opinion

Roads 101: What you need to know about Proposal 1

In a more just world, voters would charter a bus to drive their elected representatives in Lansing into a bottomless pothole, then refuse to rescue them until the marooned lawmakers provided for the repair and maintenance of Michigan's long-neglected roads.

In the real world, however, voters will have to assume that responsibility themselves.

In a statewide election May 5, they'll decide whether to adopt the complicated roads proposal that legislators cobbled together in the final hours of December's lame-duck session, or they'll tell the new Legislature to start over.

What will happen if the electorate approves the myriad constitutional and statutory changes outlined in Proposal 1?

Can the new, even more conservative Republican legislative majority do any better?

And how much worse will Michigan's roads and bridges become if the ballot proposal is rejected?

Here are the facts voters need to evaluate the unappetizing choice that awaits them on the May 5 ballot.

Question: Michigan motorists already pay a state fuel tax (currently pegged at 19 cents a gallon for gas, 15 cents a gallon for diesel) and a state sales tax (6%) every time they fuel up. Why don't those taxes generate enough revenue to keep our roads in good repair?

Answer: The fuel tax was last raised almost 20 years ago, so it hasn't kept pace with the costs of road maintenance, which has increased as fast as most other costs.

We're also driving fewer miles each year, and we're driving them in more fuel-efficient vehicles. So any per-gallon tax is doomed to generate less and less revenue as time goes on.

Q: But we also pay sales tax on our fuel purchases. And that tax increases when the price of gas or diesel fuel goes up, doesn't it?

A: Yes, and sales tax revenues have indeed grown faster than fuel tax revenues.

But virtually none of the sales tax on fuel purchases goes to roads. The state constitution earmarks nearly three-quarters of those revenues for public schools, and another 10% for cities, townships and villages.

The bottom line is that both revenue sources generate about $1.3 billion less each year than Michigan needs to bring most of its roads and bridges to good condition and keep them that way.

Q: So how would Proposal 1 solve the funding shortfall?

A: In the most roundabout way possible.

If approved by voters, Proposal 1 would amend the state constitution to raise the maximum allowable sales tax rate by one penny, from the current 6% rate to 7%.

Q: And that would generate enough to fix the roads?

Well, no. In fact, not one dime of that increased sales tax revenue would be used to supplement the roads budget.

Q. What?!? Isn't the whole point to generate more money for roads?

A. Yes, but none of the constitutional changes voters are being asked to approve in Proposal 1 would do that directly.

Instead, passage of Proposal 1 would trigger implementation of a series of bills that would exempt fuel purchases from the sales tax and impose a new, higher fuel tax whose proceeds would be earmarked exclusively for roads and mass transit.

Q: Wouldn't vehicle registration fees go up, too?

Yes. The registration fee for passenger vehicles is based on the manufacturer's list price. For instance, the annual registration fee for a new car with a list price of $30,500 is $155. Under current law, the fee is reduced over the next three registration periods as the car's value depreciates, so the owner pays less each year until it bottoms out at $111.54.

But one of the bills that would take effect if voters adopt Proposal 1 would eliminate this depreciation discount, effectively freezing the registration of a $30,500 vehicle purchased after Jan. 1, 2016 at $153.

Registration fees for trucks weighing more than 26,000 pounds would rise steeply, and those who purchase electric (or predominantly electric) vehicles would pay a surcharge of $25 (or $100 for electric vehicles that weigh more than 8,000 pounds).

Q. How much revenue would the higher fuel tax and registration fees generate?

A. A little more than $1.2 billion a year.

Q. And all that would be used to fund roads?

A. Almost all of it — eventually.

A small portion of fuel tax revenue — about 10% — would be allocated to mass transit, on the theory that bringing Michigan's transportation infrastructure up to snuff entails making up for years of under-investment in public transportation, as well as roads.

And in the first two years, a significant portion of the new roads revenue would be used to pay down road-related debt. Michigan would begin applying the full $1.2-billion increase to new repairs and maintenance in the fiscal year that begins Oct. 1, 2017.

Q. Wait a minute! If the increased fuel tax will eventually generate all the money needed to fund roads, why do we need to raise the sales tax?

A. Republican legislators knew they had to raise more money for roads. But they wanted to minimize the sticker shock motorists experienced at the pump, and they wanted to make sure all the taxes motorists pay on fuel purchases were used exclusively for roads and transportation. So they insisted on offsetting the proposed fuel tax hike by exempting fuel purchases from the sales tax.

The problem, as noted above, is that schools and municipalities rely heavily on the sales tax revenue currently generated by fuel purchases. Exempting those purchases from the sales tax would create a huge shortfall in schools and revenue-sharing budgets, which Proposal 1 seeks to remedy by raising the sales tax rate.

Q. So how much new revenue would a 1-percentage-point increase in the sales tax generate — and how would it be spent?

A. When the rate hike is offset by the new exemption for fuel purchases, the House Fiscal Agency estimates that the additional penny per dollar would generate about $830 million in new revenue.

The largest share — about $292 million — would go to the School Aid Fund, but its use would also be constrained by new restrictions if voters adopt Proposal 1.

Another $90 million would be earmarked for constitutionally mandated revenue-sharing to cities, townships and villages.

Public transit, which would be funded by the fuel tax going forward, would lose sbout $14 million in sales tax revenue.

And $463 million would initially be allocated to the state's unrestricted general fund, although that figure will be sharply reduced over the next two years, when low-income working families start taking advantage of the larger Earned Income Tax Credit (EITC) envisioned by Proposal 1.

By the fiscal year that begins Oct. 1, 2017, the House Fiscal Agency estimates, the sweetened EITC will cost the state $269 million a year, leaving just $173 million for the general fund.

Q. So schools and municipalities would lose something (sales tax revenues lost when fuel purchases are exempted) and gain something (increased revenues from the higher sales tax the state will continue to collect on the purchase of most tangible goods except food, prescription drugs and fuels)?

A. That's right.

Q. But wouldn't schools and municipalities gain more than they'd lose if Proposal 1 passes? And what does a larger tax credit for low-income workers have to do with raising more money for roads?

A. The short answer is that increased funding for schools, local governments and the EITC are all concessions Democratic lawmakers extracted for supporting the road-funding package when leaders of the Legislature's GOP majority couldn't muster enough Republican votes to pass it.

But the link between the sales and fuel tax hikes and the sweetened EITC isn't arbitrary.

Economists recognize that sales and fuel taxes fall more heavily on low-income people (who spend a larger percentage of their incomes on tangible goods) than on higher-income workers (who stash more of their paychecks in savings and investment accounts and spend more on untaxed services).

So restoring the EITC to the levels that prevailed before Republicans took over state government in 2010 is meant to compensate the poorest workers for the disproportionate share of the burden they'll shoulder if Proposal 1 passes.

Q. Wouldn't it be more efficient if Michigan continued to collect the 6% sales tax on gas and diesel purchases and raised the fuel tax just enough to generate the $1.2 billion needed for road repairs?

A. More efficient, surely. And that's just what a road funding scheme adopted last year by the state Senate would have done.

Q. So why didn't legislators opt for that simpler, cheaper method?

A. Because the Senate plan would have added about 17 cents to the pump price for a gallon of gasoline or diesel fuel, and the Republican House majority, led by then-Speaker Jase Bolger, wouldn't take responsibility for imposing such a substantial increase on Michigan motorists.

So the Senate and House compromised on the more cumbersome Proposal 1 plan, which would distribute a slightly higher increase between two taxes and require voter consent to fire up the whole, clangorous funding apparatus.

Q. Consumers can mitigate the impact of a sales tax hike by choosing to purchase fewer taxable goods. But most of us can't substantially reduce the amount of car or truck fuel we need in the short term. How much more will the new fuel tax cost me if I continue to buy the same amount of gas or diesel fuel for the next several years?

A. This might be a good time to get a fresh cup of coffee, because the answer is fiendishly complicated.

If Proposal 1 passes, motorists would pay a 41.7-cent fuel tax on every gallon of gas or diesel fuel, compared to the 19-cent per gallon tax they pay now. But that increase will be offset by exempting fuel from the new 7% sales tax. The more fuel costs, the more motorists will save by not paying sales tax.

So, if the retail price of a gallon of gas is $2.50, Proposal 1's passage would add about 6 cents to the after-tax price. But if the retail price of gas rises to $3.25 a gallon, the Proposal 1 premium would shrink to just 2 cents a gallon, because the fuel tax increase would be offset by larger sales tax savings.

Q. So, if retail gas prices rose steeply enough, exempting gas from the sales tax could ultimately save me more money than the fuel tax increase costs me?

Well, yes, theoretically.

But the fuel tax would be tied to a complex formula that pegs it to the Consumer Price Index, a common measure of inflation. The minimum fuel tax could never rise more 5 cents per gallon over the rate of inflation (which is also capped, under the formula, at 5% a year). But the fuel tax rate would never go down, even in the unlikely event that the inflation rate is negative.

Q. So forecasting the precise impact of the tax changes envisioned in Proposal 1 is difficult.

A. Impossible, really, unless you can predict what the retail price of fuel and the inflation rate will do in the future.

Q. It all seems unnecessarily complicated, and I really resent the way legislators fobbed this whole thing off on voters. What's the downside of rejecting Proposal 1 and demanding that lawmakers go back to the drawing board and do it right?

Besides the near-certainty that the new Legislature would make an even worse hash of it?

The problem, realists in both parties agree, is that there is no Plan B.

Many Republicans in the new Legislature are opposed to Proposal 1 (or any kind of tax increase, for that matter), and see its defeat as an opportunity to force dramatic reductions in government spending on workers, public health and other social services.

Sen. Patrick Colbeck, a Canton Republican popular with tea party loyalists, is reportedly preparing an alternative road-funding package that relies principally on budget cuts to provide new funding for roads.

But even state Sen. Arlan Meekhof, the conservative West Olive Republican who succeeded Randy Richardville as leader of the state Senate's GOP majority, acknowledges that none of his colleagues has come up with an alternative that pays for critically overdue road repairs with spending cuts that can win approval in both chambers and gain Gov. Rick Snyder's signature.

Snyder says rejection of Proposal 1 would make legislators even more reluctant than their predecessors to propose any sort of tax increase. The reality, he says, is that a no vote would send Lansing "not back to Square 1, but probably to Square 1 minus 2."

The result would be another construction season squandered to political gridlock and continued deterioration of roads that are already a national disgrace.