Michigan Voters Mull Constitutional Gas-Tax Proposal

Indiana considers future revenue sources, including fuel

Michigan Indiana gas tax (CSP Daily News / Convenience Stores / Gas Stations)

LANSING, Mich. -- Voters in Michigan are deciding on a constitutional amendment this week that could trigger an approximately 10-cent-per-gallon (CPG) increase in the gasoline tax to raise money for infrastructure.

Proposal 1, which was put on the ballot after agreement late last year by the state legislature and Governor Rick Snyder (R), has two parts, said the Detroit Free Press, addressing both the sales and excise taxes on motor fuels. First, it would eliminate the sales/use tax on gasoline and diesel, while raising the sales/use tax on other goods by 1 percentage point from 6% to 7%.

The elimination of the sales tax for fuel is notable because the Michigan Constitution currently allows revenues from sales taxes to be used for purposes other than construction. The result is that some of the money generated by the fuel sales tax has been diverted from infrastructure repairs.

Next, the proposal would trigger additional laws, including the replacement of the current 19-CPG tax on gasoline and 15-CPG tax on diesel with a percentage-based fuel tax tied to inflation. The state has not increased its fuel tax since 1997, and it has not kept pace with growing infrastructure costs.

Beginning on Oct. 1, 2015, the new tax would be calculated by multiplying the average wholesale fuel price by 14.9%. The new tax would have a floor of 41.7 CPG, and grow by 5 CPG or by the rate of inflation, whichever ends up being less. If Proposal 1 passes, retail fuel prices are expected to rise between 7 and 9 CPG, based on current wholesale prices.

Proposal 1 would raise $1.3 billion for state transportation projects in fiscal year 2018 and each year thereafter, once the state addresses debt payments in 2016 and 2017; however, a recent survey by the Free Press shows only 29% of Michiganders plan to vote “yes” for Proposal 1, with 10% undecided.

If it is not approved, some expect the legislature to work toward consensus on a simple increase of the state gas tax and vehicle registration fees, without changing the sales tax.

Meanwhile, in Indiana, legislators in both parties are trying to address how to raise more money for infrastructure repair, according to report by The Journal Gazette. The state gas tax has sat at 18 CPG since 2003, and it is expected to generate less money as vehicle fuel efficiency increases.

“Something that is overlooked is Indiana’s infrastructure is crumbling—almost to the point of becoming a crisis,” House Democrat Leader Scott Pelath told the newspaper. “We cannot grow unless we have the circulatory system that allows businesses to move and remain here.”

Sen. Luke Kenley (R) said the next budget session for 2017 would focus on road infrastructure.

“And that means we also have to face the actual problem of if we’re going to do more, where are we going to get the money?” he said. “We’re going to have to talk about who pays what, in what form to support this. That’s going to be a tough discussion.”

Some ideas include raising the gas tax and tying it to inflation; the latter could generate an additional $120 million to $200 million annually, said the report, citing officials at the Indiana Department of Transportation.

Other suggestions include increasing license plate fees or introducing a vehicle miles traveled (VMT)-style tax.