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Everything we know about the House roads package

Paul Egan and Kathleen Gray
Detroit Free Press Lansing Bureau

LANSING - State lawmakers have been trying for years to reach an agreement to raise an extra $1.2 billion a year to fix and maintain Michigan's crumbling roads and bridges, and the latest development is a package of bills Republicans in the state House passed Wednesday with almost no Democratic support.

When fully implemented in 2021, the plan would devote an extra $1.2 billion for roads, with $600 million coming from the state's general fund, $400 million from a hike in registration fees, and $200 million from higher fuel taxes, while also providing $200 million in tax relief through a sweetened Homestead Property Tax Credit. If the economy is doing well, the plan also provides for further tax relief down the road, through an income tax rollback.

But the latest plan has many hurdles to clear before becoming law. It's at odds with a Senate plan that provides for a higher hike in the fuel tax and Republican Gov. Rick Snyder, who would have to sign it into law, has expressed strong reservations about taking so much money from the general fund to pay for roads, because it could hurt other areas of the budget. Snyder and the Senate have favored a plan that only takes about $400 million from the general fund.

Q. Why is reaching a road funding deal so tough?

There are strong differences among lawmakers about how it should be done. Some Republicans feel no increases to taxes or fees is needed and the entire $1.2 billion can be found by changing spending priorities and making cuts elsewhere. Even many lawmakers who accept that new revenues are needed are reluctant to hike taxes. Democrats agree that more revenue is needed but are unhappy that businesses have received about $2 billion in tax cuts since Snyder took office while many in the lower and middle class are paying more through increased taxes on pension income and other tax changes, such as cuts to the Earned Income Tax Credit for lower income working families.

The Senate and House have passed four different plans over the last two years,but the only compromise they've reached was putting Proposal 1 on the ballot, which ended disastrously with 80% of Michigan voters rejecting the sales tax hike.

Q. Does the House plan provide the money needed to fix the roads?

Not necessarily, since many experts say an extra $1.2 billion a year is the minimum Michigan needs, just to keep its roads from getting any worse. The elusive goal of $1.2 billion a year for roads isn't fully phased in until 2021, several years after most legislators will be forced from office because of term limits. The House plan provides only $400 million in extra road money for 2016-17; $440 million for 2018; $750 million for 2019; $950 million for 2020; and $1.2 billion not until 2021. Also, since road user fee money such as fuel taxes and registration fees are constitutionally dedicated to transportation expenditures and general fund revenues are not, there are concerns that future lawmakers can scrap the plan and use general fund money for other priorities.

Q. Will using general fund money for roads mean cuts to other programs?

Whatever is spent on roads out of the roughly $10 billion general fund can't be spent on other programs, such as police, prisons, higher education, health care, and social services. Republican say a growing economy will mean a bigger general fund with sufficient money for roads, but that's not guaranteed in Michigan's cyclical economy. Democrats say schools and other priorities have been underfunded for years and they should now reap the benefits of economic growth through increased funding. And they say an income tax rollback built into the plan is a "time bomb" that will hurt revenues and result in even more cuts down the road.

Q. How much would my vehicle registration fees go up and when?

The House plan calls for a 40% hike in vehicle registration fees starting Oct. 1, 2016. A typical vehicle registration that now costs about $100 would increase to $140. The plan also calls for a new registration tax surcharge for electric vehicles.

Q. What kind of higher fuel taxes would I have to pay?

The House plan would equalize the state's fuel taxes, bringing the 15-cent-per-gallon tax on diesel fuel up to match the 19-cent-per-gallon tax on regular fuel. That change would take effect Oct. 1, 2017. The plan would then hike the tax on both types of fuels to 22.3 cents per gallon, effective Oct. 1, 2018. And starting Oct. 1, 2011, the plan would annually hike the fuel tax by the rate of inflation or 5%, whichever is less.

Q. What about the tax relief?

A. The House plan would sweeten the Homestead Property Tax Credit, which homeowners and renters are eligible for, and which was sharply scaled back by Snyder and the Legislature in 2011 and later partially restored. The plan would increase the income range to be eligible for the credit from $41,000 to $50,000 currently to $51,000 to $60,000 for 2018 and subsequent tax years. It would also increase the maximum credit that can be claimed to $1,500, up from $1,200, and gradually increase the percentage of gross rent that can be used to calculate the credit from 20% to 23%. Finally, it would lower the percentage of household resources used as the threshold for calculating the credit to 3.2% from 3.5%. All in all, it means the state will be paying out about $200 million a year more through the Homestead Property Tax Credit than it does today.

There's another piece of tax relief built into the plan, one that would not take effect until the 2022 tax year. It calls for rollbacks in Michigan's 4.25% income tax rate when the state's general fund increases by more than the rate of inflation. The problem Democrats see with that tax cut is that there has been no "floor" set on how low the income tax rate could go and could even go down to zero. And there are no mechanisms to increase the income tax if general fund revenues decline.

Q. What else is in the plan?

The plan also calls for greater and improved use of road construction warranties, under which road builders have to come back and fix road jobs that don't last as long as promised.

Q. Are heavy trucks addressed in the plan?

Heavy trucks are not specifically addressed in the latest House plan, except to the extent the diesel fuel tax will increase and trucks will face a 40% hike in vehicle registration fees, just as all motorists will. The plan passed by the Senate in July, as well as a proposal being worked on by the legislative leadership, included increased fees for heavy trucks.

Q. Is there any compromise evident in the latest plan?

Yes, the plan passed by House Republicans earlier this year included only about $100 million in new revenues. This plan has $600 million in new revenues ($400 million in registration fees and $200 million in fuel taxes), offset by $200 million in tax reductions through the Homestead Property Tax, for a net tax hike of $400 million.

Who supports the plan and who is against it?

The road builders are backing the plan through the Michigan Infrastructure & Transportation Association. At least two business groups, Business Leaders for Michigan and the Detroit Regional Chamber, have come out against the plan as irresponsible because it relies too much on general fund revenues. The Michigan League for Public Policy, the Michigan Municipal League and the Michigan Townships Association also are opposed, saying it will force cuts to other needed spending priorities.

What is the likelihood that the House plan will end up signed into law?

Portions of the plan may end up on the Governor's desk, like the increased warranties. But other parts of the plan are likely to change. Senate Majority Leader Arlan Meekhof, R-West Olive, said the proposal is a "good first step," but that he has some concerns about the heavy reliance on registration fees rather than gas taxes. Senate Minority Leader Jim Ananich, D-Flint, called the House plan a "gimmick" that Senate Democrats will not support. And Gov. Rick Snyder has concerns about the impact on the state's fiscal health.

What are the next steps?

The Senate has to wait five days to begin debating the bills passed by the House and Meekhof said he's setting no deadlines on when the full Senate will act on the bills.
