Learning from Prop 1: Healing Michigan’s Roads

Learning from Prop 1: Healing Michigan’s Roads Matthew Lawford, University of Michigan

Matthew Lawford

Learning from Prop 1: Healing Michigan’s Roads Michigan’s roads are an expensive and continuously problematic policy area that lawmakers cannot seem to find solutions for. Michigan’s roads are now among the nation’s worst. More than a third of the state’s roads are included in a rating of poor conditioned roads; that number continues to grow as politicians prolong action to fix the state’s infrastructure. The poorly constructed and ill maintained roads are only supported by an equally as inoperative funding plan that costs the citizens of Michigan thousands of dollars annually. Currently, Michigan spends the least per capita on its roads and bridges than any of the other great lake states and dilapidated roads are costing Michigan citizens over seven billion dollars annually in vehicle operating costs. So why hasn’t anything been done to provide relief to the situation?

Attempts to mend the infrastructure problem have been made, but have been either insufficient in solving the issue or have been shut down by the general population. The most notable of these attempts being proposition 1, which failed catastrophically in 2015. Prop 1 aimed to generate over a billion dollars in revenue for road funding through tax alteration and constitutional changes that would affect state sectors like education. On the one hand, the bill would have produced a pool of revenue strong enough to make significant improvements in Michigan’s infrastructure, on the other hand it was as too expensive and detrimental to the state as a whole and met strong opposition because of this. However, prop 1 was a step in the right direction towards fixing Michigan’s roads, the bill just had too many moving pieces that

many people disagreed with. In order for Michigan to begin repairing its roads without harming its overall integrity, a policy middle ground needs to be found. Lawmakers need to recognize why proposition 1 failed and introduce a revised version that includes the effective parts of the original bill, while excluding the harmful pieces of its predecessor.

Prop 1 arrived as an incredibly complex bill that would make multiple changes to the state constitution while being tie-barred to eight other legislative bills. The direct focus of the bill was to increase taxes in order to pay for additional contributions towards road building and maintenance and, as a whole, the bill would have done this effectively. The most severe of the proposed changes to Michigan’s constitution included an increase to the state sales tax rate limit raising it from six to seven percent, and exempting fuel purchased for use by motor vehicles on Michigan’s roads from the sales tax. The legislature contingent upon prop 1’s passage would maximize the sales tax to its new limit and in turn generate almost one and a half billion dollars in new revenue for roads in 2016. Additionally, they would have imposed a higher wholesale tax on fuel by increasing the excise tax from 19 cents to 41 cents per gallon (Hohman,1). Proposal 1 would have also hiked vehicle registration fees, effectively generating $150 million in revenue for the state by the year 2026 (Hohman, 1). The bill hit all of the revenue targets that pay for the bulk of road construction and maintenance in Michigan. The Mackinac Center for Public Policy explains that “Road construction in Michigan is primarily paid for with revenues from fuel taxes and vehicle registration fees. Since these taxes are paid by people driving vehicles on public roads, they function as a user fee. Taxes motorists pay do not meet the strict definition of user fees, however. Vehicle registration taxes for passenger vehicles, for example, are based on their value rather than their estimated wear on the roads.

People purchasing fuel for use in lawnmowers, snowmobiles or other recreational vehicles also pay for road maintenance” (Hohman, 1). The combination of these major changes would have raised over three billion dollars in funds for road maintenance and repair which would have been enough to at least start progress towards better state infrastructure. So why 80 percent of voters oppose proposition 1? Part of the answer lies within the fact that these new alterations would have been too expensive for the majority of Michigan’s population.

Michigan’s median household income as of 2015 was estimated at $49,087 with a median per capita income of $26,143 and a poverty rate of fifteen percent (U.S Census Bureau, 2015). A large portion of Michigan’s population falls into the middle and lower class in terms of income and are directly affected by increases in regressive taxes like the sales and gas tax.

Proposition 1’s alterations to both the sales and gas tax would increase the cost of living for middle class families who already struggle with current state tax rates. The proposed increase in the wholesale fuel tax would cost taxpayers more money annually, even with the fuel user exemption in place. The Mackinac Center for Public Policy states that “Although fuel purchases would be made exempt from the state sales tax, taxpayers can expect to pay more in gas taxes in the immediate future if Proposal 1 is approved” (Hohman, 1). Additionally, The Federal Energy Information Administration predicted the national average of gasoline to be $2.39 through 2015 and if this were to hold true, the new fuel tax would increase the price of gasoline at the pump by four percent. Taxpayers would only begin to pay less for fuel if the prices of gas were to exceed $4.20 per gallon at the pump (Hohman,1). Furthermore, the sales tax exemption would not eliminate all sales and use taxes levied upon gasoline and diesel fuel.

Gasoline and diesel used for industrial vehicles would continue to be subject to sales taxes and

so would any fuel purchased for use in lawnmowers, snowmobiles, boats or other recreational vehicles (Hohman, 4). The U.S Census Bureau predicted that the median household in Michigan owned two vehicles in 2013, and, according to the Department of Transportation, the average vehicle consumed 664 gallons of gas in 2012. They projected that the median Michigan household would pay an extra $136 per year in additional fuel taxes if Proposal 1 were approved (Hohman, 11). Prop 1 would have also increased vehicle registration fees across the board for the population by eliminating the in place discounts that drivers receive after consecutively renewing their vehicles. Currently, registration fees for new cars are reduced by ten percent each year for the first three renewals (Hohman, 1). Prop 1 would have effectively eliminated this discount, forcing the middle class to pay more money annually just to use Michigan’s roads. Prop 1 faced huge opposition for these reasons because the majority of Michigan’s population would not see immediate benefits and would instead be paying more money to state taxes through the proposed tax measures.

Another large reason many people opposed prop 1 was because of language that would prohibit the spending of school aid revenue towards public universities. Proposal 1 would have altered the allowable uses of the state School Aid Fund to support higher education. Currently, the Michigan state constitution allows the SAF to support school districts, school employees and higher education (Hohman, 4). Prop 1 would have eliminated the SAF’s ability to support higher education specifically while allowing it to support public education programs and provide scholarships to students attending public community colleges. The SAF currently spends $200 million annually on higher education which accounts for about thirteen percent of their total appropriations (“School Aid Funding History”, Michigan Senate Fiscal Agency, 2015).

If prop 1 were to make this constitutional change, the state would not be able to spend this immense amount of aid on public universities within the state. Tying prop 1 to education was a mistake in the sense that Michigan would be hindering the integrity of its higher education programs for the sake of fixing its roads. This aspect, on top of the large regressive tax increases that the middle class would be facing, discouraged voters from supporting prop 1 in 2015.

In 2014, CLOSUP at the University of Michigan surveyed local government officials across the entire state of Michigan to gain insight as to whether or not citizens in their jurisdiction would be supportive of increases in regressive taxes and vehicle registration fees as a method of raising revenue for the states roads. In regards to a potential increase in the sales tax, CLOSUP asked local government officials if the majority of the citizens in their jurisdiction would support or oppose a raise in the sales tax as a means for generating funds for road construction and maintenance. 23% of local officials across all jurisdiction types reported that their citizens would somewhat oppose a sales tax increase and 22% would strongly oppose an increase, while only a combined 18% said that their citizens would support a sales tax raise (Citizen support for raising additional local road revenue through local/regional sales tax, MPPS 2014). This information is also illustrated below in chart 1.

CHART 1: CITIZENS ON SALES TAX RAISE FOR ROADS

14.68%

16.46%

23.95%

21.95%

19.62%

3.84% STRONGLY SOMEWHAT NEITHER SOMEWHAT STRONGLY SUPPORT SUPPORT SUPPORT OPPOSE OPPOSE NOR OPPOSE

DON'T KNOW

When asked the same question in regards to a fuel tax, 25% of local officials reported that their citizens would somewhat oppose a regional fuel tax to raise revenue for roads and 23% said that their citizens would be in strong opposition, while only 15% claimed that their jurisdiction would be in support (Citizen support for raising additional local road revenue through local/regional fuel tax, MPPS 2014). In the same Fall data survey, CLOSUP asked local officials if their citizens would support raising road revenue through vehicle registration fees. CLOSUP reported that 24% of local officials said their citizens would somewhat oppose this idea, 22% answered that their citizens would be in strong opposition and a combined 13% would support this policy (Citizen support for raising additional local road revenue through local/regional vehicle registration fees, MPPS 2014). The important takeaway after analyzing these data sets is that prior to proposition 1 in 2015, the majority of Michigan’s population stood in opposition to raises in regressive taxes and vehicle registration fees in order to raise revenue for roads. As of Fall 2014, Michigan’s citizens were not open to raising the sales tax, fuel tax or the price of vehicle registration fees which happened to be three of the largest revenue generating components that prop 1 wanted to implement. Prop 1’s failure can be largely attributed to the

amount of voter resistance to tax raises that is seen through CLOSUP’s data surveys, for Michigan’s roads to get fixed lawmakers either need to find a solution that does not include tax raises or minimize their presence in future bills.

Moving forward, lawmakers need to reflect on what went wrong with proposition 1 and devise a new plan that will generate sufficient revenue for roads while maintaining the integrities of the rest of the state’s institutions. Proposition 1 aimed to create road funding through too many avenues, all of which would have had detrimental impacts on Michigan’s middle and lower class populations. Increases in the sales and fuel tax combined with higher vehicle registration fees would have cost middle income taxpayers more money annually that they cannot afford. We’ve also seen how strongly opposed the majority of Michigan’s citizens are to the kinds of policy measures that prop 1 proposed through its landslide defeat in 2015 and CLOSUP’s 2014 survey data. Regressive tax increases are not going to pass when taken to the general population, so why keep attempting to introduce them? Other tax options should be explored, specifically progressive taxes that will reduce the tax burden on lower income families. A way to do this would be to implement a state luxury tax on non-essential goods such boats, aircrafts and expensive commodities. Doing so would help generate revenue by taxing wealthier households for luxury goods that middle income families are not purchasing.

However, this kind of tax simply would not be enough to generate the revenue need to fix Michigan’s roads; there needs to be a compromise between regressive and progressive taxes in order for a stable road funding plan to be created. Combining a progressive tax with a raise in a regressive tax could prove viable in raising a sufficient amount of revenue for roads. Michigan’s population isn’t going to vote for raises in just regressive taxes or progressive taxes. However,

raising the sales tax while implementing a progressive tax could provide the middle ground needed for road funding policy to be passed. Prop 1’s failure can also be attributed to its attachment to education. Lawmakers under Snyder wanted to pass a road funding bill included limitations to current education funds like the SAF. Voters found problems with the fact the prop 1 wasn’t focused solely towards generating road revenue through reasonable means and instead latched itself onto education funding and budget control reforms. In the future, lawmakers should construct bills that focus on roads not just as its primary policy areas, but as the only policy area. The ramifications of bills like prop 1 become convoluted when there is push and pull between multiple policy sectors that in turn force voters to choose between fixing one problem while creating another down the line.

Fixing Michigan’s roads is no easy task, but action needs to be taken quickly in order to minimize future financial losses and road injuries across the state. The conditions of roads worsen as political action to fix them remains stagnant. Past attempts to introduce policy, like prop 1, have failed because they focus too strongly on raising regressive taxes while attaching themselves too closely to other policy areas that voters do not want to harm. What lawmakers need to do is learn from past legislative mistakes in order to produce a fair and clean bill that will raise sufficient revenue for roads while maintaining the integrity of the middle class and other state institutions.

Sources Cited: “Policy Brief: Proposal 1 of 2015: An Analysis. Mackinac Center for Public Policy "Editorial Board." Endocrinology 156.9 (2015): n. pag. Web. CLOSUP, MPPS Data Fall 2014 Data Tables. Citizen support for raising additional local road revenue through local/regional vehicle registration fee, Citizen support for raising additional local road revenue through local/regional fuel tax, Citizen support for raising additional local road revenue through local/regional sales tax "Population Estimates, July 1, 2015, (V2015)." Michigan QuickFacts from the US Census Bureau.

N.p., n.d. Web. 30 Nov. 2016.

"Michigan Sales Tax Increase for Transportation Amendment, Proposal 1 (May 2015) Ballotpedia." Ballotpedia. N.p., n.d. Web. 30 Nov. 2016.

"Michigan Road Funding: Initial Budget Bill Missing $1.2B in New Revenue Sought by Gov. Rick Snyder - Michigan Infrastructure & Transportation Association." Michigan Road Funding: Initial Budget Bill Missing $1.2B in New Revenue Sought by Gov. Rick Snyder - Michigan Infrastructure & Transportation Association. N.p., n.d. Web. 30 Nov. 2016.

Paul Egan and Kathleen Gray, Detroit Free Press. "Michigan Voters Soundly Reject Proposal 1 Road Tax Plan." Detroit Free Press. N.p., 05 May 2015. Web. 30 Nov. 2016.