Republican ideas to fund Michigan road repairs taking shape over summer

Republican legislative leaders say they are not yet ready to unveil their road-funding plans to counter Democratic Gov. Gretchen Whitmer’s proposal to raise the gas tax by 45 cents per gallon over a year, raising $2.5 billion for roads and bridges. (Shutterstock image)

Update: Pressure builds on Michigan Republicans for roads plan to avoid shutdown
Update: As September looms, no Republican proposal yet to fix Michigan’s roads

One Republican idea to help counties and larger cities in Michigan pay for local road repairs: allowing them to levy their own gas taxes and vehicle registration fees.

The concept is among several floating around Lansing this summer as GOP legislative leaders say they continue to work on a plan to fix Michigan’s crumbling roads and bridges — an estimated $2.5 billion problem for which a solution remains elusive.

Leaders of the GOP-led House and Senate have not shared specifics of the ideas they intend to propose as part of a road-funding plan to counter Democratic Gov. Gretchen Whitmer’s proposed 45-cent gas tax increase. The Legislature recessed for the summer in June without completing a 2020 budget or roads deal; the state’s new fiscal year starts Oct. 1.

Republicans’ central dilemma: how to raise the roughly $2.5 billion a year needed for road repairs while avoiding — or, at least, limiting — tax increases that are anathema to the party and much of its political base?

House Speaker Lee Chatfield and Senate Majority Leader Mike Shirkey say talks continue on the contours of a GOP response as Lansing seeks to finalize state budget negotiations. Meanwhile, other road-funding ideas are circulating as lawmakers talk to constituents in their districts.

Among the ideas in the mix:

Many of the ideas don’t target ways for the state to raise additional revenue to meet the roughly $2.5 billion goal independent experts have said is needed to get state and local roads into good shape. Rather, they focus on other policy changes that aim to address how roads are built, or how local governments could raise additional money.

The closest the Legislature has come to publicly countering Whitmer’s gas-tax proposal is the House’s proposal to phase out the sales tax paid on gasoline and replace it with an equal amount of fuel tax, to raise an estimated $850 million.

Whitmer, who publicly rejected the pension bond idea, is still promoting her budget proposal across the state and calling out Republican legislative leaders for failing to finish a roads deal before breaking for the summer.

“Any solution that doesn’t educate our children and fix the roads isn’t a real solution. We have to do both,” Whitmer spokeswoman Tiffany Brown told Bridge. “The governor remains open to hearing alternative viable solutions, as long as those solutions can fix the real issues that Michiganders are facing.”

Yet some GOP lawmakers say a roads plan that aims to improve the quality of roads and bridges must also address the way roads are built.

“A budget is a budget, and it’s important,” said state Republican Rep. Jack O’Malley from Lake Ann, who leads the House transportation policy committee. “But if you want to do this right, you need to have good policy and reforms to go along with that budget.”

Local taxes 

O’Malley, a first-term lawmaker, said he has pitched about 15 ideas at town hall meetings with constituents, all of which came out of transportation committee hearings this spring that he called “road-building 101.”

They include giving counties and some larger cities the option to levy local gas taxes, possibly up to a nickel, and vehicle registration fees, something O’Malley said would be a “huge” boost for communities struggling to afford to fix their worst roads.

The local taxes would come on top of the state and federal gas tax drivers already pay, as well as state fees to register vehicles that are collected annually.

Michigan is one of the most restrictive states when it comes to giving local governments the option to levy their own taxes, according to the nonpartisan Citizens Research Council of Michigan. Currently, property tax is its primary funding source, though it has proven to be problematic during the past decade because property values have not rebounded as fast as they collapsed during the Great Recession, limiting how much revenue communities can collect.

Just 11 states authorize the collection of local gas taxes, though 33 states — excluding Michigan — allow local governments to charge their vehicle registration fees, according to Citizen Research Council data.

Michigan tried local vehicle registration fees in the late 1980s and early 1990s, though local votes failed in a handful of counties in part because a per-vehicle fee of $25 was paid by all drivers, regardless of the value of their car, according to the Citizens Research Council. State registration fees are based in part on the value of the vehicle.

Michigan also is one of just nine states that don’t allow local governments to collect local sales taxes, the group’s data show.

“Michigan stands out as the exception” in authorizing so few local taxes, said Eric Lupher, president of the Citizens Research Council of Michigan, who presented on local tax options to O’Malley’s committee in May. “Diversifying these other options could take pressure off the property tax.”

Lupher added that local fuel or sales taxes also would allow visitors to contribute to a local government’s revenue, especially in communities that rely on a tourism economy, Lupher said.

“We don’t advocate and we don’t lobby, but I did bring it up before the committee for a reason — to introduce that idea that there are other ways of doing this,” he said.

Groups that represent cities and counties told Bridge they generally support the idea of new local taxes, though they said any local taxes should not replace revenue that is shared from the state.

Also, without seeing a formal roads proposal, local government groups say they have questions about how local gas taxes or registration fees would be collected.

For instance: Would revenue be dedicated strictly to roads? How would it be distributed? Would the money remain in the county or city in which it’s generated? Would the state collect it and disperse it to local governments, or could local governments collect it directly?

“We’re really willing to consider pretty much anything that they’re throwing out there,” said Deena Bosworth, governmental affairs director for the Michigan Association of Counties.

“Our reliance on property tax revenue is really, really hurting local units of government,” Bosworth added. “Any additional options to raise revenue at the local level is obviously something that we would love to have further conversation about.”

Lupher said the Citizens Research Council’s data point to other states Michigan could look to as examples of how to administer local taxes.

O’Malley said he also is trying to generate support for ideas that include giving counties and cities more flexibility in state law to prioritize their worst roads, regardless of whether they’re major roads or neighborhood streets, and to encourage the Michigan Department of Transportation to consider new materials or road construction methods.

“I don’t know how many of these are going to make it through to the final idea that they present to the governor, but they’re out there, they’re on the table,” O’Malley said. “What we got from that committee is more thoughtful than the governor’s idea, and when we’re out and about, people can hear that, hey, we’re trying to spend your money smarter.”

Gideon D’Assandro, a spokesman for Chatfield, told Bridge that while O’Malley’s committee has “a lot of options for smarter long-term planning,” none of them are final.

Whitmer’s office did not specifically address whether she supports the idea of local taxes.

Pension bond proposal

Earlier this year, Chatfield, R-Levering, and Shirkey, R-Clarklake, asked the West Michigan Policy Forum, a group of Grand Rapids-area business leaders, for ideas about how to increase road funding, Jase Bolger, a former Michigan House speaker and now the West Michigan group’s policy adviser, told Bridge.

The result: a proposal to sell bonds to infuse $10 billion into the Michigan Public School Employees’ Retirement System. Bolger said the group’s estimates show that would free up close to $980 million per year in the School Aid Fund that won’t be needed for annual pension payments and instead could be used to replace the lost revenue should the sales tax be eliminated from gasoline.

Michigan’s teacher pension system had slightly more than $50 billion in assets as of Sept. 30, when the state’s last fiscal year ended, according to its 2018 annual report. But the pension system has an unfunded liability of $32.7 billion, the amount it owes future pensioners but has not yet set aside.

The West Michigan Policy Forum, and Republican legislators, have focused in recent years on reforming the state’s pension systems to address funding gaps. Pensions are constitutionally protected, meaning the benefits are required to be paid once an employee retires.

The group’s proposal would lock in a 30-year repayment schedule, stretching out the date when the teacher pension system would expect to be fully funded for another 10 years beyond 2038, the year then-Republican Gov. Rick Snyder said Michigan’s pension systems should be fully funded.

In 2017, Snyder signed legislation to direct new school employees into retirement accounts that resemble a 401(k) savings plan, rather than a hybrid option that also includes pension benefits.

A longer repayment period would shrink the state’s annual payments, since the state would be able to spread the total dollar amount needed over more years, Bolger said. The $10 billion would be invested over time, assuming a 4 percent interest rate and a 6 percent return on investment.

Shirkey recently told Crain’s Detroit Business that he supports the business group’s idea and planned to incorporate it into the Senate’s proposal to Whitmer.

His spokeswoman, Amber McCann, told Bridge “it is true he is personally supportive of the concept presented by the West Michigan Policy Forum,” though Senate Republicans have “not yet reached a consensus on how to direct more dollars toward roads.”

D’Assandro declined to say whether Chatfield supports the idea, but added that all options are on the table.

The idea has gotten pushback, both in Michigan and nationally. The Government Finance Officers Association, which represents public finance administrators in the U.S. and Canada, in 2015 issued guidance against using pension obligation bonds.

The Chicago-based association maintains the bonds carry significant risk, from market returns falling short of expectations to government taking on more debt.

Patrick Anderson, an East Lansing economist who previously served in Republican Gov. John Engler’s administration, called the plan “an age-old temptation” that ultimately won’t save Michigan taxpayers money.

“Prudent homeowners don’t take second and third mortgages out to speculate in the stock market, and prudent taxpayers don’t want their governments doing the equivalent,” Anderson said.

“Borrowing more money puts you deeper into the hole,” he added. “It doesn’t generate savings.”

Bolger countered that pension bonds are an investment tool that can work, provided that governments use conservative estimates for the size of the investment return they’re likely to earn.

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Jeff Ferrari
Mon, 07/15/2019 - 8:49am

How dumb can you Legislatures be !! No new taxes PERIOD!!!! Take money from the MCAA fund their is 15 Billion in it and use that no money out of ANYBODIES pocket!!!!

Mon, 07/15/2019 - 8:49am

not a dime more for roads, set here in Naubinway MI adding a bike path at how many million dollar and no need and when do pedal bikes pay a registration fees quit spending road money on other things just road not public transportation, stop giving out all those grants that don't have to be paid back that's tax payer money, want to see Michigan economy take a shit raise taxes

Kathy Dennis
Mon, 07/15/2019 - 8:59am

I do not understand why this is so hard to do. Bottom line, we have a bunch of know and no nothings in the Legislature (term limits). It is like it is just one big campaign after another and the government is controlled by a bunch of lobbyists who have all of the money, dims and repukes. So very sad for our state as there is a lot of work to be done, not to mention saving our water.

Thomas J.
Mon, 07/15/2019 - 9:26am

I don't understand either. Our roads and streets are in shockingly poor shape and convey to me that Michigan as a state no longer has any self respect. If I wore clothes in such poor condition, I would be embarrassed to be seen in public.
How about limits on campaigning for office - like no campaigning or fundraising 3 months or more before an election? That way our lawmakers could focus more on doing their job than on getting reelected.

Mon, 07/15/2019 - 9:11am

UNACCEPTABLE! All the proposed "solutions" fall disproportionately on the low-income residents and working people.

Trout Creek
Mon, 07/15/2019 - 9:17am

Actually, a gas/fuel tax dedicated to road building is the best way to fund our needs. Those who use the roads pay the tax and the more mileage you drive the more you pay. It is a very conservative solution.

Tue, 07/16/2019 - 9:53am

You are correct, although not as you think!. The fact is very few states try to fund both general fund and roads off taxes on fuel purchases - as does Mi, instead it all goes to their roads! Where Mi takes taxes on fuel and send them to other things. The governor's plan does nothing for this. Michigan is a pretty middling state on average when it comes to taxes, why are we so out of wack on road spending relative to others? ... If we are?

middle of the mit
Wed, 07/17/2019 - 12:45am

Could you please tell me where Governor Whitmers gas tax goes to the general fund?

I have heard members of my family and others here say the same thing, yet when I read The Detroit News, The Free Press, M-live or Bridge they all say you are full of it and that the only part of a tax on gas that goes into the general fund IS the SALES tax.

Get it Kevin?

Now if only a few States do this, should we also follow the few States in the South that tax food and clothing?

Should our liquor taxes only go toward the liquor commission? Should all bait and tackle sales go toward the DNR or DEQ?

How then do we fund the State if each and every individual sales tax needs to go to it's own specific purpose?

I know how to fund schools without the sales tax! TAX PARENTS! Let them pay the FULL PRICE OF SCHOOL!

I was told that I didn't know what I was talking about when I argued this before with my pops, Yet, he couldn't tell me anymore about the actual gas tax going into the general fund anymore than you or Kevin have. And the only evidence that I have seen of taxed gas going into the general fund is the SALES TAX on a gallon of gas. And now you have a Republican legislator that is trying to make that happen and that IS THE ARGUMENT you are making.

Yet with your own legislators move, you prove me right. Where is your CapCon article and where do they tell us that the Gov is doing what you claim she is doing?

I am waiting for your reply.

Also, I am hoping that the rest of you cons are more than willing to shed your socialist mail carrier for your free market road tolls. That mailbox will replaced with an electronic toll booth at the end of your driveway and you will have to go to a privatized central mail distribution center.

What a trade off!!!

Michigan Observer
Wed, 07/17/2019 - 5:14pm

middle of the mitt says, "Where is your CapCon article and where do they tell us that the Gov is doing what you claim she is doing?" The relevant CapCon article is from the March 5, 2019 issue, and says. "The first two tax hikes would increase the tax by 30 cents and bring in an additional $1.26 billion during the 2019-20 fiscal year. But documents submitted by Whitmer as part of her executive budget recommendation on Tuesday indicate that the net increase to transportation funding will be just $764 million in the 2019-20 fiscal year.
In other words, $499.2 million — an estimated 40 percent of the $1.26 billion gas tax increase in 2020 — would not go to roads. Instead, it would replace current transportation budget dollars that would be redirected to pay for other state government spending."

Gerald Barber
Mon, 07/15/2019 - 9:23am

We’ve had taxes raise time and again for road repair it time to use all the tax raise money on the roads and not public schools and pet projects! You can’t tax yourself out of a hole so get down to business and use what the citizens of this state already gave and fix the damn roads!

Mon, 07/15/2019 - 9:45am

So the party of no new taxes wants to shift the burden of taxation to local units of gov't. Beware, local gov'ts; the RepubliCons in Lansing will reduce state money to local govt if you impose a new tax. Count on it!

Paul Jordan
Mon, 07/15/2019 - 10:01am

Nobody is shocked that the Republicans are promoting 'solutions' that further advantage the most advantaged, including the petrochemical industry, while leaving the rest of us to fend for ourselves.

The sales tax on gasoline helps to provide road funding to people who live everywhere, rich and poor. 'Substituting' local governments' ability to raise local gas or vehicle taxes would certainly solve the problems in Bloomfield Hills and Ann Arbor, but it would further starve cities like Flint and Saginaw (and probably where YOU live) of necessary road funding. (Just raise taxes to fund the roads! We would get good value for money.)

We need to be levying more taxes on gasoline, not less. Gas powered transportation is the wave of the past, not the future. It would be an important step to battling further climate change in Michigan.

Trying to pay for teacher pensions with bonding is another ruse. When Proposal A passed, the power and responsibility for funding teacher pensions (among other K-12 costs) passed from local school districts to the state. Under Republican hegemony, state governments have dedicated themselves ever since to avoiding that responsibility. Good schools and teachers are well worth the modest restoration of taxes that it would cost! (Just do it.)

We do need to totally overhaul the scheme for distributing road funds, though. US 31 from Whitehall to Ludington--a reliably Republican voting area--is under continuous reconstruction, for example, which makes absolutely no sense. (I'd swear that they resurface it if it gets a single new divot!) It is so smooth that a freezing dew in early winter turns it into a skating rink, with semis and cars piled up on each side! Heavily traveled downstate roads, on the other hand, continue to boast world class potholes. (The road funding formula hasn't been changed since the 1950s...)

Another thing that would make sense is to hike--and actually enforce!--weight restrictions on trucks. (But, since the trucking lobby and state chamber of commerce would scream, a Republican legislature is certainly not going to consider having trucking companies pay their fair share!)

Finally, I'm all in favor of exploring the use of more durable substances for building roads. That is a Republican proposal that I'm sure makes sense to everyone.

Leon L. Hulett
Mon, 07/15/2019 - 10:35am

The issue of education and road-repair as a single issue is too complex and far too one-sided.

This issue of Road-Repair needs to be cleanly d-coupled from Education.

This was made absolutely clear the last time a Roads bill came up to voters to vote on. It was defeated soundly by 82% of voters because they were against this type of open political manipulation by special interests. The new Governor should have no difficulty wording a bill that clearly separates these issues in such a way that 82% of voters will feel compelled to embrace it.

In this article education Pensions alone is a $40 billion dollar problem. Road-Repair is a $2.5 billion problem. Actually, Road-Repair is far more important to the majority of voters, and the Michigan economy, than this one education problem.

The next bill that comes up for a vote by the people needs to be worded in such a way that it enables voters to create a law that cleanly separates these issues, and renders it immune to such manipulation. 45 cents a gallon tax increase is not such a law.

Roads-Repair alone is such an important issue. It is such a powerful issue because it directly touches on the economy. That is why political action groups and politicians seek to tie other issues to it, to tap into this urgency. This separation is vital.

Best regards,

Thomas Doyle
Mon, 07/15/2019 - 12:15pm

Though local sales taxes are used in other states using those additional sales taxes are a no-starter. Our communities are not that large where a person can drive out of a taxing community into a non-taxing community. Some small town or county that is financially fragile will never get anything repaired.

As far as teacher pensions are concerned how about impacting the state legislature to the same daily income worries as those of the teachers? The state legislature has always been too busy to look at how to save money by cutting their own health care. Well let’s get a third party in place and rape and pillage compensation and healthcare of the legislature maybe we can then get their attention.

James Roberts
Mon, 07/15/2019 - 1:59pm

Seems we are going down the same path as Illinois. What the governor wanted the legislature said no way and they had no state budget for three years. Of course it was the opposite to what we see here, the republican governor wanted to spend less, fix budget issues and address pension shortfalls and the democratic legislature wanted the future bankruptcy to continue. I sense a trend. The lack of a state budget was and will be annoying but they did get rid of the governor last election. My guess is if this democratic governor wants to go down the path of the 82% gas tax defeat again the legislature will win this battle too and we have another one term governor.

Barry Visel
Mon, 07/15/2019 - 2:16pm

We don’t need new taxes or fees, we just need to eliminate some of our tax expenditures (tax credits, deductions and incentives). They add up to roughly $35 Billion each and every year (see Tax Expenditure Appendix of the State of Michigan Budget). Surely we can find a few billion tax expenditures to eliminate to pay for roads.

Michigan Observer
Tue, 07/16/2019 - 9:36pm

Sorry, but I fail to see the distinction between raising taxes and eliminating tax expenditures. Each results in individuals sending more money to Lansing. Both have the same impact on a family's finances.

Mon, 07/15/2019 - 2:28pm

Moving the funding source for the maintenance of local and county roads away from the state to those communities that use the relative roads only makes good sense. It's amazing how much more careful the local communities are when the funds directly come out of their pockets (and supposed benefits are front and center). Everyone of these programs when communities must rely of the beneficence of the superior level of government always eventually ends badly. Does anyone think Grand Rapids would be dreaming about adding 200 miles of new bike lanes if they were paying for them?

Al Valenzio
Mon, 07/15/2019 - 10:52pm

Passing the buck to local units makes no sense. When you’re talking about state trunk lines & US highways, there’s going to be federal & state funds involved also. Also, these Republican legislators are just passing the tax hike decision to locals. Cowards! You were elected to do a job so show some courage. Michigan needs a comprehensive centralized plan to fix our roads & bridges. Quit taking money from one pocket to the other, like you’ve been doing for the last 5 years, at least. It’s time to step up to the plate boys & girls.

Tue, 07/16/2019 - 10:23am

NO there needs to be a clear division on which roads each entity is responsible for,. But if GR has the goal of adding 200 miles of bike lanes clearly funding isn't the issue and what you spend your tax revenue on is.

James Conroy
Thu, 07/18/2019 - 9:39am

No one is talking about the solution used by an increasing number of states to get the roads fixed by the users -- both instate and out of state users: toll roads. The technology is available to set up both attended and unattended toll booths on major freeways. Illinois' solution was ingenious: charge tolls, and give in-state residents a 50% discount for using unattended toll booths. That discount has been extended to anyone using FastPass. The focus becomes 50% savings, rather than the 50% being paid.
Michigan's #1 (#2?) industry is tourism. How many tourists would make a decision not to come to Pure Michigan based on having to pay tolls? I suggest "none".

Fri, 07/19/2019 - 11:22pm

So, Republicans don't want to raise the taxes to build the roads....but, they don't have a problem with local cities, raising your taxes to pay for the roads???? Talk about passing the buck.... which is one of the reasons I never vote Republican. This seems like a age old cycle. The Republicans pass tax breaks, mostly to corporate interests and the rich, which expands the deficit. Attack poor people aid, because they have no lobbyists advocating for them & use that money to shore up their budgets. Then Dems come in and have to be the adults in the room, raising taxes....which the Republicans can then whine about come the next election. Personally, I'm not a fan of either party, because both are owned by corporate interests and both love to talk about helping the average American but rarely ever actually do.. However, one of those parties consistency helps the very rich , over the needs of everyone else...and I'm sure I don't have to tell you which party that is.

Sat, 07/27/2019 - 4:01pm

Need to do a 28 year audit of were the road money went>>> Like kivk back for NO bid Contracts!!!