Look to sales tax on gas to help fix Michigan roads, report suggests

The state charges a 6 percent sales tax on gasoline purchases, but the revenue doesn’t go to fix roads. A new analysis suggests removing the sales tax from fuel sales would allow Michigan lawmakers to raise the state’s gasoline tax, which does go to fixing roads, without causing gas prices to rise

August 2019: Pressure builds on Michigan Republicans for roads plan to avoid shutdown
Update: Gretchen Whitmer’s plan to fix Michigan roads: Nearly triple gas tax

Michigan policymakers looking to find money to fix the state’s crumbling roads should consider untying the sales tax from gasoline sales, according to a new road-funding analysis released Tuesday.

Doing so would allow lawmakers to increase the state gas tax by roughly 15.5 cents per gallon — replacing the estimated $894 million in annual sales tax revenue from fuel purchases that now doesn’t go to fixing roads — without also causing gas prices to rise, said Eric Lupher, president of the nonpartisan Citizens Research Council of Michigan, which evaluated the state’s road-funding options.

May 31, 2019: See how much a 45-cent Michigan gas tax might cost you

That’s because, even though Michigan levies its 6 percent sales tax on gasoline, the money collected at the gas pump goes instead to public schools, local revenue sharing and public transit.

“The disentanglement of motor fuels and the Sales Tax should be a priority,” according to the Citizens Research Council’s analysis, “Evaluating Michigan’s Options to Increase Road Funding.”

“Exempting motor fuels from the Sales Tax and increasing fuel tax rates an equal amount would make taxation on motor fuels more transparent and promote the user fee approach ingrained in road funding in Michigan.”

Removing the sales tax on gasoline, however, would create a shortfall in several other budget areas, including schools.

Such are the choices lawmakers face, as Michigan’s road-funding debate is poised to begin in earnest.

Democratic Gov. Gretchen Whitmer intends to outline her road-funding proposal in her first budget presentation next week. Several independent studies have found that Michigan is at least $2 billion short per year of the amount needed today to fix existing roads.

Former Republican Gov. Rick Snyder in 2015 signed into law a $1.2 billion road-funding package consisting of higher gas taxes and vehicle registration fees and diverted income taxes that won’t be fully phased in until 2021.

Related: From Michigan Truth Tour: Fix our schools and roads, end partisan games

Experts since have said Michigan roads will continue to deteriorate because the amount of revenue is insufficient to get enough roads into good or fair condition.

Republican legislative leaders — Senate Majority Leader Mike Shirkey and House Speaker Lee Chatfield — have said that while new money is needed to reverse Michigan’s decades-long disinvestment in roads, it should not come before identifying the road-funding need and making roads a priority in current spending.

Chatfield has said he supports removing the sales tax from gasoline purchases, but has not outlined a specific plan to replace the money that goes to schools and other programs.

“It would be desirable with such a policy decision to backfill the School Aid Fund and to add to state revenue sharing funding with revenues from other taxes to make up for the revenue decline caused by the shrunken tax base,” Citizens Research Council wrote.

The analysis breaks down the pros and cons of multiple road-funding options.

Gas taxes, for instance, amount to a user fee on roads users but are an unreliable long-term option as cars become more fuel efficient. Borrowing money can speed construction timelines but leave Michigan indebted.

The analysis offers several principles that it says policymakers should consider when deciding how to address Michigan’s road-funding shortfall, including:

If existing general fund resources are used for roads, don’t create problems for other areas of the budget. Policymakers should look at backfilling the spending that has been taken from another state program or department, Lupher said in an interview.

“If roads are our highest priority, then we should fund it accordingly, so nothing should be off the table,” he said.

“At the same time, we do have other priorities, and let’s not create a problem for corrections or universities or K-12 education to fix this problem.”

Bonding is a useful tool, but it’s not a way to raise money for ongoing road maintenance. Instead, Lupher said, bonds are best used for one-time, large projects, such as a freeway reconstruction, because they have to be repaid over long periods of time, with interest.

Any discussion of road funding also should include a conversation about the formula used to distribute road dollars to cities, villages and counties. Revenue from state gas taxes and vehicle registration fees is divided among the state, cities and counties for roads through a formula created under Public Act 51 of 1951. The state and counties each get 39 percent of the funding, while cities and villages receive 22 percent.

“The current Act 51 allocation ignores road capacity, which is a true indicator of costs, and road usage, which is a key driver of degradation,” according to the report. “It does not direct funds to the roads in the poorest condition. If funding does not reflect the realities on the ground, increases will have less of an effect on road condition, while some road agencies will be over-funded.”

Piecemeal approaches to road funding will not work. Regardless of the method, raising enough money to fix the roads for the long term “will require a significant investment from the state,” the report states. “Boosting funding in small amounts, or for short periods of time, will mean new construction and maintenance will not be maintained as efficiently. If the legislature chooses to increase funding, those increases should be sufficient to reconstruct roads to high standards and maintain them throughout their life cycles.”

Like what you’re reading in Bridge? Please consider a donation to support our work!

We are a nonprofit Michigan news site focused on issues that impact all citizens. In an era of click bait and biased news, we focus on taking the time to learn both sides of a story before we post it. Bridge stories are always free, but our work costs money. If our journalism helps you understand and love Michigan more, please consider supporting our work. It takes just a moment to donate here.

Pay with VISA Pay with MasterCard Pay with American Express Donate now

Comment Form

Add new comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.

Comments

Don
Tue, 02/26/2019 - 8:36am

It is a tax So it has to go before the voters!!!

Arjay
Tue, 02/26/2019 - 8:45am

If it isn’t the roads that need extra money, then it is schools that need extra money, or groups of people that need medical insurance, or pension funds that need larger contributions, and on, and on. Well one could raise taxes to be like the high tax states of Connecticut and New York and California, but people there are voting with their feet and revenue there is declining. How is it that states like Florida can have no income tax, very modest property tax, es tax equivalent to Michigan, and lower gas prices than Michigan, and not have the constant whine of more money? It is because they choose how to spend their money. Yes, some groups get left out, but that is recognition that money doesn’t grow on trees, well unless you have an orange orchard. Wake up Michigan, you can’t be everything to all people and expect to survive.

David Waymire
Tue, 02/26/2019 - 10:04am

Per capita income minus average state and local taxes in Connecticut: $40,000. New York: $33,000. California: $32,000. Florida? $30,000. So go to Florida, take a pay cut. 60 percent of Florida's state revenues come from the sales tax. That means two things: Tourists pay a large share of it, and we don't have that many tourists in our state. And it means the poor pay a higher share of their income in state taxes in Florida than the wealthy...in fact, the bottom 20 percent of residents on average pay about 12.9 percent of their income in state taxes. The top 1 percent...pay 1.9 percent of their income. Is that what we want for Michigan? I don't think so.

Matt
Tue, 02/26/2019 - 1:13pm

David, The stats you cite don't work, where as most of these hi tax states have a super progressive state income taxes. The average incomes you cite don't on average pay anything near their average taxes. Secondly I'd rather a 30k income in FL than $33k in NY or $32 in CA - goes way farther! Progressivity of state taxes, if really an objective, is messed up primarily by property taxes - a wealth tax skewed heavily by retirees with relatively higher wealth and lower income, not worth worrying about. Once again Mi is a middling tax and income state with a significantly below average cost of living, not a bad position to be in.

Michigan Observer
Tue, 02/26/2019 - 10:52pm

If Mr. Waymire is correct about high taxes being the secret of high incomes, then the residents of those states should be happy to have their taxes raised every year. But they don't seem to be; those states are losing large numbers of high income taxpayers to Florida, Texas , Tennessee and other low tax states. Governor Cuomo of New York is complaining about a two billion dollar shortfall in revenue . Now that the citizens of high tax states are no longer being subsidized by residents of low tax states because of the $10,000 cap on the deductibility of state and local taxes, they no longer find their states so attractive.

Seanumich
Wed, 03/20/2019 - 1:02pm

This is the lie people keep saying, California INCREASED population every year. The number o f new people in California is higher than most states, it is just not growing as fast percentage wise because when you are already FAR AND AWAY the largest state it is hard to maintain larger percentages. Florida is NOT a low tax state. Sales tax is between 8-8.5% in most places. Michigan will nevr have the ability to have that sort of tourism. They also have a LOT of toll roads, which increases costs. The other issue that Florida will never have is freeze thaw cycles when it comes to roads. No politician can fix the weather issue.
Of course if you think Florida is doing so well and a great olace to live, MOVE THERE

Seanumich
Wed, 03/20/2019 - 1:02pm

This is the lie people keep saying, California INCREASED population every year. The number o f new people in California is higher than most states, it is just not growing as fast percentage wise because when you are already FAR AND AWAY the largest state it is hard to maintain larger percentages. Florida is NOT a low tax state. Sales tax is between 8-8.5% in most places. Michigan will nevr have the ability to have that sort of tourism. They also have a LOT of toll roads, which increases costs. The other issue that Florida will never have is freeze thaw cycles when it comes to roads. No politician can fix the weather issue.
Of course if you think Florida is doing so well and a great olace to live, MOVE THERE

Reed
Tue, 02/26/2019 - 9:46am

If the Michigan government would ask Michigan citizens for money that was restricted to a particular purpose they would get more support. If gas taxes went to road maintenance they would be passed. If school funding stood on its own it would get more support. But tax money going undesignated into the General Fund has bred almost a total mistrust in the government process.

Linda Looney
Tue, 02/26/2019 - 9:53am

Why not raise the sales tax 1 cent to 7%? That can go to education; and everyone pays according to the amounts they buy. Fair in my opinion.

Matt
Tue, 02/26/2019 - 3:12pm

Sales tax already puts MI retailers at a significant disadvantage verses on-line competitors, this is making it worse. Sales taxes need to be restructured to be lower rates and broader application - food, services - yes. Current law makes no sense, a bottle of soda? No sales tax. A winter coat for your kid? Taxed! Makes revenues less susceptible to economic downturns too.

john brown
Tue, 02/26/2019 - 9:54am

stop misappropriating our tax dollars! Engler added37 cents per gallon to fix roads, when in fact Wayne county already was allowed $80k per mile per road to maintain them... yes 20 years ago.. wake up

Rick
Tue, 02/26/2019 - 12:07pm

And your point was? I have no clue what you're saying.

James F Bish
Tue, 02/26/2019 - 10:31am

I know where some of the money can come from. Claw back the corporate tax breaks premised on the "job creation" promises that somehow never reached expections.

Al Churchill
Tue, 02/26/2019 - 2:33pm

James, if I may add a comment to your corporate tax breaks statement, those tax breaks were achieved by reducing the benefit received by the working poor through the Earned Income Tax Credit. Indeed, the Michigan League for Public Policy states that the amount of revenue achieved
in the state budget through business sources is only 2%. You can thank ex- governor Snyder and the Republicans for that . Ditto ex- govenor Engler earlier. A couple of weeks after taking office, Engler significently raised the axle weight limit of the big rigs using Michigan's roads.

Michigan Observer
Tue, 02/26/2019 - 10:22pm

Has it occurred to Mr. Churchill that corporations (or any business) don't pay taxes? All business taxes are passed on to consumers in the form of higher prices, employees in the form of lower compensation, and investors in the form of lower returns on their investment. Businesses don't pay taxes; they collect them from individuals and forward them to the government. Politicians love them because they provide money without complaints from their constituents who don't know they are paying them.

Ray Serafin
Tue, 02/26/2019 - 11:00am

If Michigan tries to solve the roads issue through gas taxes, it will soon be back to the drawing board. Every automaker, including the three based in the state, has publicly put electrification in their future plans. Gas taxes will create two classes of motorists, with those with lesser incomes less able to afford EVs, and therefore paying a disproportionate share of their income to fund road fixes. Eventually, as enough people adopt hybrids and other electrified vehicles, revenues from gas taxes will decline, putting the ability to fund road improvements back to where we started. This is the time for forward thinking.

Ray Serafin
Tue, 02/26/2019 - 11:00am

If Michigan tries to solve the roads issue through gas taxes, it will soon be back to the drawing board. Every automaker, including the three based in the state, has publicly put electrification in their future plans. Gas taxes will create two classes of motorists, with those with lesser incomes less able to afford EVs, and therefore paying a disproportionate share of their income to fund road fixes. Eventually, as enough people adopt hybrids and other electrified vehicles, revenues from gas taxes will decline, putting the ability to fund road improvements back to where we started. This is the time for forward thinking.

David Kraepel
Tue, 02/26/2019 - 11:21am

I like the idea that someone posted on this site of having a road tax and a school tax as separate items with neither being dependent on what the other may or may not receive.

Rick
Tue, 02/26/2019 - 12:06pm

'Several independent studies have found that Michigan is at least $2 billion short per year of the amount needed today to fix existing roads.'
Remember when Snyder cut businesses taxes by $1.8 billion saying the cut would pay for itself? The Nerd's math was totally wrong (and no analysis was done prior to or after the cut). In fact, when I tried to find out from our Republican rep how such an analysis could be done it was 'impossible' according to him. Due to deliberate actions so it couldn't be tracked.

Henry
Fri, 03/01/2019 - 4:54pm

Go ahead and put the tax back. Over the long run, business will move out of the to low tax , low regulation states, taking the jobs with them.

Once you start raising taxes, it's like being on the downhill side of a bulls**t slide; you can't get out of the way of your own making. You'll have to keep raising taxes due to tax revenue lost due to previou's tax increases.

Raising g taxes is a disincentive.

Prof K Kolk
Tue, 02/26/2019 - 12:40pm

If the legislature removes the sales tax from gasoline it will need to replace the lost revenue that our underfunded schools rely on. I would suggest that a “use tax” [a sales tax on nontangeable services] be added to purchases for theater and entertainment tickets, golf green fees and cart rentals, entertainment and amusement park tickets, any “labor charges” by skilled tradesmen, any fees or charges for professional services by lawyers, doctors, psychiatrists, therapists, etc. and “commissions” by professionals such as realitors or stock or insurance brokers. Of course there could be some expemptions, but would then make this tax unfair and present a reason for voter dissatisfaction. A “use tax” actually is far more stable than are sales taxes in this age of internet shopping. And since this tax on services is a new tax dedicate it all to public pre K-12 public schools per pupal grants.

Prof K Kolk
Tue, 02/26/2019 - 12:40pm

If the legislature removes the sales tax from gasoline it will need to replace the lost revenue that our underfunded schools rely on. I would suggest that a “use tax” [a sales tax on nontangeable services] be added to purchases for theater and entertainment tickets, golf green fees and cart rentals, entertainment and amusement park tickets, any “labor charges” by skilled tradesmen, any fees or charges for professional services by lawyers, doctors, psychiatrists, therapists, etc. and “commissions” by professionals such as realitors or stock or insurance brokers. Of course there could be some expemptions, but would then make this tax unfair and present a reason for voter dissatisfaction. A “use tax” actually is far more stable than are sales taxes in this age of internet shopping. And since this tax on services is a new tax dedicate it all to public pre K-12 public schools per pupal grants.

John S.
Tue, 02/26/2019 - 12:42pm

The state should follow the CRC advice. How to replace the "lost" revenue? How about a sales tax on services? Medical services should be exempted. There's long been a need to broaden the base of the sales tax. At some point, legislators of both parties need to realize that there's need for more tax revenues to fix the roads. What is there to cut? Corrections? Medicaid? Public Universities? k-12? the DEQ? local revenue sharing? Good luck in finding areas where cuts can be made.

Chris
Tue, 02/26/2019 - 1:20pm

The last time Lansing got their hands on money that was "earmarked" for fixing the roads, it went to pay for Obamacare (Medicaid) expansion. The state always has their hands in our pockets. Perhaps eliminating corporate welfare by getting rid of the MEDC, the MSF, and other unaccountable agencies would be a start. Or perhaps...O.M.G...put in toll roads. It works in Illinois.

JohnB
Tue, 02/26/2019 - 1:25pm

Gretchen "Granholm" should tax the trucks the use our roads and do the most damage. We have one of the lowest if not the lowest Truck -User fee and one of the highest Truck Weight Limits on trucks which traverse our state roads. She does not have the guts to tax those who do real damage to our roads.

Paul Jordan
Tue, 02/26/2019 - 3:49pm

There have been reports for years that the weight restrictions on Michigan's highways are not being adequately enforced.
The first thing that the state should do, therefore, to produce added revenue for roads is to actually ENFORCE weight limits on trucks. The second thing they should do is increase the fines for overweight trucks.
Another thing that should be done is to thoroughly review the way that highway funds are distributed to ensure that the money is being well spent. The formula hasn't been revisited for many decades, and the current distribution doesn't match the need.
For example, US 31 between Muskegon and Ludington is continually being repaved or rebuilt despite the fact that it was already one of the best roads in Michigan. (I challenge you to find a single pothole in it, ever!) It is not, however, one of the most highly traveled roads.
Finally, taxes are the price you pay for living in a civilized society. If we want to once again have good roads, we're going to have to pay for them.

Matt
Wed, 02/27/2019 - 7:43am

Shhh! Don't publicize that, nicest drive/road in MI.

Kevin Grand
Tue, 02/26/2019 - 6:12pm

There really isn't anything new in this report that hasn't been discussed ad nausuem already.

You either raise taxes (and kiss your chances in the next election goodbye), borrow it (Michigan is almost $70-billion in debt right now...that principle & interest will only blow an even larger hole in the state budget for decades to come) or prioritize spending (with the years spent getting funny with the money by BOTH political parties, it's the most rationale answer) to "fix the damn roads".

The $64 question here is how MUCH of this will occur once the entitlement crowd finds out that their gravy train will be either seriously curtailed or coming to an abrupt end?

Ron
Fri, 03/01/2019 - 6:34pm

I say offer anyone a billion dollars that can engineer a road at a reasonable price that lasts 20 years. Of course we'd have to wait 20 to verify it.

Ron
Fri, 03/01/2019 - 6:47pm

Do what Ind. does. I just drove across the state and saw 8 State police officers writing tickets, some in construction zones, (double the revenue, oh, I mean fines). There are so many people doing 80 on our interstates, has to be hidden money there. (Lower the speed limit would help too, more fine money)

Denise
Sun, 03/03/2019 - 7:45am

What many Michiganders have paid in car repairs caused by pot holes and bad roads is a lot more than a tax. Bring on the tax increase or put in toll roads- 3 P. We need to fix the roads. Our roads we currently have are dug to shallow that is a big reason why our roads suck. Look to Europe to see their standards.

Sine Nomine
Sun, 03/03/2019 - 9:06am

Finding part of a funding solution may be like the game “Where’s Waldo.” To play, you need not run over a big pothole or get sucked into a sinkhole for motivation. Just scratch the surface a bit. No question equitable property taxation should be on the table beyond income, sales, or gas taxes that disproportionately impact the less wealthy. For an example, $6,000-7,000 mid-year taxes, for a home purchased for $2MM and marketed for sale at $3.5MM?Ludicrous - when you have crumbling roads and ailing schools; police, fire, and other public service needs benefiting all citizens. Where’s Waldo? Hint and example, found when you check public property taxation record and information that can simply be Googled. For example, try a recently advertised piece of property billed as an estate, paradise at 3888 SWANEY ROAD, Traverse City by Mark Hagen real estate. A good human interest story might also be found in looking at owners of such properties advertised for sale, similarly to those curious about how much Government employees make - afterall the information is publicly available just with a few keystrokes and Google.

David Hogberg
Sun, 03/03/2019 - 10:14am

It seems to me that polling data from a couple of years ago also suggested clearly that Michigan residents wouldn’t object to a sales tax increase to pay for road improvement programs.

RW
Mon, 03/04/2019 - 6:24pm

Time to make I-94, l-69 highways in Michigan toll roads and use that money to help maintain Michigan roads.

OF48
Tue, 03/26/2019 - 12:19pm

One way to help save education funds is to clamp down very hard on the serial fraud that is perpetrated by various school administrators and other employees over the years. The cost is enormous over time. But it never seems to be a priority the way jacking up taxes is.