that people are saying, 'Yeah raise my taxes and fix these damn roads.' Unfortunately people are just thinking there's nothing they can do about it. They've let the roads get so bad."

But Donald Vonk, 70, of Harrison Township, said he would support the sales tax increase to replace funding for schools.

"If that's the only out," he said.

Vonk said he's in favor of a separate tax on fuel for the roads as long as it's a fixed amount, not variable.

County Road Association of Michigan Director Denise Donohue said she's concerned about the need for an election to complete the road-funding package but relieved that lawmakers and Snyder have reached a potential long-term solution.

County road agencies, planning their annual repair budgets now, are going to be in limbo for several more months, Donohue said.

"We certainly would have liked to have it all wrapped up in a bow today," she said Thursday. "We worry about the expense and effort involved in a ballot initiative ... but we will work in all 83 of our counties to educate citizens."

Plan splits business groups

The new proposal came as a disappointment to the Michigan Chamber of Commerce, which has been a key Snyder ally and backer of his drive for $1.2 billion in added road funding.

The state's largest business group had supported and campaigned publicly for the Senate's plan to convert the flat fuel taxes to a gradually increasing proportional levy that would double taxes at the pump.

"We are disappointed by legislators who have chosen not to do their duty," said Rich Studley, president and CEO of the Michigan Chamber.

But Business Leaders for Michigan, a group of corporate CEOs and other statewide leaders, said it supports the compromise plan.

"We see this as progress, a step in the right direction," said Tim Sowton, vice president of government affairs and public policy for Business Leaders of Michigan. "Having it go to the ballot, there's some risk there. But we shouldn't ever be afraid of going to the voters."

Separately, lawmakers are considering legislation strengthening enforcement of sales tax collection by online retailers such as Amazon.com that could boost annual revenue by $60 million. House Republicans were planning a vote on that issue Thursday, said Bolger spokesman Ari Adler.

clivengood@detroitnews.com

(517) 371-3660

Twitter.com/ChadLivengood

Detroit News Staff Writer Candice Williams contributed.