Michigan governor proposes gasoline tax hike to fix roads

Michigan Gov. Gretchen Whitmer unveiled a $60.2 billion fiscal 2020 budget Tuesday that seeks roughly $2.5 billion more annually to fix the state’s crumbling roads through a 45-cent-per gallon increase in the state's fuel tax.

“No one likes to raise taxes,” Whitmer said. “I know it’s hard, the hard truth is we’ve got to get to work. Every day we don’t, we are jeopardizing our economic future, wasting our money and endangering our people.”

Gretchen Whitmer is the Democratic candidate for Michigan governor in 2018.

The state's gasoline tax is now 26.3 cents per gallon.

Whitmer is a Democrat. Her road-funding plan is expected to face resistance in the Republican-controlled Legislature, which previously passed fuel and vehicle registration tax increases that took effect in 2017 but have been criticized for failing to generate the needed income. Critics argue the tax hikes only slowed the decline of road conditions.

The recommendation for the state's 2020 budget, including all state and federal revenue, stands at $60.2 billion. The fiscal 2020 budget is a 3.6% increase from the current — 2.5% if the transportation budget is removed. The state’s total general fund budget would be $10.7 billion, an increase of 2.3% from the current level. Whitmer’s school aid fund budget would be $15.4 billion, an increase of 3.5% from fiscal 2019.

Whitmer’s proposal would phase in the tax increase in three increments: by 15 cents per gallon on Oct. 1, another 15 cents per gallon six months later on April 1, 2020, and again on Oct. 1, 2020. The proposal does not call for any new bonding to front-load road construction projects. Fiscal year 2020 begins Oct. 1.

The gas tax increase would bring up to 90% of roads to good or fair condition by 2029, said Chris Kolb, the state budget director.

The new revenue would go into a new formula directing dollars toward the most heavily traveled and most economically important roads, he said. The Michigan Department of Transportation and local road agencies would come up with five-year plans and a board would review their actions.

“The public will be able to find out which roads are being fixed and track the progress of each project on an accessible website,” Kolb told lawmakers Tuesday.

The increase would cost average Michigan drivers $23 a month. Because the state also applies its 6% sales tax to fuel purchases, Michigan's total at-pump tax was 56.81-cents as of Jan. 1, the ninth highest rate in the country, according to the American Petroleum Institute. Michigan is one of a few states that applies its sales tax to fuel, according to a recent study by the Citizens Research Council of Michigan.

“We should not be fixing our roads at the expense of those who can least afford it — and raising the gas tax by an astronomical 45 cents per gallon would harm families across Michigan,” Rep. Joe Bellino, R-Monroe, said in a statement. “It would add an additional $6.75 in taxes alone every time a family fills up a vehicle with a 15-gallon tank. That isn’t going to help the hard-working people of Michigan.”

Whitmer has also proposed expanding the Earned Income Tax Credit for low- and middle-income workers to partially offset the impact of the gas tax increase. She proposed doubling the earned income tax credit for low-income earners from 6% of the federal credit to 12%, phased in over two years.

“Michigan drivers deserve every possible effort to make sure the taxes they’re already paying are used effectively and efficiently. But I didn’t see that in her plan. Coming out of the gate by proposing a 45-cent per gallon tax increase starts the conversation on the wrong foot. Taxpayers deserve better.” Rep. Shane Hernandez, R-Port Huron, said in a statement.

Michigan Municipal League Executive Director and CEO Dan Gilmartin said the budget proposal provides new and sustainable investment in Michigan’s “broken transportation system.”

“It begins to reverse years of underfunding of revenue sharing, helping our communities maintain public safety and competing with other states in attracting residents,” Gilmartin said in a statement.

A new tax break exempting pension and retirement income from the state income tax could save more than 400,000 households a total of $800 million a year, Whitmer said. She proposed replacing the revenue stream by creating tax parity between traditional corporations and business pass-through entities.

The budget also calls for a $507 million boost for K-12 schools, one of the largest proposed increases in many years. Whitmer is proposing increasing per-pupil funding by $120-180 per pupil. Overall, the education budget was a 3.6% increase over last year’s education spending.

Whitmer's budget also calls for $120 million to improve drinking water infrastructure and address contaminants.

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State budgets Infrastructure State of Michigan Michigan
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