Proposal 1 would earmark the revenue generated by the new wholesale fuel tax. Of the $1.24 billion in expected revenue in fiscal year 2016, $400 million would go to the Michigan Transportation Fund, the state’s primary road building and maintenance fund.[44] The fund also provides money to other transportation uses. The remaining $815 million — about two-thirds of the new revenue — would be used to pay down a portion of the $1.96 billion in debt the state has accumulated from previous road construction projects.[45]
The following year, about $800 million of the expected $1.28 billion in revenue from this new tax would go to the transportation fund and $456 million would be used to pay down state road debt.[46] Starting in fiscal year 2018, nearly all of the projected $1.38 billion in wholesale fuel tax revenue would go into the transportation fund.[47]
However, it should be noted that the actual language of the bill dedicates $400 million of the total state revenue from fuel taxes to the MTF, not just the additional revenue from the new proposed wholesale tax. According to the Senate Fiscal Agency, this would mean a $522.2 million decrease in the amount of revenue going into the transportation fund and much higher revenue going toward debt payments in 2016.[48]
Similar to the issue regarding the sales tax being levied on gasoline purchased at marine fuel stations and for lawnmowers, snowmobiles and other recreational vehicles, legislation may needed to earmark only the new revenue generated from the proposed fuel tax.
The MTF supports more than just servicing the state’s road infrastructure. It provide funds to counties, cities and villages for road construction and maintenance. It also funds the Comprehensive Transportation Fund, which grants money to bus services and other transit operations.[*] Additionally, 2 percent of fuel tax revenue is constitutionally earmarked for the state’s Recreation Improvement Account, which funds recreational boating facilities and snowmobile trails.[49]
[*] The CTF also receives earmarks from the state sales tax that will be affected by the sales tax exemption on fuel and the increase in the sales tax rate. Even though the CTF would lose revenue from exempting the sales tax from fuel purchases, it would still receive a net increase in revenue under Proposal 1.“Transportation Funding Analysis” (Michigan Senate Fiscal Agency, Jan. 16, 2015), 23, http://perma.cc/JX4C-HQ62 (accessed March 9, 2015).