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Whitmer defends proposal for steep fuel tax rise

LANSING — Democratic Gov. Gretchen Whitmer on Tuesday defended her proposal to nearly triple Michigan’s per-gallon gasoline tax to make it the highest in the nation, promising no more “shell games” or “half measures” to reverse the deteriorating condition of the roads.

The proposal — the centerpiece of a $60 billion budget plan — followed her November election victory over Republican Bill Schuette in part on a promise to “fix the damn roads.”

The $2.5 billion plan would increase the 26-cent fuel tax by 45 cents between this October and October 2020 and guarantee that the additional revenue is targeted to more heavily traveled roads. To alleviate the burden for some motorists, she proposed a tax overhaul under which retirees and low-income earners would get breaks while more businesses would pay a 6 percent tax instead of the lower 4.25 percent personal income tax.

The proposal is an attempt to reverse parts of a tax rewrite enacted by her Republican predecessor, Rick Snyder.

“No one likes to raise taxes,” she told lawmakers during her first budget address as governor. “I wish I didn’t have to come here today and put this budget before you because I know it’s hard. But the hard truth is we got to get to work. Every day we don’t we are jeopardizing our economic future, wasting our money and endangering our people. No more shell games and half measures. Here’s a real plan.”

Her road-funding plan will face resistance in the Republican-controlled Legislature, where one GOP lawmaker called it “completely unrealistic.” Legislators previously passed fuel and vehicle registration tax hikes that took effect in 2017, but they have been criticized for not generating nearly enough revenue under laws that also shifted spending from other budget priorities. Critics said the tax hikes only slowed the decline of road conditions.

“With smart budgeting, we can continue to fix our roads and infrastructure, support our schools and our students, keep our state on solid financial footing, and promote efficient and effective government,” state Sen. Jim Stamas, R-Midland, who represents Northeast Michigan and chairs his chamber’s Appropriations Committee, said in a statement. “We must continue to invest in Michigan’s future. Over the last eight years, we have increased state funding for schools by $2.2 billion, and we’ve put $2.8 billion in new investment into our roads since 2017 — but more needs to be done.”

States across the nation are struggling with how to finance road maintenance and construction as vehicles become more fuel-efficient and generate less revenue from flat per-gallon taxes. New Ohio Gov. Mike DeWine, a Republican, is seeking an 18-cent gas tax increase .

Whitmer quickly came under criticism from some in the GOP because last year, in a gubernatorial debate, she dismissed Schuette’s warning that she would raise the gas tax by 20 cents as “ridiculous” and “nonsense.”

“How can you explain a 45-cent tax increase today?” Rep. Matt Maddock asked Whitmer’s budget director after pointing to her debate comments. The conservative Michigan Freedom Fund accused Whitmer of lying on the campaign trail.

Whitmer said it was not always her plan to seek so large of a tax hike, but once she took office she gained a “real appreciation” for how quickly the nation’s worst roads are deteriorating.

“We thought (a) user fee that is actually the right size to fix the problem was the way to go,” she told reporters while denying that she broke a campaign pledge. “My campaign promise was to fix the damn roads. This plan does that.”

Whitmer said her proposal would cost the average driver $23 a month, or $276 a year, but contended that motorists already are paying a “roads tax” for vehicle repairs caused by crumbling infrastructure. She proposed doubling the earned income tax credit for low-income residents, saving 750,000 families $30 a month, and repealing the so-called retirement tax on pension and other income — saving 400,000 households $65 per month.

Those components drew mixed reaction from legislators, while small-business groups denounced her plan to boost taxes on 150,000 S corporations, partnerships and limited liability companies.

Michigan now has the 9th-highest combined local, state and federal gas taxes in the U.S., according to the American Petroleum Institute. Under Whitmer’s plan, it would have the highest taxes, easily surpassing states like Pennsylvania and California.

Michigan is among a small number of states to apply the sales tax to motor fuel, but that revenue mostly goes to schools and local governments under the state constitution. In response to Whitmer’s proposal, Republican House Speaker Lee Chatfield renewed his call for ensuring that “every penny” paid at the pump is devoted to roadwork.

“We can’t continue to gloss over the long-term structural problem, while asking families, workers and seniors who are already living paycheck to paycheck to pay even more,” he said in a statement.

Whitmer did propose no longer diverting hundreds of millions in general funds to the transportation budget, saying it should go to universities.

She also outlined a $507 million boost in K-12 spending for the next fiscal year, including extra funding to teach at-risk, special education, and career and technical students. She also wants to make more 4-year-olds eligible for publicly-funded preschool.

A separate proposal for the current fiscal year includes a $120 million infusion to improve drinking water infrastructure in the state where Flint’s crisis occurred and $60 million to install hydration stations in schools.

Michigan Chamber of Commerce President and CEO Rich Studley, whose group has sway with GOP legislators, commended Whitmer and said he was prepared to support a “meaningful increase in user fees phased in over time.”

Whitmer’s proposal at a glance

ROADS

She proposed passing a 45-cents-a-gallon gasoline and diesel tax increase that would be phased in between this October and October 2020, raising $2.5 billion more annually for road and bridge work. She wants to no longer divert up to $600 million from general funds to the transportation budget. The new revenue would be targeted to the most heavily traveled and “economically significant” roads rather than be divided under a current formula that critics say favors rural areas.

RETIREMENT TAX

She proposed repealing a 2011 law that eliminated or reduced exemptions from the taxation of pension and other retirement income, saving more than 400,000 families an average of $800 annually.

EARNED INCOME TAX CREDIT

She proposed doubling the earned income tax credit for low-income earners from 6 percent of the federal credit to 12 percent. It would be phased in over two years and benefit 750,000 households. The average credit would increase by more than $150 by 2021.

BUSINESS TAX

She proposed making 150,000 businesses pay the equivalent of a 6 percent income tax instead of the lower 4.25 percent personal income tax. It would raise $280 million per year initially for the state, but the net tax hike would be $105 million because those S corporations, partnerships and limited liability companies could deduct state tax on their federal returns, State Treasurer Rachael Eubanks said.

DRINKING WATER

She proposed spending $120 million to help municipalities and utilities meet tougher lead rules following Flint’s water crisis, combat chemical contaminants known as PFAS, provide drinking water revolving fund loan forgiveness and other steps. Whitmer also proposes spending $60 million to install hydration systems in schools that have lead plumbing and fixtures.

K-12 SCHOOLS

She proposed increasing “operations” funding for K-12 schools by 3.6 percent, the largest in 18 years if non-operating categories are not included such as retirement costs, adult education and borrowing. The minimum per-student allowance — which most districts receive, including charters — would increase from $7,871 to $8,051, a $180 increase. Districts at the higher end would get $8,529, or $120 more than the current $8,409 allotment. Whitmer proposed a new weighted funding system to recognize the higher costs to educate special education, at-risk, and career and technical education students.