Roads Update in Lame Duck and School Funding Impact

Feb 01, 2015

The legislature completed work on a package of legislation that would raise over $1 billion for transportation infrastructure.  In addition, the package would raise $300 million in new revenues for public education and nearly $100 million for local governments.  All of the changes will be placed on a statewide ballot question in May of 2015.  If voters reject the plan, only the legislation regarding internet sales tax (known as the Main Street Fairness Plan) will remain in place.   The plan is made up of the following parts:

• The sales tax on gasoline will be eliminated (tax reduction of approx. $700 million)
• Michigan sales tax would be increased from 6 to 7% (tax increase of $1.34 billion)
• Increased driver registration fees and overweight truck fees (tax increase of $95 million) 
• ‘Main Street Fairness’ legislation included in plan: companies with a ‘nexus’ in Michigan must collect sales tax revenue for online sales (tax increase of $40 million)
• Earned Income Tax Credit would be restored to 20% of the federal level (tax reduction of $260 million)
• Transform current per gallon motor fuel tax to a wholesale tax and increase the rate to raise $1.2 billion for transportation infrastructure

When factoring in the various tax increases and tax reductions, the plan would raise overall revenues by approximately $1.8 billion.  The new money, when fully phased in, would primarily be divided between roads and bridges ($1.3 billion); public education ($300 million); local government ($94 million); and public transportation ($112 million).  Other pieces of the agreement include:

• The School Aid Fund will be used only for k-12 and community colleges, not universities.  This reverses a trend started several years ago where up to $200 million was removed from the SAF to pay for university operations.  Commitments were made by the governor and legislative leaders to restore the lost funds for universities through the general fund
• The creation of a study to examine the true cost of education with the goal of providing a better indication of k-12 spending needs

While the House and Senate have been debating a final road package for weeks, in the end the ballot proposal passed overwhelmingly in the House but barely made it through the Senate.  Many Senators expressed concern that voters may shy away from such a complicated proposal.   Over the next few months backers and detractors of the plan will have the opportunity to sway voters one way or the other.