LANSING – A proposal to raise $1.2 billion in revenue for roads whose key pieces are raising the gasoline tax, ending the sales tax on fuel and increasing the sales tax from 6 to 7 percent has the momentum, for now, in the Legislature.

Those involved in the discussions said no deal has been struck. However, this plan is the one attracting the most focus and support. Interest in other proposals that involve extending the sales tax to services or raising the 6-mill State Education Tax has sagged.

As Gongwer News Service first reported Tuesday, the plan generating the most interest would exempt gasoline from the 6 percent sales tax. To make up for the lost $942 million in revenue, most of which goes to schools and a big piece as well to local governments in revenue sharing aid, the Legislature would ask voters to increase the sales tax from 6 percent to 7 percent. Then, to raise most of the $1.2 billion for roads, the gasoline tax would increase, either by raising the existing 19 cents per gallon or through a new tax structured as a percentage of the wholesale price.

To that end, Rep. Wayne Schmidt (R-Traverse City), chair of the House Transportation and Infrastructure Committee, introduced two key bills Thursday in the House.

HB 4358 would repeal the existing 15 cents per gallon tax on diesel and HB 4359 would replace it and the 19 cents person gallon tax on gasoline with a 12 percent tax on the wholesale price. Schmidt said a 12 percent tax on the wholesale price would raise about $2.5 billion – $1 billion more than the existing gasoline tax.

Schmidt said the plan that involves raising the sales tax rate as part of the mix, the plan backed by Senate Majority Leader Randy Richardville (R-Monroe), has the most support at this point.

“It does have much more support which is why we’re digging into this one a lot more,” he said. “I think some of the other ideas, while good policy, there’s certainly some bad taste left of services tax from 2007. … We’ve got to do something that the hard-working taxpayers will still find acceptable and still balance the need for good transportation funding and schools.”

In 2007, the Legislature in the middle of the night during a budget crisis cobbled together a services tax that it later repealed after a public outcry.

Schmidt said he introduced the wholesale gasoline tax bills Thursday because “in order to move things forward we need to start introducing some bluebacks and get some things going.” If officials decide to move in a different direction, the bills could always be modified, he said.

A slew of bills on the issue also have been introduced in the Senate.

The major unknown with proceeding along the lines of Richardville’s framework is that legislators have yet to develop a backup plan to replace the money lost from exempting gasoline from the sales tax if voters reject the sales tax increase, Schmidt said.

“That’s one of the things we’re looking at,” he said. “That’s why it’s not 100 percent clearly defined because we don’t know what the backup plan is.”

And Schmidt said he expected even if this plan moves forward, other components will surface.

On the Senate side of things, there is still little clarity on the issue of whether or not the Legislature will meet the March 7 deadline to put something on the May ballot to raise the sales tax, which requires amending the Constitution.

“There’s no agreement that something is done yet,” Richardville told reporters after session. “There are a lot of moving parts here. We’ll be talking about it over the weekend too.”

Richardville indicated he did not favor the idea of extending the sales tax to services.

Feasibly, the Legislature could increase fees on services, thus technically avoiding the sales tax question and avoiding a ballot proposal altogether.

“We could, but it wouldn’t be the same as the sales taxes we’ve had in the past. It wouldn’t be consistent with our Constitution,” he said of the idea. “If you call something a sales tax, we define it one way in the Constitution. If now you say we’re going to institute a new sales tax without going to the Constitution, you’re now being inconsistent with the way you apply those taxes.”

And though the Legislature tried that idea in 2007, Richardville said of the memory: “That doesn’t mean I liked it.”

But Richardville does recognize the importance of the looming deadline in that if all goes well and voters approve the increase, then work could immediately begin during this construction season.

Right now a Senate resolution exists to do so (SJR J although it would need to be amended), and other ideas have been floated about redistributing the sales tax in a way that would not harm the schools or local governments that currently benefit from them.

For now, Richardville agreed that the most ideal situation would be to adopt the joint resolution by next Thursday necessary to amend the Constitution and work on other components of transportation funding reform later. A two-thirds majority would be needed in the House and the Senate to put the issue before voters.

“There is nothing here that is mutually exclusive. This is one possibility for a solution,” he said. “We would ask the voters to be involved in that decision, and then there are other things that people are proposing that will take longer to work through.”

But getting that support from both the House and the Senate could be a tough sell given no legislator ever likes to increase taxes, let alone ask voters to do so. Richardville said both chambers are talking to their respective caucuses and are reaching out to Democratic colleagues.

“It’s not that we’re working out a deal or we’re trying to buy or trade votes, what we’re really trying to do in this situation is say ‘What is it that we can do to solve a long-term structural problem and what do we do afterwards?'” he said. “I really think this is an opportunity for us to do something on a strong bipartisan basis.”

But Democrats remain disinterested in a sales tax increase. Democratic votes in the House are mandatory to get the 74 votes needed for a two-thirds majority, even if all 59 Republicans voted yes, and almost surely many will not. In the Senate, Republicans, with their 26-11 majority (with one vacancy), theoretically could get the needed 25 votes for a two-thirds majority without Democrats. But again, it is hard to fathom so little GOP falloff.

House Minority Leader Tim Greimel (D-Auburn Hills) said House Democrats have serious concerns about the framework under discussion.

“First, we don’t think it makes sense to drain more money from the School Aid Fund,” he said. “Second, there’s no guarantee that voters would pass the tax increase to fill the funding gap in the School Aid Fund. And third, we have serious concerns about increasing the sales tax, which is a regressive tax that disproportionately impacts middle class and working families.”

Greimel said he has shared those concerns in meetings with Governor Rick Snyder, Richardville and House Speaker Jase Bolger (R-Marshall). He expected additional discussions about other approaches.

Asked if Greimel was saying there was no way House Democrats could support a sales tax increase, Greimel said, “I don’t know that I have anything to add to what I’ve already said.”

And asked if House Democrats would offer a proposal of their own, Greimel said, “At some point, we may be in a position to share some ideas.”

Similarly, Senate Democrats remain steadfast that any plan on transportation funding will not receive their support if it poses an undue burden on working families, according to Robert McCann, spokesperson for Senate Minority Leader Gretchen Whitmer (D-East Lansing). And that includes a sales tax increase.

“Any economist would tell you that a sales tax increase is probably the most regressive form of a tax increase you can do,” he said, adding that Senate Democrats are neither ruling anything out nor supporting anything in particular at this point.

“I think people in Michigan are asking for folks to be leaders at this point and just putting it on the ballot isn’t something they’re in favor of,” he said of a looming referendum potential. “If you were talking about a plan that looked at putting more money into education but talking about a plan just to fix the roads … I think (that) is a tough sell to voters, so certainly there’s a risk there.”

McCann said the minority leader has shared the same concerns with both the governor and Richardville about the funding plans and how Democrats maintain focused on reforming education.

And even if the sales tax formula were to be distributed in a way that would not harm schools or local governments as many have urged, just saying so “isn’t exactly a sweetener at this point,” he said. Democrats would look at plans that involve investments in schools, not ones that ask schools to be thankful they’re not being hurt any further, he said.

Further, Democrats and particularly Whitmer are still feeling the sting of what they felt to be damaging legislation passed in lame duck, McCann said.

“There’s a lot of bridge building that needs to be done before they expect us to just put our names on something and that’s in their court to do,” he said.

As for alternative plans being offered by Democrats, McCann said the caucus is happy to talk with Republicans and negotiate with them about what the proposal should look like, but until Democrats feel they are at a point where they can negotiate “in good faith” with the administration, they are not putting other alternatives out on the table just yet.

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