With flat budget, Gov. Whitmer’s search for Michigan road money gets harder

Gov. Gretchen Whitmer is expected to outline her policy vision for roads in her inaugural State of the State address in February, while her first budget proposal is anticipated to roll out in March.

Update: Gretchen Whitmer’s plan to fix Michigan roads: Nearly triple gas tax

Gov. Gretchen Whitmer won’t have easy choices in her first budget when it comes to fulfilling her signature campaign promise to fix Michigan’s crumbling roads.

Raise money (such as new taxes or fees), or grab funds from other parts of the budget. Perhaps it’s some combination of the two.

The political calculus just got trickier amid a forecast that shows Michigan’s $10.7 billion general fund will remain flat next fiscal year, when the Whitmer administration’s first budget will take effect.

It’s not because Michigan is losing revenue. Projections show modest growth next year in income tax revenue, the primary funding source for the discretionary general fund. Estimates also are rosier than they were last May, as the economy continues its near-record-length expansion after the Great Recession.

Related: Michigan roads are a big mess. Here are eight big ideas to fix them.

Rather, the governor and Legislature are squeezed today by a road deal struck in 2015. That pact diverted hundreds of millions of income tax dollars to roads and expanded a property tax credit. Economists also say they anticipate job growth to slow in the next few years, with more economic clouds on the horizon.

In addition, more than $500 million in surplus general fund dollars have already been allocated — much of it at the end of 2018 before Republican former Gov. Rick Snyder left office, according to the state budget office — meaning the money won’t carry over for Whitmer, a Democrat, to build into her first budget. Surplus funds generally are used for one-time spending boosts, not to sustain long-term programs.

The details of Whitmer’s proposal to fix the roads will become clear over the next two months, when she outlines her policy vision in her inaugural State of the State address in February and rolls out her first budget proposal in March.

Whitmer campaigned on a plan to use $2 billion in tax dollars in a state infrastructure bank that could pay for road repairs and leverage extra money from Washington. She has not yet offered specifics on how she might raise the money each year, aside from asking the Legislature to raise user fees for roads or, if lawmakers choose not to, asking statewide voters to approve a bond.

Whitmer’s new budget director Chris Kolb, talking to reporters last week after a state revenue estimating conference, declined to say whether or how much new revenue might be included in the governor’s first budget.

But he noted the challenges of flat general fund revenue, saying the new administration is reviewing the impact of past legislative decisions that redirected income tax revenue.

“All those create more pressures on us, and we have to be aware of that,” Kolb said.

“You either have to have revenue existing, or you have to create it elsewhere by either increasing it or making cuts,” said Jordon Newton, a research associate with the nonpartisan Citizens Research Council of Michigan, which has studied the state’s budget pressures. “There will be discussions over what priorities there are, and how you balance those things.”

It will be difficult to find places to make cuts in other parts of the budget, said Charles Ballard, an economist at Michigan State University. It also will be a difficult political move to raise taxes, since Whitmer will have to get her budget past a Republican-majority Legislature that has been averse to tax and fee hikes.

Senate Majority Leader Mike Shirkey, a Republican from Clarklake in Jackson County, told Bridge he wants to allow the 2015 road-funding deal to fully phase in by 2021 before the state considers raising new revenue for roads.

House Speaker Lee Chatfield, R-Levering, has said Michigan’s road-funding problem exists in large part because the state charges a 6 percent sales tax at the gas pump and doesn’t use the revenue for roads, but rather for schools. He told Bridge negotiations with Whitmer’s administration could find ways to increase road funding while not harming schools, though he didn’t offer details.

The money is going to have to come from somewhere, Ballard said.

“The economics of this is pretty easy. The politics is really hard,” he said. “I can give you a list of revenue sources involving the income tax, the sales tax, the taxes on beer and wine, changes to the property tax. I can come up with the money tomorrow. But getting that to pass the Legislature is hard.

“If it were up to me, I would try really hard to bite that bullet and get some extra tax revenue and some fees” while gasoline prices are low, Ballard said. “If ever there was a time when the pain from raising the gas tax would be minimized, the time is now.”

Yet Michael LaFaive, senior director of fiscal policy for the free-market Mackinac Center for Public Policy in Midland, argues the state has plenty of room in the existing budget to pay for roads — starting by ending corporate tax incentives and other economic development programs.

The Mackinac Center opposes the use of tax incentives, contending they are less effective at creating jobs than policymakers promise. Redirecting money from incentives to roads “could have a much more positive impact on economic development by having sound, better infrastructure,” LaFaive said.

As to whether Whitmer will consider new revenue sources, “she has opposition in the Legislature, and they’re going to have to all come to terms with demands or wants, versus revenues,” LaFaive said. “We have a mandate to have a balanced budget, so I suspect we’ll find a way. I just don’t know where it all will land.”

Michigan governors have 30 days to submit their budget after the Legislature convenes its regular session — typically by February — though newly inaugurated governors have another month under state law.

It’s anticipated that Whitmer’s first budget proposal will be presented in March, though a date has not yet been scheduled.

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Jim Fuscaldo
Tue, 01/15/2019 - 8:47am

Consider eliminating the corporate give-aways facilitated by the MEDC and revisit the use of Public Private Partnerships (PPP's) for roads, water(Flint crises) and sewage. Other states have! At least conduct a detailed economic evaluation of various proposals/projects using PPP's rather than sitting on your asses and wringing your hands per the Granholm and Snyder administrations. We need creative financial solutions for infrastructure. Taxes and bonding are old school financing solutions.

Tue, 01/15/2019 - 9:01am

Warning Illinois Tollway now starts at the state line on I-94, No signs no tollbooths. A year later you get a bill with a BIG find!!!!

Did some checking seems now that all FREEWAYS within 20 miles of Chicago are now the toll road I-80! I was wrong ALL FREEWAYS ARE NOW IN IL ARE TOLLWAYS Email from their governor

For over 20 years I have spending my vacation in IL, BUT no more O our way home last Nov. coming home to MI on I-94 like we have always done. WE went through several UN MARK toll ways. received a bill for $63.00 for driving on Unmarked toll ways! I am a retired Disable Veteran and can not afford being taken by the crooks that are running your toll ways. I could fight the ticket. YEP! And go before some one that get paid by these tickets!! And have to travel on another unmarked toll way!! NO thanks. I will just stay out of IL from now on and tell people about this toll way TRAP> and to stay out of IL until this stops and at least the put up tollbooth and MARK I-94 As a toll way!!! My Grand Father and Father were born in IL !

On 10/24/18 we left Detroit on I-94 crossed into IL and took 394 South to 1 to 17 to Mattoon. It seems that you now claim all of I-94 as your tollway?

Tue, 01/15/2019 - 11:38am

Don, The big question, Why in the hell would anyone go to IL for vacation for 20 years???

Tue, 01/15/2019 - 12:02pm

"Fix the damn roads" was a cute and effective slogan for ignorant voters. Funding increases were already in place but obviously it will and only can take an extended period of time to see improvements. She'll get a trifling increase so she can take credit for funding and improvements already in place and with a helpful media the voters won't know any difference and she get's the voter's gratitude!

Tue, 01/15/2019 - 5:15pm

Help me understand, didn't we get a gas tax hike, supposedly to fix roads, rammed down our throats by our legislators after the majority of Michiganders voted against it. Where is the gas tax money?

Tue, 01/15/2019 - 9:30pm

Exactly, that is the money going into the roads under the Snyder plan.

Barry Visel
Tue, 01/15/2019 - 5:37pm

The tax expenditure budget has many answers (its an appendix to our State budget that estimates the value of tax credits, deductions and exemptions). Doing the math a couple years ago I found a billion dollars by REDUCING the sales tax rate to 3% (thus helping lower income folks) but taxing services (still holding food and prescription drugs untaxed). I wish more reporters, and legislators, would dig into these numbers more to see where our revenue is NOT coming from.

Tue, 01/15/2019 - 9:27pm

Great idea! But Why leave food un-taxed? Other states tax food without massive starvation! For that matter medical expenditures? Medical providers have no problem raising their charges far in excess of your 3% and how many recipients actually pay their own costs?. The simpler with less loopholes the better! Nor should we favor one purchase over another.

Barry Visel
Wed, 01/16/2019 - 10:56am

Matt, I aggree, but my assumption is leaving food and perscription drugs (not all medical costs) untaxed gives a better chance of passing.