History of Proposal 1

There has been a long-standing request for more state funding for maintaining and rebuilding Michigan roads. In 2009 Gov. Jennifer Granholm called for raising the state motor fuel taxes over time, which was projected to gradually increase taxes by about $1.5 billion annually.[8]

Gov. Snyder announced his intention to improve the state of Michigan’s road system in a special message he delivered on Oct. 26, 2011. He cited projections indicating deteriorating pavement conditions if the roads were not serviced and repaired. Gov. Snyder called for between $1 and $1.4 billion in additional funding for road construction.[9]

“We have invested wisely but we cannot continue to sustain the value of those investments without additional reform and additional revenues,” he stated while proposing to replace the state’s current fuel taxes with a new wholesale fuel tax. He also proposed allowing counties to assess vehicle registration taxes to be used to fund their local roads.[10]

Gov. Snyder’s speech began a long series of negotiations with the Legislature over how to dedicate more state funding to road construction. But no plan was adopted by the end of the 2011-12 legislative session.

The state policymakers began to put some money from the state’s General Fund into the transportation budget in fiscal years 2014 and 2015.[11] This was a stop-gap measure to prevent further deterioration of the roads while awaiting a longer-term road funding plan.

The governor kept pushing for more revenue for the roads in the 2013-14 legislative session. The Senate approved a plan in late 2014 that would replace the state’s excise taxes on fuel with a wholesale tax, starting at 9.5 percent but ramping up to 15.5 percent in 2018.[12] Under this plan, based on a $2.80 wholesale price for a gallon of gasoline, the state fuel tax would increase from 19 cents per gallon to 27 cents per gallon. By 2018, this tax would rise to 43 cents per gallon on the wholesale price of gasoline.

The House countered with a plan that would gradually eliminate the sales tax on retail fuel sales and replace it with a wholesale fuel tax. Revenue from the replacement wholesale fuel tax would be deposited into the state’s transportation funds. The state currently devotes 73 percent of its sales tax revenue, including the sales tax on fuel, to the School Aid Fund. Another 10 percent goes to local government revenue sharing. Under the House plan, therefore, the SAF and local governments would no longer benefit from the revenues generated from applying the sales tax to fuel purchases.[13] Because this plan would be gradually implemented, the state estimated that the SAF and revenue sharing would not face net reductions in revenue, merely smaller increases.[14]

The Governor and Legislature continued negotiations until they agreed on a deal on the last day of the 2013-14 session. The deal included a series of new laws and required increasing the state sales and use tax rate from 6 to 7 percent. Because the state constitution limits the sales and use tax rate to 6 percent, the Legislature needed to propose an amendment to the Michigan Constitution, an act that required a two-thirds vote in both the House and Senate. Voters then will determine if they approve these changes to the constitution on May 5, 2015.

Some of the bills passed as part of this large legislative deal are “tie-barred” to Proposal 1. In other words, they will only go into effect if voters approve the constitutional amendment. These include increasing the sales and use tax rates to 7 percent, creating a new and higher fuel tax and earmarking the resulting new revenue for roads, increasing vehicle registration taxes, appropriating more revenue to public schools, creating new rules for the Michigan Department of Transportation, and boosting the earned income tax credit.[15]

In addition to these proposed changes, several other laws were passed as part of this deal. But these other laws will go into effect regardless of whether or not voters approve Proposal 1. They include subjecting purchases made over the Internet to Michigan’s sales tax, exempting certain property from taxation, creating a new tax on hydroponics and aquaculture production and requiring the state to produce a report analyzing whether or not public school districts have sufficient funds to educate students.[16]