Small Business and the Road Funding Debate

Date: October 20, 2015 Last Edit: December 30, 2015

Related Content: News State Michigan

NFIB and the Road Funding Debate – History

After more than two years of effort and controversy, the
Michigan House and Senate passed a road funding plan on November 4, 2015 that was approved by Governor Snyder. The $1.2 billion plan
is a 50/50 mix of $600 million in new revenue in the form of pump tax and
registration fee increases and $600 million in future earmarks of the state’s
general fund revenue.

While the plan still increases registration fees and fuel
prices at the pump, it is a far cry from the original proposals that sought to
more than double registration fees and the pump tax on fuel. NFIB was the only
business group that opposed efforts to raise more than $1.6 billion in road funding
through tax hikes and registration fees alone. NFIB small business owners
recognize the need for good roads and adequate funding but this is a difficult
time for tax and fee increases on Michigan small business job providers. While these
tax increases are disappointing, lawmakers did listen to the concerns of small
business and NFIB and the plan they passed dedicated a substantial portion of
future general fund revenue to road construction and maintenance in order to
avoid funding the roads with hikes in the gas tax and vehicle registration
alone.

The plan includes $200 million in tax relief via expansion
of the Homestead Property Tax credit. An income tax rollback formula is also
included in the proposal. The income tax rollback would occur when general fund
revenue growth exceeds the rate of inflation times 1.425. The rollback does not
go into effect until January 1, 2023 and it is questionable if it would ever go
into effect as a future legislature could change the terms of the cut before
2023.

The gasoline tax will increase by 7.3 cents per gallon and diesel
taxes would increase to be on par with gasoline taxes (an 11.3 cent increase
per gallon) beginning January 1, 2017. Registration fees would increase by 20
percent on passenger vehicles and trucks also beginning January 1, 2017. The
earmarking of general fund revenue to roads would phase-in over the next five
years.

ISSUE HISTORY AND SUMMARY:

NFIB was the ONLY business group in
Lansing to oppose the road funding plan in Proposal 1 that was overwhelmingly
defeated at the polls. Now tax and spend advocates are pushing for new taxes on
small business to pick up the tab for road funding. NFIB will be fighting to be sure small
business is treated fairly in any new road proposal and that the plan that
emerges makes sense and is not another Proposal 1 filled with pork barrel
spending for unrelated programs and projects.

Before the legislature left for the 2015 summer break, the House passed another road funding proposal over to the Senate that sought to fund roads out of existing budget monies and revenue streams with a small increase in fuel taxes by removing the difference between diesel and gasoline fuel taxes. This approach is consistent with the House proposal offered in 2014 that was supported by NFIB members. One area of controversy was the redirecting of revenue streams from the Michigan Economic Development Corporation (MEDC) to road funding. While many in the business community expressed opposition to these budget shifts, NFIB members in past surveys have shown that they do not support the narrowly targeted tax and grant incentives given out by the MEDC and NFIB did not oppose the shifting of these monies to road funding.

In the state budget for fiscal year 2016, which begins in October, an additional $240 million in one-time road funding money was added bringing the total road funding from the general fund up to $400
million next year. A permanent solution to the road funding issue remains to be developed when the legislature returns, however, work is also expected to be done over the summer break as well.

To complicate matters further, a petition drive effort has been announced by road construction labor unions to raise the state’s Corporate Income Tax rate from 6 percent to 11 percent in order to increase road funding. The labor unions are hiding behind a front group they formed called “Citizens for Fair Taxes”. The group’s plan is to conduct a petition drive to put the proposal before the Legislature. The Legislature would then have 40 days to respond to the proposal. With the current Republican control of the Legislature it is likely that the proposal would be voted down or not acted on, in which case the measure would go on the November 2016 ballot for voters to decide. If they succeed with this proposal, Michigan will have one of the highest corporate income tax rates in the country and the result will be less investment by business and a subsequent loss of jobs and opportunity for Michigan’s working families. NFIB will be working to defeat this proposal. Go HERE to read more about this development.

The defeat of Proposal 1:

While expressing early optimism as the lame duck road
funding proposal moved through conference committee during the last week of the
2014 session, small business was disappointed with the final product.

When the dust settled, the final proposal veered
from the encouraging outline presented originally into a proposal that
reflected political horse-trading and caving in to Democrat demands for higher
taxes and pet programs and projects. In addition to increasing the gas tax
and registration fees, the proposal is tied to reinstating the 20 percent
earned income tax credit, a new internet tax proposal, and a set aside
program for selected businesses.  

Worst of all, as part of the deal to get the necessary votes
to pass the final proposal, it appears that the Governor has indicated he will
veto any bill that would end Michigan’s wasteful and unfair prevailing
wage law
. This last concession is a major handout to construction trade
unions at the expense of merit shop and small business contractors. It also
encourages the overcharging of taxpayers on publicly funded construction
projects by requiring that union scale wages be paid regardless of whether a
contractor has non-union employees.

NFIB’s official position of opposition to this road funding proposal was decided by our small
business members when it was put in front of them for a vote in early 2015. NFIB
determines policy positions on issues on behalf of its members by a voting
process that allows all members a voice in the process. The NFIB member survey on the road
funding plan showed that 75 percent of NFIB members opposed the proposal. The state’s voters agreed with NFIB and the proposal was met with historic defeat at the polls garnering the lowest percentage of the vote for a constitutional amendment since the adoption of the 1963 Constitution.

A summary of the proposal can be viewed by clicking on the link at the end of this article. A copy of the survey and the results is also linked at the end of the article.

In past sessions, several different funding ideas for roads have been proposed. While we recognize the need for good roads and adequate funding, this is a difficult time for tax and fee increases on Michigan small business job providers. NFIB small business owners have made it clear that they are not supportive of a motor fuels tax increase or a hike in vehicle registration fees. Lawmakers should consider dedicating a substantial portion of the projected budget surplus for the coming year to road construction and maintenance in order to avoid hikes in the gas tax and vehicle registration.

State funding for roads comes from a pump tax on motor fuels and registration fees. However, the total amount of money raised from motor fuel taxes has been declined in recent years due to reduced consumption of fuel from higher mileage vehicles and increased conservation as a reaction to higher prices. Complicating the matter further is Michigan’s practice of collecting a sales tax at the pump in addition to a fuels tax with the additional revenue going to schools and local governments and not roads. As a result of this practice, Michigan has one of the highest fuel taxes in the country while road funding has not kept pace with maintenance and repair needs.

While attempts to more than double the tax on fuels were proposed in the 2014 lame duck session, those efforts failed. NFIB actively opposed these efforts. However, the proposal that has emerged would raise pump prices and increase registration fees, although at a much lesser amount.

A 2012 road funding survey of NFIB members, revealed the following small business reaction to various proposals:

Funding for Road Construction & Maintenance

Do you support increasing the pump tax on motor fuels to raise funds for road maintenance and improvements?

            23% Yes                                 68% No                                  9% Undecided

Do you support eliminating the pump tax and taxing fuel at the wholesale level on a percentage basis with a rate equal to the current tax raised?

            17% Yes                                 60%No                                   23% Undecided

Do you support allowing local governments to raise funds for road maintenance and improvements by a vote of the residents in their jurisdiction?

            49% Yes                                 44% No                                  7% Undecided

Do you support increasing driver license and registration fees to fund road maintenance and improvements?

            21% Yes                                 75% No                                  4% Undecided

Do you support eliminating the current per-gallon motor fuel tax and replacing it with a one-penny increase on the state sales tax earmarked for road maintenance and improvements?

            35% Yes                                 50% No                                  15% Undecided

NFIB Says Move Forward After Proposal 1 Defeat

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