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Road Funding Ballot Breakdown: What Your Community Needs to Know

Don Wotruba

By Don Wotruba, CAE, MASB Deputy Director

DashBoard, Jan. 28, 2015

On May 5, 2015, Michigan voters will be asked to approve a 1 cent sales tax increase to help fund Michigan’s roads and schools. This proposal came about as a last-ditch effort by the Michigan Legislature to find a desperately needed road funding fix during the lame duck session in December 2014.

While a vocal minority thinks that the Legislature should have taken direct action instead of sending it to the voters, this is the reality of the situation and your community needs to understand what they are voting on and how it impacts schools.

It’s All or Nothing

What will actually be on the May ballot is only a small part of the total package that is tied together in this proposal. The Legislature used an often depended upon process that ties all of the bills in a package together ensuring that for one to become law, all of them have to become law. Having done it in this situation means that if the May ballot issue doesn’t pass, the whole nine-bill package goes down too.

State Constitution Amendments Don’t Mention Roads

The amendments to the State Constitution are relatively straightforward, but very little of what is being done has anything to do with roads or the distribution of road funding. It is anticipated that this will be where the difficulty in understanding this proposal will come.

House Joint Resolution UU proposes to amend Article IX of the Constitution in three sections:

  1. Section 8—changing the ceiling on the sales tax from 4 to 5 percent. The additional 2 percent that was added through Proposal A was done separately hence the increase from 4 to 5.

    New language will also be added to Section 8 that states that after Oct. 1, 2015, no sales or use tax will be charged on the sale or use of gasoline or diesel fuel. Up until this point, sales tax was assessed on every dollar spent on these purchases and this change now allows all fuel taxes assessed to go to roads rather than the confusing tax system that currently exists.
     
  2. Section 10 also needs to be amended to reflect the 4 to 5 percent tax increase. This section deals with the portion of sales tax collection that goes to local units of government for revenue sharing.
     
  3. Section 11 will be changed to eliminate access to the School Aid Fund by higher education, which currently receives ~$200 million from this Fund. However, there will be an expansion in where school aid money can be spent, including “public community colleges, public career and technical education programs, and scholarships for students attending either public community colleges or public career and technical education programs.”

    The switch between funding for higher education to community colleges would take fewer dollars away from PreK-12 public schools, but the amount given to community colleges each year could grow depending on the state appropriation process and money available.

    Also in Section 11, an earmark of 12.3 percent of the use tax would be designated for the School Aid Fund. The use tax is an area that continues to grow and should result in an increasing revenue source for the School Aid Fund in the long term.

Tie-Barred Bills Explained

As mentioned above, nine other bills are a part of this tie-barred package, plus a couple of others that were passed, but are not contingent on the May 5 vote.

Following are the bills that, in addition to those that would implement the language covered in the constitutional changes, would go into effect when the ballot proposal passes:

House Bill 5477 will move Michigan’s current fixed rate of 19 cents per gallon to a tax based on 14.9 percent of the average wholesale price of gasoline and diesel fuel. This creates a projected revenue source of $1.2 billion for Michigan roads. This amount would be partially offset by $752 million because of the sales tax on gasoline and fuel being removed.

Senate Bill 847 would amend the Income Tax Act to increase the earned income tax credit from 6 to 20 percent of the credit allowed under the federal Internal Revenue Service code. The bill also reduces the income qualifiers for the homestead property tax credit for certain populations. These two changes are being made to help offset the regressive impact that an increase in the sales tax has on our lower-income citizens. Final numbers have not been reached, but it is believed that most low-income individuals will see a net tax reduction.

House Bill 4630 would implement increases in certain truck registration fees and eliminate “depreciation” of ad valorem tax rates for passenger cars, vans and light trucks.

Two other bills of great importance to education that passed as part of this discussion are Senate Bills 80 and 423. Senate Bill 80 is tie-barred to the rest of the package and includes an appropriation of $40 million to at-risk funding.  

Senate Bill 423 requires the state of Michigan to conduct an adequacy study on education funding. Specifically, the Department of Technology, Management and Budget will have to enter into a contract for a comprehensive statewide cost study to determine the sufficient resources per pupil to provide a public education that enables a pupil to demonstrate successful completion, in terms of proficiency, of all of the credit requirements of the Michigan Merit Standards.

This study must be completed within one year of the effective date of the bill and is similar to those conducted in many other states in the country. It will give Michigan’s schools and legislators real data on which to base future funding decisions.

Money Talks

Based on estimates when the bill package passed, the state is estimated to see an increase in revenue of $1.7 billion. The distribution of those funds would be as follows:

  • $1.2 billion per year for road agencies; includes the State Trunk Line Fund, county road commissions, cities and villages.
  • $300 million in additional revenue for the School Aid Fund; equal to roughly a $200 per pupil increase.
  • $130 million to the Comprehensive Transportation Fund for public transportation purposes.
  • $95 million for constitutional revenue sharing payments to cities, villages and townships.

You can expect to see campaign materials and ads, both for and against the ballot proposal in the coming months. There is expected to be a diverse coalition of entities showing support, while most of the opposition is expected to come from state and national anti-tax groups like Americans for Prosperity.

The MASB Board of Directors has voted to fully support the ballot initiative and will also be contributing financially to the campaign as the proposal addresses two of our legislative priorities. Additionally, with the adequacy study and higher education being removed from the School Aid Fund, it results in greater revenue for PreK-12 schools. These items, plus the deplorable conditions of Michigan's roads that our members use to transport children every day, makes this a proposal for all school board members to support.

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