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Monday, February 18, 2013   (0 Comments)
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LANSING, MI -- Michigan collects more taxes from motorists -- and yet invests less in roads -- than many states.


That contradiction is due, in part, to the state's 6 percent sales tax. Michigan is one of eight states that levies a sales tax on fuel purchases, but it does not devote any of that revenue to road maintenance or repairs.


While state and federal fuel excise taxes help fund road projects across the state, the additional sales tax can make Michigan motorists feel like they are paying a lot at the pump but seeing little return on their investment.


"It's the biggest public policy problem we have," according to Lance T. Binoniemi of the Michigan Infrastructure and Transportation Association. "The general public does not understand that the 6 percent tax does not go to funding roads and bridges. When you include that sales tax, we probably do have one of the highest (gas tax rates) in the nation."


As you can see in the chart above and descriptions below, most revenue generated by the state sales tax is constitutionally or statutorily earmarked for specific purposes, such as K-12 education and municipal revenue sharing.


School aid fund: Nearly 75 percent of the sales tax collected in Michigan is distributed to the School Aid Fund, which is used to fund K-12 education. The state constitution mandates that 100 percent of gross sales tax collections levied at a rate of two percent and 60 percent of gross sales tax collections levied at a rate of four percent go into the fund.


General fund: Roughly 15.9 percent of the sales tax collected in Michigan ends up in the general fund, which finances most major departments of state government. The level is not mandated, however. Rather, whatever sales tax revenue that is not constitutionally or statutorily dedicated to other purposes ends up in the fund. 


Local revenue sharing: Approximately 10 percent of the sales tax collected in Michigan is distributed to local government units through revenue sharing. The state constitution provides that 15 percent of gross sales tax collections levied at the rate of four percent are used for local revenue sharing payments.


Comprehensive transportation fund: Roughly 1 percent of the sales tax collected in Michigan is distributed to the Comprehensive Transportation Fund, which provides funding for various public transportation systems and freight programs around the state. A small portion of sales tax collections levied on motor fuel and other automotive products is statutorily earmarked for the fund.

Michigan is among a growing number of states looking for a way to boost road funding -- and avoid a precipitous decline in pavement quality -- as a result of falling revenue.


Gov. Rick Snyder has called for an additional $1.2 billion annual investment in roads, and while the state collects close to $1 billion a year by applying its sales tax to fuel, tapping that revenue stream is not seen as a realistic possibility.


"That might be a nice chunk for transportation, but now you've got a billion dollar hole in the School Aid Fund and in revenue sharing, so where are you going to make that up?" said MDOT Director Kirk Steudle. "It would solve the transportation issue, but on a larger scale, you'd still have a big, big problem."


Snyder, as outlined this month in his executive budget recommendations, proposed raising both fuel taxes and vehicle registration fees to fund road repairs. But he's already facing opposition in his own political party. Republican Senate Majority Leader Randy Richardville last week publicly questioned the governor's plan, saying the legislature will come up with "better ways, more creative ways."


Richardville last month introduced a joint resolution that would amend the state constitution by raising the state sales tax from 6 percent to 8 percent, devoting at least 90 percent of the generated revenue to state and local transportation projects.


Sen. Roger Kahn, who co-sponsored the resolution but remains open to the governor's proposal, said that raising the sales tax would generate enough revenue for roads that the state could eliminate its gasoline tax.


But a constitutional amendment is no easy task. It would require 2/3 majority support in both the House and Senate along with voter approval in the next statewide election. And the proposal could face opposition from those who support a more direct user fee.


Lawmakers are expected to continue discussing and debating potential road funding solutions in coming weeks, hoping to settle on a plan in advance of the upcoming construction season. The Senate and House transportation and infrastructure committees are scheduled to meet Tuesday in joint session.

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