Bipartisan ex-legislators propose gas tax hike to fix Michigan roads

March 20, 2019: Whitmer’s plan to raise business tax a hard sell to Michigan Legislature
March 15, 2019: Whitmer to Detroit chamber: ‘There is not enough pot to fill the potholes.’
Update: Gretchen Whitmer’s plan to fix Michigan roads: Nearly triple gas tax

A bipartisan group of former state legislative leaders says it has a plan to raise more than $2.5 billion to help fix Michigan’s crumbling roads: A nearly 50-cent gas tax increase spread out over nine years.

The tax hike would be doled out over time to lessen the impact on drivers, according to leaders of the new Michigan Consensus Policy Project, which says it aims to provide bipartisan solutions to some of the state’s most pressing problems in an era of divided state  government.

The group maintains that a tax increase of that scale is necessary because the state does not have enough money now to repair its roads, which are among the nation’s worst.

Analysis: Whitmer's budget banks on Michigan GOP backing one historic tax hike
Related: Michigan roads are a big mess. Here are eight big ideas to fix them.

The proposal, released Thursday, is spearheaded by four past state legislative leaders: Ken Sikkema, a Republican former state Senate Majority Leader; Bob Emerson, a Democratic former state Senate Minority Leader and budget director during then-Gov. Jennifer Granholm’s administration; Republican former House Speaker Paul Hillegonds; and former Democratic Lt. Gov. John Cherry, who served alongside Granholm.

The effort is a project of The Center for Michigan, a nonprofit, nonpartisan organization of which Bridge Magazine is a part. Phil Power, the center’s founder and chair, serves in an advisory capacity on the project. Bridge’s editorial staff has no role in the Consensus Project and is reporting this article independent of the project and the center.

“The roads are deteriorating even with the amount of money we’re spending,” Sikkema told Bridge in one of several briefings given to media before release of the proposal. “I can’t imagine that’s a good thing for our economy or for residents.”

The former leaders’ proposal could be a hard sell to current Republican legislative leaders, who have said road funding is a priority but are reluctant to raise fuel taxes. Republicans control the state House and Senate.

Opinion: Everyone – not just drivers – should pay for Michigan roads
Opinion: Hell no to Gov. Whitmer’s new taxes, says Sen. Peter Lucido 

New Democratic Gov. Gretchen Whitmer, meanwhile, campaigned on fixing the roads through increased road user fees, or asking voters to pass a statewide bond if lawmakers won’t raise fees. She is expected to offer more concrete details about her roads plan during her State of the State address Feb. 12 and in the release of her first budget expected in early March.

Sikkema and Emerson told Bridge they based their proposal on the findings of the 21st Century Infrastructure Commission, appointed by former Republican Gov. Rick Snyder, which estimated in 2016 that the state needed to spend an extra $2.6 billion per year just to maintain the roads and bridges it has today. It’s unclear whether or how much that estimate has increased in the two years since. Sikkema and his colleagues at Lansing-based Public Sector Consultants provided external support to the commission.

The commission estimates were echoed in an independent study by Business Leaders of Michigan in 2017.

Under the Consensus Policy Project proposal, close to $2.5 billion would be raised in total over nine years by increasing the state’s regular and diesel gas taxes by 5 cents per year. The group estimates its proposal would raise $275 million the first year, $550 million in year two and $825 million by the third year, eventually nearing $2.5 billion by year nine.

Another roughly $163 million could be found through a combination of new excise tax revenue on the sale of recreational marijuana by 2023 and legislation in last year’s lame-duck session that will divert more money to roads, to get to the $2.6 billion figure.

Sikkema and Emerson acknowledged it’s possible that the funding need in nine years could be even larger than the $2.6 billion in additional funding researchers have said is needed today, but they contend that the only feasible way to raise the gas tax is in phases.

Sikkema said it would be irresponsible to raise the entire $2.6 billion in a single year, given the cost to consumers and the possibility that an influx of new money could inflate prices for road work.

The project does not address other road-funding issues, including whether bonding or an infrastructure bank also should be used; Sikkema said those are questions policymakers should answer. He said it’s also worth discussing whether it might be better to hike gas taxes more in the first years and taper off in later years to get money into the system sooner.

“We want to jumpstart the conversation about how to raise the money, and clearly it’s not a be-all, end-all (solution),” Sikkema said. “We didn’t pretend that we were going to answer every single issue when it comes to transportation funding. It’s complicated. There are lots of issues involved, obviously. It wasn’t our desire or our capacity to answer every one of them.”

The group’s proposal also calls for raising gas taxes, including for diesel, another 2 cents in the first year, raising about $110 million to create a matching fund for grants or loans to help local governments fix local streets. In future years, that 2-cent increase would effectively be earmarked for that new local matching fund, Sikkema said.

The former legislative leaders said they settled on raising the gas tax because it is collected from people who use the roads, it can be phased in over time, and the idea had unanimous support within the group.

“I think all taxes are bad, but some are necessary,” Sikkema said. “This fits the necessary category.”

Michigan’s regular and diesel fuel taxes have been 26.3 cents per gallon since 2017. Michigan lawmakers voted in 2015 to raise them as part of a larger $1.2 billion funding package that draws half its revenue from higher gas taxes and vehicle registration fees and half from diverted income taxes, though it won’t be fully phased in until 2021.

Both fuel taxes will be linked to inflation starting in 2022 as part of the 2015 legislative deal.

But that package does not generate sufficient funding for roads, according to the state infrastructure commission and Michigan’s transportation leaders, who have said it will slow their decline but not reverse the problem.

The Michigan Department of Transportation last fall said 79 percent of Michigan’s state-maintained roads were in good or fair condition in 2017, down from its goal of 90 percent, a standard last hit in 2010. Without additional investment, that downward trend is expected to continue, according to MDOT.

Senate Majority Leader Mike Shirkey, R-Clarklake, recently told Bridge he wants to wait until the full $1.2 billion is raised by 2021 before considering other funding options.

House Speaker Lee Chatfield, R-Levering, has said the root of the state’s funding problem stems from the fact that Michigan charges a 6-percent sales tax on gasoline purchases, in addition to state fuel taxes, but doesn’t dedicate the sales tax revenue to roads. A spokesman for Chatfield said he wants to discuss the possibility of dedicating the sales tax on gasoline to roads, adding that gas tax and fee hikes, along with bonding, haven’t solved the problem in the past.

Emerson told Bridge that because members of the Consensus Policy Project are former legislators, they understand the political realities of needing to find solutions that can get enough votes in the Legislature. But, he added, too many of those solutions are short-term fixes.

“We basically came back and said, ‘You know, (it’s) not our job to find a political solution to this issue,’” he said. “Our job was to define the problem and to find a reasonable solution.”

Lack of investment in infrastructure has economic costs, including for drivers, who shell out an estimated $686 per year on average in extra costs, including tire and vehicle repairs, according to a 2015 report by TRIP, a Washington, D.C.-based transportation research group.

“That’s a lot of money every year. That’s far more than people would have to pay in a gas tax to fix the roads,” Sikkema said. “People are paying that already.”

A number of funding sources have been floated to pay for roads, from state taxes to toll roads, to assessing fees based on miles driven, which has been tested in Oregon.

In 2015, before then-Gov. Snyder signed the $1.2 billion funding package into law, Michigan voters rejected a complicated ballot proposal that would have raised the state sales tax, removed it from fuel sales and also raised gas taxes. Diverted income taxes also have put pressure on the state’s roughly $10 billion general fund.

Emerson said other options, including using sales and income taxes, are problematic because diverting some money to roads would leave holes in other parts of the state budget. And, Sikkema added, a vehicle-miles-traveled program likely would take years to be widely accepted or adopted.

Their proposal estimates the 7-cent increase in the first year would cost Michigan households between $25.62 and $73.78 a year, depending on household type; that translates into a range of 49 cents to $1.42 per week.

With gas prices currently low, “now would be the time to do it,” Emerson said. “As things go up, people get irritated with the price of gas, but they don't take it out on the tax.”

Sikkema and Emerson acknowledge their revenue projections do not account for automakers’ push toward hybrid and electric vehicles, which use less or no gasoline, or better vehicle fuel economy. Sikkema said future policymakers could adjust the proposal if circumstances changed, but for now “the gas tax, in our view, was the most viable.”

Sikkema and Emerson said they intend their proposal to be the starting point of a broader road-funding discussion, and they welcome other alternatives. They said they have not yet decided what other state issues to dive into following roads. In the meantime, they hope they can stir debate, even if the legislative solution ends up being a good deal different from their proposal.

“I think we've been successful if people react,” Sikkema said. “Even if they criticize it and say, ‘Why?’ then we've had an impact, because I think it forces them to come up with their solution.

“If this isn't the solution, what is it?”