With gas prices falling, should the state start collecting taxes for roads now?
While we’re dreaming of Powerball riches a little while longer, let us, perhaps, suspend reality a bit more.
What if, while oil prices are at 12-year lows, Michigan legislators revisit their controversial 2015 roads deal, which calls for raising taxes next year, and begin raising the money now, when gas is below $1.90 a gallon and falling?
Rather than levying 7.3 additional cents per gallon next January as scheduled, could they pass a bill to raise it a few cents per gallon now ‒ which would require less to be raised next year, when we’re not sure of the price?
“That’s a reasonable proposition. We certainly wouldn’t have any problem with that,” said Jim Walker, executive director of the National Motorists Association Foundation, which has advocated for more road funding in Michigan from dedicated gas taxes.
“It would help and it would get some of the money in the coffers quicker, which is needed,” said Walker, of Ann Arbor.
Sen. Tom Casperson (R-Escanaba), agreed that the idea of accelerating the tax may make some sense. But he doubts his Republican colleagues would do so. “I think it would be a worthy conversation,” he said, “but I don’t think there’s an appetite for it.”
Gas low, skepticism high
Casperson and others say that while the idea has its merits, it would get a cool reception in Lansing, where a years-long battle over additional road-repair funding finally culminated in November when Gov. Rick Snyder signed legislation to add up to $1.2 billion in annual road funding. Half of the new money will come from gas tax increases and the rest from the state’s general fund.
The Senate wanted higher gas taxes than the body ultimately approved but the House demanded a smaller hike in gas taxes and more money from the general fund. It was a compromise that left many Republicans and Democrats fuming.
Under the compromise, the hike in gas taxes was delayed until 2017 in part because of concerns the road construction industry would be unable to handle an immediate $1.2 billion in additional annual spending.
“The political reality is, I don’t see (accelerating the tax increase) happening because it was so difficult to get to the final plan that came out,” said Sen. Goeff Hansen (R-Hart), a member of the appropriations committee who chairs the transportation subcommittee.
Consider that when Michigan voters last May rejected Proposal 1, the statewide proposal to fix roads, gas cost over $2.50 a gallon. And when the Senate passed a bill in July to address the issue of the state’s deplorable roads, gas prices had risen to $2.80 a gallon. The house rejected the idea.
By the time Gov Snyder finally signed the compromise bill tacking on 7.3 cents to the cost of a gallon – effective next January ‒ gas was $2.25 a gallon.
But now, prices are below $1.90 and falling, with forecasts that oil prices will stay
at low levels – and possibly erode further, given the strengthening U.S. dollar, turmoil in the Middle East and a dampening economy in China.
Is it time Lansing take notice, reconsider the roads bill and start paying the higher taxes now, when prices are lower rather than in a year, when prices are uncertain? Or would it be more likely that MDOT pin its hopes on a lottery ticket?
All state representatives are up for reelection in November, perhaps making them wary of accelerating a tax increase, even if it would be arguably easier for motorists to absorb in 2016. Such fears are not unfounded: State Sens. Arlan Meekhof (R-Olive Township) and Wayne Schmidt (R-Traverse City) face recall efforts over their support of the roads plan that Snyder signed.
“I don’t think there’s going to be any changes,” Hansen said.
Theoretically, at least, a legislative change could be defended.
Glenn Steffens, a transportation expert for the nonpartisan Senate Fiscal Agency, said legislators could add to the gas tax this year and make it contingent on lower prices – say, a penny of tax for every 5 or 10 cents below $2 a gallon. And if they wanted to make it revenue neutral (that is, ensuring that the same amount is raised over the next two years as was planned in 2017 alone) they could enact a tax this year but not spend it until next year. That would raise the same amount as the law enacted in November, but it would spread the pain over two years and do so when gas prices are lower.
“They can work it into the legislation as long as it conforms to the (state) constitution,” Steffens said.
In the existing roads deal, the law creates a so-called “lock box” of $100 million a year from the rise in gas taxes and vehicle fees for special roads projects. But the money is not to be spent until the legislature passes specific roads legislation – and that could be in 2017 or in subsequent years, he said.
As of now, every penny-per-gallon in gas tax generates about $45 million in taxes, Steffens said, meaning the 7.3 cents will generate over $320 million at current consumption rates, which have been declining. But if gas prices stay low and people drive more and buy more gas, Hansen said the state could see additional money from the current gas taxes.
What are the chances they’d go back and revisit the 2015 roads deal?
“None,” said Sen. Rick Jones, (R-Grand Ledge).
In Jones’s central Michigan district, constituents made it clear how they felt about higher taxes: “They don’t want any more taxes, they didn’t want any more license fees,” he said.
Deja vu all over again
John Truscott is a Lansing public relations veteran, having worked within the administration of Gov. John Engler and now as a political consultant across the state. He said he can see the rationale for considering an acceleration of the tax. But any move to do so would restart the negotiation process – and the pain.
Democrats were upset money was taken from the general fund for road repair. Some Republicans wanted more gas taxes and some wanted more taken from the general fund.
“If you open it up, it may wreak all sorts of havoc on what was passed,” Truscott said. “I think it’s a pretty tough political sell: ‘Give us your money (now) and we’ll hold onto it.’”
Democratic Rep. Marilyn Lane of Fraser would be willing to consider the idea, said her legislative director, Frank Surmann.
“I think it’s a great time to revisit this,” he said. He said Lane was unhappy with the roads bill, as many Democrats were. It wasn’t enough money for roads and too much of it will come out of the general fund, hurting other programs, he said.
“This (low gas prices) is definitely an opportunity,” Surmann said. “But logic doesn’t prevail as much in politics and Lansing.”
So the state will likely wait a year for the biggest infusion of roads cash even as motorists continue to benefit from lower gas prices.
One possible suggestion: Put a jar in your car and every time you fill up, throw in a few pennies. Next year, when you’re grumbling about the 7.3-cent increase, treat yourself to a candy bar from the jar.
What do you think about the idea of moving up the 7.3-cent-per-gallon gas tax increase to this year, rather than waiting until 2017? Bridge would love to read your comments below.
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