By Paul Egan and Kathleen Gray, Detroit Free Press

LANSING — The Legislature gave approval early Friday to the main elements of a legislative package that would ask voters in May to hike the sales tax from 6% to 7% and spend an extra $1.2 billion a year on roads.

Approval of a resolution for a constitutional amendment came at 5:30 a.m after hours of wrangling for votes and apparent horse-trading in the Senate, where the GOP majority had trouble securing enough votes and in one instance fell one vote short of the 26 required.

It finally passed 26-12 after the House and Senate passed bills sponsored by Senate Democrats and Republicans in a move that apparently wooed reluctant votes.

"I feel good," Snyder said after the Legislature approved the key pieces of the deal he reached with legislative leaders Thursday morning.

"The goal was to get both chambers to pass the transportation package," he said. "There's some cleanup to do, but the big ones are done."

Fifteen Republicans and 11 Democrats voted for the plan in the Senate with only one Democrat -- Sen. Coleman, Young, Jr of Detroit -- voting no.

Highlights of Michigan's road funding proposal

Senate Minority Leader Gretchen Whitmer, D-East Lansing, confirmed Republicans drew reluctant votes from her caucus through negotiations over other bills, but said deal-making and threats between Republicans in the House and Senate were a problem all of Thursday night and Friday morning.

In one instance, the House took up a bill, sponsored by Sen. Glenn Anderson, D-Westland, to include cyber-harassment to the state's bullying laws. In another, Sen. Mike Green, R-Mayville, at first voted no on the sales tax hike, but switched his vote when the bill was reconsidered after the House passed a bill he sponsored eliminating concealed weapons gun boards and transferring that authority to the Michigan State Police and county clerks.

"Days like today make it easier to say good-bye," said Whitmer, who is leaving the Legislature due to term limits.

Senate Majority Leader Randy Richardville, R-Monroe, acknowledged that it was hard work to convince the necessary number of votes to get to two-thirds.

"That was my fault," he said, regarding Green's switched vote. "He thought his bill was going to die in the House and I just didn't follow up and communicate very well with him.

"But, I'm glad that it's done and I think it's a reasonable solution. People have been telling us to fix the damn roads for months, years and now they'll be able to participate," Richardville added.

The House a few hours earlier easily passed the same resolution, 94-16, along with a package of bills that tied together the road deal. Two Democrats joined 14 Republicans in voting no on giving voters a say on hiking the sales tax.

The measures will soon land on the desk of Gov. Rick Snyder, who stayed in the Capitol until the very end of the session Friday morning, and is expected to sign the package of bills.. The battle will then move to the campaign for and against the May ballot initiative, which is expected to have deep-pocketed backers on both sides.

The package included 11 bills and two resolutions, which moved on to the Senate at about 2 a.m. Friday. It also hikes fuel taxes while removing the sales tax from fuel sales.

"I already voted for a comprehensive transportation package that would have fixed the roads and instead we got a ballot initiative that people may or may not pass," said Young, the lone Democrat to vote against the bill. "And then they punted. This was the most yellow-belly thing I've seen here."

A conference committee met around midnight and moved three key bills in the package. The House started voting first early Friday morning on a package that includes 11 bills and two resolutions that are linked together so that if one failed, they all failed.

Snyder was in the Capitol rotunda as the clock struck midnight, listening to Christmas carolers and chatting with lawmakers and lobbyists.

The state last raised the sales tax in 1994, from 4% to 6%.

As reported by the Free Press in advance of Thursday's announcement, Snyder struck a road funding deal with lawmakers that would take sales taxes off fuel sales, as demanded by Republican House Speaker Jase Bolger, while protecting funds for schools and local governments and throwing in tax relief for low-income earners, as demanded by Democrats.

Snyder has been working to ramp up road funding for more than two years, and the deal came together on the last scheduled day of the lame-duck session.

"Nobody likes our roads," Snyder said at a news conference. "We're seeing significant damage to people's vehicles ... and we needed to come up with a solution."

Immediate reaction to the deal, which many observers considered highly unlikely as recently as Wednesday, was mostly positive, though the Michigan Chamber of Commerce and the Detroit Regional Chamber were among the groups that criticized the plan.

The business groups said lawmakers should have done their jobs and voted to raise extra money for roads, not send the question to voters.

The deal calls for:

Raising $1.3 billion for transportation, with $1.2 billion a year going to roads and about $112 million going to transit.

Removal of the sales tax from fuel sales.

Increases in fuel taxes that Snyder said will result in about a 3-cent-a-gallon increase from the average fuel price in 2013.

Increases of $45 million in vehicle registration fees and $50 million in fees for heavy trucks. A spokeswoman for the Senate Majority Leader said registration fees for cars and light trucks won't go up, but the 10% discounts new car buyers receive for each of the first three years they own their cars will be eliminated.

Restoration of the Earned Income Tax Credit, which was slashed in 2011, to its full 20% of the federal EITC level. Officials said that could put another $300 per year in the pockets of low-income families.

Protection of funding for schools and local governments, which receive much of the money that was formerly raised from the sales tax on fuel sales. Officials said the plan would actually increase school funding by $300 million a year. Universities could no longer be funded from the School Aid Fund, though community colleges could be.

Raises registration fees for commercial trucks while also hiking the cost of registration for hybrid and electric vehicles between $25 and $200.

Snyder, who won election to a second and final term in November, said earlier he only wanted a ballot option as an alternative to a road-funding plan passed through legislation. But that wasn't possible, as neither the House nor Senate was willing to pass the road-funding plan passed by the other chamber.

Though a legislative solution would have been better, "in this climate, that was not to be, and I'm of the opinion that the worst thing we could do is leave without doing anything," Whitmer said.

Tricia Kinley, senior director of tax and regulatory reform for the Michigan Chamber of Commerce, said the state's largest business group is disappointed "the Legislature has not done their job by putting something that is tangible in statute," and "this really punts the issue off."

The group's board will assess how it will respond to a ballot initiative, should it happen, she said.

"In no way does this punt this down the field," said Richardville, who, like Whitmer and Bolger, is in what will likely be his last day in the Legislature, due to term limits. "In fact, it says we want to participate because the constitution has to change and the people have to be involved as well."

Meeting with Snyder for days before the announcement were Richardville, Whitmer, Bolger, R-Marshall, and House Minority Leader Tim Greimel, D-Auburn Hills.

Snyder, who campaigned in 2010 as "one tough nerd," said he used a white board to lead the negotiations over several days, listing five principles that were each important to one or more of the legislative leaders and working to get a plan that covered all five principles.

Those principles were:

Raising at least $1.2 billion a year more for roads;

Eliminating the sales tax on fuel sales so all taxes paid on fuel go toward transportation;

Protecting schools and local governments from cuts in revenue;

Keeping pump prices competitive; and including tax relief to protect moderate-income earners from higher fuel prices.

Though there were strong disagreements at times, "this was a very respectful and civil process," Snyder told reporters today, standing side-by-side with the legislative leaders from both parties.

The plan equalizes fuel taxes for regular and diesel fuel, while moving what are now fixed cent-per-gallon taxes at the pump to a percentage tax charged at the wholesale level. Gas prices are currently far below the average for recent years. Snyder said the plan protects revenues in case gas prices stay low, by detailing that fuel taxes would then increase in relation to the consumer price index.

Bolger said the plan brings money to Michigan roads much more quickly than earlier plans — $400 million more in the first year, $800 million in the second year, and $1.2 billion when fully phased in during the third year, he said. The phased-in hike in road spending is the result of using some of the initial extra revenues to pay off outstanding road work bonds, officials said.

Mike Nystrom, executive vice president of the Michigan Infrastructure and Transportation Association, representing road builders, said his members had hoped for a legislative solution that wouldn't require a ballot initiative, but "this is the package that came together."

"I think a lot of groups are going to have to put some money into this," Nystrom said, referring to the effort to get a ballot initiative passed.

The plan was also partly linked to bills the House passed early Friday which ahd earlier passed the Senate which would require Internet companies such as Amazon with a presence in Michigan to collect and remit the state sales tax on purchases. It's expected to raise about $50 million a year.

Known as the "Main Street Fairness" bills, they passed the House 83-27 and will soon be headed to the governor's desk

"It's a fairness issue," said Rep. Eileen Kowall, R-White Lake, who pushed hard for the bills to encourage what she said would be a level playing field with brick and mortar retailers.

"I'm glad we were able to take care of it."

The roads package is not without its harsh critics.

Scott Hagerstrom, Michigan director for the tea party group Americans for Prosperity, blasted the plan.

"It's a huge tax increase on middle-class citizens in Michigan," Hagerstrom said. "It increases welfare payments to the poor. Increases registration fees, Internet taxes. All the way around, the middle class is getting stuck with the bill."

Voting no in the House on the resolution to ask voters for a sales tax increase were Reps: John Bumstead, R-Newaygo; Scott Dianda, D-Calumet; Ray Franz, R-Onekama; Bob Genetski, R-Saugatuck; Ken Goike, R-Ray Township; Joseph Graves, R-Argentine Township; Tom Hooker, R-Byron Center;Martin Howrylak, R-Troy; Joel Johnson, R-Clare; Tom Leonard, R-Lansing; Pete Lund, R-Shelby Township; Greg MacMaster, R-Kewadin; Tom McMillin, R-Rochester Hills; Aric Nesbitt, R-Lawton; Rose Robinson, D-Detroit; and Pat Somerville, R-New Burton.

According to 2014 statistics from the Tax Foundation, Michigan currently ranks 37th highest among states in the nation for combined state and average local sales tax rates. Michigan has no local sales taxes, unlike some jurisdictions.

Michigan's neighbors -- Ohio, Indiana and Wisconsin -- rank 19th , 21st, and 44th, respectively.

Kelly Chesney, a spokeswoman for Business Leaders for Michigan, said "investments in our roads and infrastructure are going to help us accelerate our economy," and the group wants to educate both its members and voters about the importance of passing an initiative.

Ryan Dunn, political director for the 15,000-member Michigan Operating Engineers, said many of his members went to work in other states during the economic downturn and are eager to return to Michigan. This plan will help them do that by spurring badly needed road and bridge construction projects, he said.

Matthew Smego, manager of government relations for the Michigan Farm Bureau, said his 46,000 members rely on good roads to move agricultural products. They are willing to pay more for fuel and registration fees to assure improvements happen, he said.

"We support a user-fee based system," he said.

The Senate had earlier passed a plan that would raise $1.2 billion by roughly doubling state fuel taxes. The House then passed a plan that would raise the same amount by gradually removing the 6% sales tax from fuel sales while at the same time increasing the fuel tax to keep pump prices constant. That plan was harshly criticized for relying on hundreds of millions of dollars in sales tax revenues normally earmarked for schools and local governments.

Though there are some local elections set for May, no statewide election is planned. Snyder said the cost of a statewide election, should the Legislature approve it, is about $10 million.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.