CHICAGO — After years of political stalemate, Michigan lawmakers appear close to a deal to tackle the state's aging roads and bridges with legislation that relies heavily on general fund dollars.
The state Senate last week passed an eight-bill package that features up to $1.5 billion in new annual money for roads. About $700 million of that would come from the state's general fund, and the remainder from increases to the gas tax, phased in over three years. The gas tax increase would put Michigan's gas tax rate at the third-highest in the nation.
The House passed a plan in May that would raise around $1 billion. Nearly all of that would come from the general fund. Unlike the Senate, the House outlined cuts it would impose to offset some of the general fund diversions to roads, including an elimination of the state earned income tax credit.
The House is expected to vote on either the Senate plan or a new compromise proposal as soon as next week. The members are reviewing the Senate legislation now and have scheduled session days on July 14, 15 and 21.
"If we concur with the Senate plan it could be signed into law as soon as next week," said Gideon D'Assandro, a spokesman for House Speaker Kevin Cotter, R-Mt. Pleasant.
Kotter considers the Senate plan a "good step forward," D'Assandro said.
"He likes what the House did, but his position has been that he's not all 'his way or the highway,'" D'Assandro said. "He wants to get something passed, and if this is the Senate trying to find a compromise, then that's a step forward."
Michigan is one of several states debating how to finance road projects in the midst of federal shortfalls. A total of eight states, including three in the Midwest, voted to increase transportation funding dollars in 2015 legislative sessions, according to a Pew Charitable Trust report. In the Midwest alone, Iowa, Nebraska and South Dakota all increased the gas tax this year.
Michigan Gov. Rick Snyder has made new road fund funding one of his top goals, saying it is crucial to the state's continued recovery. He has toured the state holding press conferences at the sites of aging bridges and pothole-ridden roads to highlight the need for new money.
An estimated $1.5 billion annually is needed to fix and maintain existing infrastructure, according to the governor's office.
Despite Snyder's efforts, the Republican-led Legislature rejected various proposals from the governor for years.
They did agree to send a measure to voters this year; in May they overwhelmingly rejected a ballot referendum that would have raised the state sales tax to 6% from 5% mostly to raise new road money. This summer's legislative efforts are considered the most serious yet to address the issue.
"Michigan spends the least amount of money on transportation per person in the entire country - we're dead last," said Lance Binoniemi, vice president of government affairs for the Michigan Infrastructure and Transportation Association.
"This is an epidemic nationwide - there is an issue with the federal gas tax - but in Michigan we haven't invested new dollars since 1997," Binoniemi said. "We're in a crisis points in Michigan on the condition of our roads and bridges and there's no solution in the future without the Legislature taking some kind of action."
Ohio, which has a road system similar to Michigan's in terms of miles and condition, spends $1 billion more a year on transportation and has for more than a decade, Binoniemi said. Pennsylvania increased its road funding by $2 billion two years ago, and Wisconsin's gas tax is linked to inflation, ensuring that it goes up every year.
Michigan's final road funding plan - and how much it dips into the general fund - could have credit implications. The state, rated between the AA-minus and AA levels, has spent the last several years rebuilding its budget reserves and trying to boost employment and revenue after a 10-year recession that some dub the state's "lost decade."
"Clearly the state has been working to find a means to better fund its transportation needs, and it has to achieve consensus on what that means is," Doug Offerman, an analyst with Fitch Ratings, said. Fitch rates the state AA with a stable outlook.
"Considering how hard the decade was between the recessions, the state is in quite good shape with a well-funded budget reserve and a structurally balanced budget," he said. "That doesn't mean the state doesn't have means, but how it identifies and funds those means will be something that emerges from the policy process underway in Lansing."
The Michigan Municipal League, which advocates for the state's local governments, is opposed to both the House and Senate plans, saying that relying on general fund dollars will hamper the state's financial flexibility in the future.
"The bottom line is that [the Senate] plan does not provide a long-term sustainable solution to address Michigan's deteriorating infrastructure," the league's John LaMacchia wrote in a July 2 blog post. "Additional earmarks from the general fund and only allowing the general fund to grow by inflation could severely affect the ability of the state to prioritize investment in communities that desperately need it."
The Senate passed its eight-bill package on July 1. The vote was 19-19, with the tie broken by Lt. Gov. Brian Calley, signaling Snyder's support for the legislation. The bills include Senate Bill 414 and House Bills 4610 through 4616.
HB 4615 would raise the gas tax from 19 cents per gallon to 23 cents on Oct. 1, 2015, to 27 cents on Jan. 1, 2016 and 34 cents on Jan. 1, 2017. It would also raise the diesel tax to be on par with the gas tax. The tax would after that increase by the rate of inflation.
The tax hike would raise $475 million in fiscal 2016, $733 million in fiscal 2017 and $822.1 million in 2018, according to the Senate Fiscal Agency. It would roll taxes back to 19 cents per gallon on gasoline in 2033 and eliminate them entirely in 2034.
The legislation would divert income tax revenue that goes into the general fund into the Michigan Transportation Fund. The bills would divert $350 million in fiscal 2016 and 2017 and $700 million from fiscal 2018 through 2033.
"This is a responsible use of existing sources and additional resources to create a long-term road funding solution," Senate Majority Leader Arlan Meekhof, R-West Olive, said in a statement. "It is simply unrealistic to assume we can adequately fund our roads and bridges without new revenue."
The plan also would limit general fund expenditure growth to the rate of inflation under the Senate plan - with any revenue coming in above the inflation rate returned to taxpayers in the form of an income tax cut.
The new revenue would be sent directly to a "50-Year Roads Lock Box Fund," administered by the Michigan Treasurer, which could only be used for projects approved by both chambers and only for projects identified in a newly formed 50-Year Roads Task Force.
The Senate legislation would also increase an existing earmark in the Michigan Transportation Fund distribution formula for debt service payments, boosting the money to $50 million from $43 million.
The House plan, which is expected to have less of a chance of passing both chambers, would rely almost entirely on general fund dollars from the income tax, raising only $120 million in new money starting in 2018 from a new registration fee on hybrid vehicles and boosting the diesel tax to 19 cents from 15 cents per gallon.
