Tax, cut or both? Gretchen Whitmer needs House GOP help to fix Michigan roads

• Democratic Gov. Gretchen Whitmer and House Republicans both say they want to a long-term fix for Michigan roads
• House Republicans introduce plan to cut other spending, while a House Democrat proposes hiking the state’s Corporate Income Tax
• Ability to strike a deal could be a defining moment for Whitmer, who won her 2018 campaign on pledge to address the issue

LANSING — Somehow, some way, Gov. Gretchen Whitmer wants $3 billion more a year to fix Michigan roads — but she's going to have to compromise with Republicans to get it done. 

Six years after a GOP-led Legislature scoffed at Whitmer's plan to raise fuel taxes to the highest rate in the nation, the second-term Democrat, allies and House Republicans are rolling out a series of competing plans to pay for crumbling infrastructure. 

The proposals show the sides remain far apart on a key detail: Where the money should come from.

Whitmer wants to raise most of the money from businesses in the form of new taxes or fees, which one Democrat in the state Legislature is already proposing to do by raising the corporate income tax and creating a new tax on digital advertising. 

But House Republican legislation formally introduced Thursday proposes to fix the roads without raising taxes, a plan that would likely require significant cuts elsewhere in the state budget. 

While none of the plans out there are “perfect,” Whitmer said during her recent State of the State address, “what's not OK is no plan. Michiganders won't accept inaction."

Opening positions are set for what’s likely to be a lengthy negotiation to hammer out a bipartisan compromise this year after Democrats failed to take action over the past two years, when they had full control of the Legislature. 

The talks come in the final quarter of Whitmer’s gubernatorial tenure, and her ability to strike a deal could be a defining issue for a leader who first won office in 2018 on a promise to “fix the damn roads.”

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There is already some common ground: Whitmer and Republican House Speaker Matt Hall agree that spending cuts will need to be part of the mix — though they disagree on the dollar total — and that the state should make sure all taxes paid at the pump actually go toward roads and bridges. 

“We just have to figure out the other half, and then the regulatory changes that may be needed to ensure that we're getting the most value out of our dollars,” Hall, R-Richland Township, said at a press conference this week.

But the issue threatens to become entangled in partisan scuffles over the state budget and other legislative priorities, including a GOP push to lower the state’s income tax from 4.25% to 4.15%, which could force additional cuts. 

House Republicans on Thursday approved what Hall called a “government shutdown prevention plan” to fund basic services if they are unable to come to terms with Whitmer and House Democrats on a spending plan by the time the new fiscal year starts in October. 

Democratic plan takes shape

Whitmer’s $3 billion plan to fix the roads proposes raising a majority of that money through new taxes or fees – though she has declined to say how, signaling her openness to negotiation. 

It’s a reversal from her 2019 plan for a 45-cent gas tax increase, a specific funding solution that went nowhere in a Republican-led Legislature. 

While Whitmer is open to some spending cuts, she also used last week’s address to warn her “friends in the GOP” that a long-term road funding fix will require “new, fair” sources of revenue. “We can't cut our way to better roads by slashing public safety, health or schools," she said. 

Rep. Alabas Farhat, D-Dearborn, last week built on Whitmer’s proposal by introducing a series of bills calling for specific tax changes. 

His legislation would raise the Corporate Income Tax rate from 6% to 8.5%, establish a new "digital advertising services tax" and send up to $1 billion of income tax revenue to county and municipal road commissions each year.

New revenue from the Corporate Income Tax hike would go to the School Aid Fund, which would allow the state to exempt fuel purchases from the state's 6% sales tax, a portion of which currently funds schools. 

The digital ad tax proposal aims to go after major tech companies like Amazon and Google. It would tax online ad revenue at a rate of between 2.5% and 10%, with the highest rate reserved for companies with annual global revenues of more than $15 billion.

“Now is the right time for us to solve this issue,” Farhat said. “This shouldn't take a protracted time to play out.”

Republicans: No new taxes

House Republicans on Thursday formally introduced a road funding plan that Hall had previously outlined. Among other things, it would eliminate funding for a corporate incentive program that Whitmer favors and discourage companies from cashing in on credits issued under a former incentive program disbanded in 2011.

It would also exempt fuel purchases from the state's 6% sales tax but proposes to dedicate $755 million a year in additional sales tax revenue to schools to make up for losses. That would instead require cuts elsewhere. 

With state budgets growing from $57 billion to $82.5 billion since 2017, Republicans contend the state can find $3 billion dollars to put towards roads each year without raising taxes. 

“I don't believe we need more revenue to support any programs and somebody's gonna have to show me differently,” Rep. Ann Bollin, a Brighton Republican and chair of the House budget committee, told Bridge last week. 

“I’m not here to cut and gut,” Bollin added, noting she wants to work with colleagues to see if there are “programs or dollars that need to be expanded — that's a reallocation.”

But importantly, both Bollin and House Speaker Matt Hall have not explicitly closed the door on a compromise deal that includes state government raising revenue.

Hall, for instance, has said he’s open to a Corporate Income Tax increase if businesses want to chip in to continue the state incentive program he’s proposed defunding. But “my goal is to show (Whitmer) we can do this responsibly without raising taxes,” he said.

State Rep. Donni Steele, an Orion Township Republican who chairs the House transportation budget subcommittee, said business incentives may be one area Whitmer “wants to negotiate on.”

But she criticized Whitmer for proposing to continue “free lunches, free daycare, free education, college” without putting more existing revenue into roads. 

Another ‘test balloon’

Whitmer has pumped more money into roads, but not by working with the Legislature: In 2020, she announced a $3.5 billion bonding plan to fund long-deferred maintenance and modernization on state roads, primarily highways. 

After years of construction, road conditions have only improved slightly. About 68% of state roads and 53% of local roads are now in good or fair condition, but the additional funding did not help county or municipally-maintained roads.

Increases in construction costs have also shrunk progress. The cost of paving one lane-mile is up nearly 40% since 2019, thanks to a combination of inflation, worker shortages and more expensive reconstruction repairs. While spending since 2019 has nearly doubled, according to a recent Citizens Research Council study, the cost of repairing one bridge is up 62% since 2015.

Now that funding is running out — though taxpayers will be paying off the debt and interest for decades to come.

Hall said he sees long-term funding as the “next major issue” the Legislature has to tackle. In February, the House and Senate struck a bipartisan compromise to amend looming changes to Michigan’s minimum wage and paid sick leave laws. 

While most Senate Democrats voted against the deal, Rep. Bill Schuette, R-Midland, called it a “test balloon” of the ability for the two chambers to work together over the next two years. 

Senate Majority Leader Winnie Brinks, D-Grand Rapids, said she’s “ever hopeful and optimistic” for cooperation but noted “it’s still early” in the session and “time will tell.”

“We will engage in a good faith effort to get the road funding plan done and through the Legislature, but that requires … willing partners on both sides of the aisle,” she said.

Bipartisan relations in the Legislature have remained tenuous. 

Senate Democrats started the term by suing House Republicans for failing to send the governor a series of bills that were approved last year but not presented by Democratic leadership. 

A state judge ruled last week that those bills should be sent to the governor but declined to intervene in the legislative process by ordering Republicans to do so, and Hall has not yet acted on the court recommendation. 

Hall has also declined Democratic requests to simply “close the books” on 2024 by passing a supplemental spending bill. Instead, the $20 billion spending plan that House Republicans approved Thursday would fund some government services into next year so that lawmakers can focus on tax and road funding debates this year without the threat of a serious government shutdown. 

“We have a very big task,” Bollin said.  “We are going to find that money to fund that income tax reversal and to fund the roads. Those are the priorities for the people across Michigan. That is not a Republican or a Democrat. We have heard that loud and clear, that that's what the people want.”