A State Gas Tax That Should Run Out of Fuel

With its willingness to increase a host of taxes and fees, the Michigan Legislature has admitted it cannot control its appetite for big spending. Unfortunately, its latest effort to avoid spending cuts will punish motorists already hurting from high gasoline prices.

Republicans and Democrats in the Michigan House have joined together overwhelmingly to approve House Bill 6074, which would extend until 2006 a seven-eighths cent-per-gallon gasoline tax. The tax currently funds the Michigan Underground Storage Tank Financial Assurance Act, created in 1989 to pay for the cleanup of leaking underground petroleum storage tanks. The tax was set to expire in fiscal 2004, and the proposed two-year extension is projected to take an extra $100 million from the pocketbooks of Michigan motorists. To add insult to injury, the legislation does not even choose a purpose for the new tax; instead, it establishes a committee to study how to spend the windfall from continuing the tax.

The timing could hardly be worse. Gasoline prices remain high, and many economists are blaming elevated energy costs for slowing the economic recovery. Michigan’s economy is already lagging the rest of the nation, and Lansing’s willingness to extend this tax – effectively a tax hike – comes on the heels of an announcement that the Greektown Casino in Detroit will lay off 180 employees as a result of a casino tax hike passed a few weeks ago.

Nor does this gas tax have an appealing history. The 1989 underground storage tank law was originally intended to help small operators – “Mom and Pop” stores – clean up leaking underground fuel tanks discovered on their property. Instead, larger corporations that had legitimate claims to the money were the first to apply for assistance. By the time most of the “little guys” submitted their financial requests, the cleanup fund financed by the gas tax had gone bankrupt. The legislative intent went largely unfulfilled.

A 1993 state audit of the program showed how the cleanup fund got in trouble: Only $110 million had been received, while $250 million had been expended, forcing a declaration of insolvency in 1995. The bankruptcy was no surprise. When the act was passed by the Legislature, it was recognized that there would be insufficient revenues to support the generous benefits in the program. Nevertheless, there was no political will to impose a gas tax large enough to properly fund the program.

Worse, the program was fraught with fraud charges, such as contractors being reimbursed for cleanups that did not occur. The Michigan State Police created a special unit just to deal with the program. Although a number of cases were brought by the state police, it was often difficult to obtain convictions, since the state had insufficient resources to conduct field-compliance inspections.

In 1994 the Legislature extended this extra tax on gasoline for 10 years, providing a revenue stream with which to pay off bonds issued to cover legitimate claims under the act that were filed before June 29, 1995. No new claims have been accepted since that time, and today there is more than enough money available to pay off the bonds.

Now is the time to kill the tax that has funded this inefficient and poorly administered program. It has cost Michigan motorists approximately $750 million since its inception. Lansing certainly has other ways of balancing the state’s budget, which has increased by approximately 28 percent during the last 10 years. Even accounting for inflation, state government is no worse off that it was during the supercharged economy of the 1990s.

Governor Granholm, who proposed extending this tax, and legislators eager to avoid tough choices should understand that this kind of “bait-and-switch” tactic undermines public trust. When taxpayers pay a dedicated tax for a program like the underground storage tank cleanup, they deserve to have the money spent, and spent well, for its intended purpose. It should not be used as a slush fund. It is past time for Michigan’s elected leaders to exercise spending discipline – and to show some leadership after years of mismanagement.

Russ Harding is senior environmental policy analyst for the Mackinac Center for Public Policy, a research and educational institute in Midland, Mich. He is a former director of the Michigan Department of Environmental Quality.