Michigan Gov. Rick Snyder praised passage of a new road funding package.

CHICAGO – Michigan Gov. Rick Snyder said he will sign a $1.2 billion road funding package that cleared the legislature late Tuesday after months of negotiations.

The package relies on $600 million from higher taxes and fees with $400 million coming from a gasoline tax hike and $200 million from a 20% increase in vehicle registration fees. Both take effect Jan. 1, 2017. The other $600 million would come from the general fund. Combined, the three sources would generate $1.2 billion in new revenue when fully phased in.

"The state House and Senate today approved a fiscally responsible, comprehensive transportation plan that provides a long-term solution with new revenue that also provides long-term tax relief," Snyder said in a statement. "This is the largest investment in Michigan roads and bridges in more than half a century, making them safer for Michiganders long into the future."

Snyder said his office needs to review the bills, but he expects to sign them as soon as the analysis is completed. Snyder said the state can afford to use general funds without hurting other areas.

The Senate revised a package sent from the House and passed the new version in a 20-18 vote early Tuesday and then sent it over to the House which approved it by 55-52 late in the evening. Both votes were mostly along party lines with most Democrats opposed. Snyder is a Republican and the GOP holds a legislative majority.

Democrats slammed the plan over the use of general funds and delay in funding projects as the package seeks to ease the strain on the general fund by phasing in the general fund draws. Democrats believe the plan falls short of what's needed immediately to address state road funding needs and have pressed for a corporate income tax hike to raise revenue.

Under the plan, an additional $150 million would be diverted from the general fund in fiscal 2018 and 2019 with that figure rising to $325 million for 2019 and 2020 before settling at $600 million in additional funding earmarked in fiscal 2020 and beyond.

"This plan won't fix our roads" and will "create new problems that will need to be fixed later," said Democratic Senate Minority Leader Jim Ananich of Flint.

To help make the tax increase more palatable, the road funding package included other bills that stand to impact future state revenues. Lawmakers approved an increase in the homestead property tax credit to take effect in 2018 and a cut in income tax rates beginning in 2023 if revenues exceed projections under a formula tied to inflation.

The homestead exemption would trim state revenue collections by $206 million, according to a legislative analysis. It's harder to assess the future impact of the potential change in income tax rates.

"Existing resources are redirected to reflect roads as a priority in the state budget, new revenue is generated for a long-term solution and taxpayer dollars are returned to our hardworking taxpayers," Senate Majority Leader Arlan Meekhof, R-West Olive, said in defense of the plan after Senate passage.

A late August report from the independent public affairs research organization Citizens Research Council of Michigan warned that revenue growth from the state's rebounding economy would not be enough to offset budget shortfalls if the state taps general fund dollars for road repairs.

Relying heavily on the general fund for roads could also imperil Snyder's push to rebuild the state's rainy-day fund, a key factor in recent ratings upgrades. "It is important to note that every budgetary decision involves tradeoffs, and the eventual solution to the state's road funding troubles will as well," the CRC report concludes.

Rising employment, a growing rain-day fund and balanced budgets prompted Moody's Investors Service to upgrade the state to Aa1 from Aa2 in July and Standard & Poor's to revise the outlook on its AA-minus rating to positive from stable.

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