Late last week, David Zin, chief economist at the Michigan Senate Fiscal Agency presented a packet of revenue implications of transportation funding proposals to the Senate Infrastructure Modernization committee. More or less, this was an unofficial sequel to Bill Hamilton’s breakdown of the line items in the Governor’s transportation budget recommendations from two weeks ago. Where Hamilton gave us a clear picture of what is rolled up in the Governor’s line items, Zin has now given us a clearer picture of what exactly proposed funding plans will do, in terms of numbers.
Now if you click on the link to Zin’s analysis and you get a little intimidated by its number density, do not worry, you are not alone. In fact, when Zin presented his analysis to the Senate Infrastructure Modernization committee last Thursday afternoon, several committee members acknowledged the difficulty of digesting it all at once both in their facial expressions while listening to Zin, and in preface to the questions they asked him afterwards.
I recommend taking in the following highlights of Zin’s analysis one table at a time. This is not meant to be digested as a whole, otherwise it is very easy to get lost in the sea of rising and falling numbers.
Tables 1 and 2 are plans currently in the form of bill packages introduced in the Senate. Tables 3 and 4 are simplified one- or two-step methods of providing new transportation funding. Tables 5 and 6 are tools for analyzing the effects of the plans in Tables 7-12.
Table 1: Senate Bills 87 (SB 87) and 148 (SB 148) raise a tax on the wholesale price of fuel, and Senate Bill 88 revises vehicle registration fees. SB 87 and 148 would add $1.9 billion to the Michigan Transportation Fund (MTF), and at the same time subtract $969.8 million from the MTF. SB 88 would subtract $9.8 million from the state general fund and $1.8 million from a collection of smaller funds, and then add $657.9 million to the MTF. Together the three bills add almost $1.6 billion to the MTF, but leave a $9.8 million hole in the state general fund and a collective $1.8 million of smaller holes in other funds.
Table 2: Senate Joint Resolution J (SJR J) increases the state sales tax by 2%, and dedicates the funding from this additional 2% to transportation funding; $2.3 billion is generated for the MTF, $242.8 million is generated for the Comprehensive Transportation Fund (CTF – state funding for public transit systems in Michigan), and $18.3 million is generated for a host of smaller funds. SB 149 changes the distribution of transportation funding as set in Public Act 51 (PA 51), generating $334.5 million for the MTF, $141 million for the State Trunkline Fund (STF), and $193.5 million for other funds. At the same time, SB 85 and 147 eliminate the fuel tax, cutting $924 million from the MTF, and SB 84 cuts $18.9 million from the Recreation Improvement Fund which would have come out of the sales tax being dedicated for transportation. All together these four bills add over $1 billion to the MTF, $242.8 million to the CTF, $141 million to the STF, and a collective $211.8 million to other funds.
Table 3: Bills aside, this table looks simply at what would happen if the state sales tax on motor fuels is eliminated, and replaced it with a 1% increase in sales and use taxes, along with an increase of the motor fuel excise tax to $0.40 per gallon of gasoline and $0.37 per gallon of diesel. The elimination of the sales tax on motor fuels would subtract $126.2 million from the general fund, $770.1 million from the School Aid Fund, $26.9 million from the MTF, $105 million from constitutional revenue sharing, and $48.8 million from the CTF. It is important to note that these amounts are based on the rate of $3.86 per gallon of gasoline and $3.99 per gallon of diesel; according to David Zin, these prices were chosen to maintain consistency with 2012 Treasury data. The motor fuel excise tax increase would then raise over $1 billion for the MTF, and the 1% increase in sales and use taxes would generate $381.4 million for the general fund, $770.1 million for the School Aid Fund, $105 million for constitutional revenue sharing and $48.8 for the CTF.
Essentially, the motor fuel excise tax increase and the 1% increase in sales and use taxes replace the funds lost from the School Aid Fund, constitutional revenue sharing, and CTF, and then add new revenue of $255.2 million to the general fund and just over $1 billion to the MTF.
Table 4: Similar to Table 3, this is simply the effect of raising sales and use taxes by 1% and dedicating all the funds raised by this 1% to the MTF, without the context of any bills. Doing this would create almost $1.4 billion in new revenue for the MTF.
Table 5: This table examines the value saved by consumers and businesses, and lost by the state government, if specific services are exempt from the state sales tax. This illustrates how certain exemptions would affect the two economic players. Some examples worthy of note are that an exemption of lobbying and public relations services only benefits businesses, while on the other hand personal care, other personal services, mini-warehouse/self-storage, service contracts, pet care, and personal veterinary service exemptions all primarily benefit individual consumers. A repair and maintenance services exemption costs the government the most, and saves consumers and businesses, each, the most. A carpet/upholstery service exemption most evenly benefits both consumers and businesses, and it costs the government the least. This tool can be used to weigh the pros and cons of the six sample combination plans in Tables 7-12
Table 6: This table serves as a measuring tool for how much money can be raised by the state per unit increase of existing state taxes. Along with Table 5, this tool can be used to weigh the pros and cons of Tables 7-12.
Of particular concern to transportation funding is the bottom four taxes listed: vehicle registrations, gasoline tax, diesel tax, and vehicle related sales tax. A tax on motor fuels (gasoline and diesel) has a declining rate of stability due to the increasing rates of vehicle fuel efficiencies, and increasing numbers of people driving electric vehicles. Vehicle registrations and the vehicle related sales tax both share slow growth in stability, because regardless of how people power their vehicles they are still going to purchase vehicles and make vehicle related purchases. This growth remains slow though, because the amounts of these registrations and purchases is tied to the number of people living and driving in Michigan, which does not have a significant increase in the currently foreseeable future.
Table 7: This is a sample combination plan that shows if the sales tax on motor fuels was rededicated entirely to road funding, as people believe it to be, how the holes left in other funds supported by the current sales tax on motor fuels could be refilled from other funding sources.
In this sample, the sales tax on motor fuels is first eliminated, and then reinstated at the same $0.40 per gallon on gasoline/$0.37 on diesel rate from Table 3, and this time all the revenue generated by it – $1.077 billion at this rate – is dedicated to the MTF. This raises the MTF revenue from the motor fuel sales tax from $26.9 million to $1.05 billion. This eliminate-reinstate-rededicate-increase combo move for the motor fuel sales tax is used in each plan for Tables 7-11, and in each case the pump price paid by consumers is unchanged.
The holes then left in the general fund, School Aid Fund, constitutional revenue sharing, and CTF are then fixed through the combination of tax changes listed under Revenue Generated in this table. Under this combination the CTF hole is filled by moving general fund revenue from the sales tax on transportation-related items to the CTF. Similarly the constitutional revenue sharing hole is filled by moving $77.6 million from the general fund and then filling the rest with new revenue from taxes on satellite TV and For-Profit Recreation Activities. On the other hand the School Aid Fund comes out this combination of new taxes with a gain of $28.6 million in new revenue, and the general fund gaining $4.8 million.
Table 8: This sample combination plan is similar to Table 7’s combination in that it rededicates the motor fuel sales tax at a higher rate to the MTF, but this combination uses a different combination of taxes and fund allocation shifts to fix the holes in the general fund, School Aid Fund, constitutional revenue sharing, and CTF. In this combo, the MTF once again comes out with $1.05 billion in new revenue, but this time the general fund, constitutional revenue sharing, and the CTF come out level with the previous year’s budget, and the School Aid Fund escapes with only $700,000 in new revenue.
Table 9: As with Tables 7 and 8, this is another combination rededicating the motor fuel sales tax at a higher rate to the MTF, and using a new combination of taxes and fund allocation shifts to fix the holes in the general fund, School Aid Fund, constitutional revenue sharing, and CTF. With this combination the MTF once again comes out with $1.05 billion in new revenue; the general fund, constitutional revenue sharing, and the CTF come out level with the previous year’s budget; and the School Aid Fund now gains $12.6 million in new revenue.
Table 10: This sample combination plan again rededicates the motor fuel sales tax at the same increased rate to the MTF, and uses a new combination of taxes and fund allocation shifts to fix the holes in the general fund, School Aid Fund, constitutional revenue sharing, and CTF. In this combination the MTF once again comes out with $1.05 billion in new revenue, constitutional revenue sharing and the CTF come out level with the previous year’s budget, and the School Aid Fund now gains $15.6 million and the general fund gains $1.3 million in new revenue.
Table 11: In this fifth sample combination plan, the motor fuel sales tax is again rededicated at the same increased rate to the MTF, and a new combination of taxes and fund allocation shifts is used to fix the holes in the general fund, School Aid Fund, constitutional revenue sharing, and CTF. In this combination the MTF once again comes out with $1.05 billion in new revenue, and as in Tables 7-10 constitutional revenue sharing and the CTF come out level with the previous year’s budget. This time the School Aid Fund gains $2.6 million, but the general fund comes out with a loss of $18.5 million in revenue. While this is still a loss for the general fund, this combination does fill 85.3% of the hole left from eliminating the motor fuels sales tax as it is right now.
Table 12: This sixth and final sample combination plan, once again uses a new method of filling the MTF hole and boosting it, after eliminating the current sales tax on motor fuels. In this plan the replacement motor fuels sales tax is a flat $0.30 per gallon tax on both gasoline and diesel, that is rededicated solely to the MTF, generating $600.6 million. A 0.75% sales tax increase is then shared between the School Aid Fund and MTF, with each fund receiving 57.5% and 35% of the new revenue, respectively. SB 86 cuts some government costs by reduces expenditures from the vehicle registration tax, opening up $165 million more for the MTF. With these three new funding sources, the MTF comes out with $1.082 billion in new revenue.
Under this plan’s combination of other tax and allocation shifts, the CTF comes out level with the previous year’s budget, constitutional revenue sharing gains $9.4 million in new revenue, the School Aid Fund gains $3.2 million in new revenue, and the general fund comes out 86.5% refilled, leaving a $17 million loss in that area.
By: Dan Sommerville, Transportation For Michigan Fellow