When a School 'Cut' Is an Increase

As shown by the House road funding plan

In the subscription-only MIRS newsletter, Mitch Bean discusses how Michigan House Speaker Jase Bolger’s road funding plan would have affected the state budget had it been in place over the previous decade. While his takeaway was to say that schools would have had less money, it also points to the importance of economic growth to delivering both more school revenue and more road funding.

Rep. Bolger’s plan is to gradually replace the sales tax levied on gasoline with taxes that would go to the transportation budget.

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The fuel taxes go to fund the roads, making fuel taxes work like a user fee. Michigan, however, is one of the few states that levy both a sales tax and fuel taxes on gasoline. This means that Michigan has high fuel levies but low road spending. When phased in, Rep. Bolger's plan would change this feature.

As Bean, former director of the Michigan House Fiscal Agency, noted in his analysis, there are no free lunches. Rep. Bolger's plan would mean that sales tax revenue going forward would be mitigated by the move. Currently, sales tax revenue goes to schools, is shared with local governments, and supports the state budget.

But Bean overstates his case when he calls this a cut in school revenue. Spending less than would otherwise be the case is not a "cut." A reduction from current levels is a cut. (This was gubernatorial candidate Mark Schauer’s big mistake.)

Rep. Bolger’s plan instead mitigates schools’ potential growth increase from the sales tax on fuel. This has fiscal consequences, but unless the economy takes a dive school revenue will continue to grow. Major sources of school revenue like the sales tax, the income tax and the property tax depend on economic growth and recessions strain the revenue from these taxes.

Yet Bean’s results note that school revenue would still have increased had Rep. Bolger's plan been implemented in 2004, a period when things were not especially good for the state.

The state economy is entering its fifth year of recovery and state tax revenue reflects that trend. Rep. Bolger’s plan devotes more of the state’s resources to the roads without reaching deeper into taxpayer pockets. Continued growth can ensure that you can have both more funding for schools and more funding for roads without a tax hike

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