By Paul Rozycki
In March Governor Gretchen Whitmer began a tour of the state to defend and explain her first budget proposal to the public. She’s already been to Grand Rapids, Detroit, Dearborn, Jackson, Port Huron and Adrian, and plans are to continue the statewide journey as the budget works its way through the legislature.
Though her itinerary isn’t complete, there is a good chance she will be in the Flint and Genesee County area to discuss the budget and hear the public response. As might be expected for a state the size of Michigan, the budget is a large and complex document, and all kinds of interest groups have specific parts that they like or don’t like.
However, the biggest and most important parts of the budget fall into four major categories: the roads, education, water infrastructure, and, finally, taxes, which will overlap with everything else in the budget.
The big picture
Whitmer is proposing a $60.2 billion budget for the state, a 3.6 percent increase over the past year. But the idea that the state has about $60 billion to spend as it sees fit is a bit deceptive. More than 41 percent of that is from federal funds, which are typically earmarked for certain projects or purposes.
A number of other state funds are dedicated to specific goals. Only 18 percent, or about $10.7 billion, is truly from the general fund, where lawmakers have some choice about how to spend the money. That amount is about the same as it was last year.
- The roads
Whitmer won with the “fix the damn roads” election slogan, and it’s no surprise that the roads are the first thing on her agenda. The problem is obvious. By almost every official measure, Michigan’s roads are in bad shape, and getting worse, and nearly every driver can tell of damaged cars and a teeth-rattling time on the highway.
Because of years of neglect and underfunding, the solution won’t be quick, and it won’t be cheap. Most experts estimate that the state should increase road repair spending by about $2.7 billion over a number of years. In a state where there is only about $10.7 billion in general fund money, where can we find that kind of money?
Whitmer has proposed a 45 cent increase in the gas tax, phased in over the next year and a half, to pay for it. As might be expected, there is significant opposition to the gas tax, but other options may be equally unpopular. Some suggest a sales tax increase, others favor a bond issue, and others suggest toll roads or other fee increases.
In addition to the gas tax increase, the governor would change the way funds are allocated. The funds would be directed towards the most heavily travelled and “economically significant” roads, rather than the rural roads as they are in the current formula.
The reaction to the gas tax proposal will certainly be a major issue of the governor’s road tour as she hears from the voters. The details of the proposals to “fix the damn roads” deserve another column in the future.
As our roads have deteriorated in the state, so has our educational system. Michigan has gone from being a leader in educational standards to trailing many other states. Whitmer proposes to increase the K-12 spending by $507 million, by increasing the per-pupil funding by $180 in the lowest performing school districts, and $120 for those currently receiving the highest state grants. Her budget also increases funds for community colleges and universities by three percent and would make the first two years of college free for most. She also proposes increased funding for career and technical education and special education.
- Water infrastructure
Flint’s water crisis has become the poster child for the water problems that Michigan and much of the nation may face in the future. And just as it seems that Flint is starting to resolve the issue of lead in the water, over 119 locations have tested positive for the presence of PFAS (per fluorinated alkyl substances), which are considered potentially carcinogenic chemicals, in their water. The governor has proposed $120 million to help municipalities and utilities meet tougher water standards and rebuild the state’s water infrastructure. She also proposes $60 million to install hydration stations in schools with water problems. All of that is likely to be only a small down payment on what could be a much larger problem in the future.
- Taxes and revenue
All those goals, (and many more) could be expensive, and the key question is always “How will you pay for it?” As part of her budget, Gov. Whitmer is proposing new taxes and other changes in the current tax system.
Almost certainly, the most striking and controversial change is the proposed 45 cent increase in the gas tax to pay for the roads. The increase would come on top of Michigan’s current 26.3 cent gas tax, and would give the state the highest gas tax in the nation, according to Bridge Magazine. If passed, it would be applied in three stages, over the next year and a half, and would raise about $2.5 billion per year for the roads.
A second tax change would be a repeal of the so-called “pension tax” on retirement income and replacing the lost revenue with an increase in taxes on some smaller business corporations. Removing the pension tax would save some 400,000 families about $800 a year, according to tax officials. While getting rid of the tax on some pension income is popular with lawmakers in both parties, getting rid of it would cost the state $330 million in lost general fund revenue. Whitmer hopes to fill that gap with an increased tax on smaller businesses and corporations, raising their tax from 4.25 percent to 6 percent. That shift is particularly unpopular with the business community and their Republican supporters in the legislature.
The budget also proposes a doubling of the Earned Income Tax Credit (EITC), for low income taxpayers, from six to 12 percent of the federal credit. It would be phased in over two years and benefit about 750,000 families. The average credit would increase by about $150 by 2021.
To make things even more complex, the new budget proposes several shifts in existing funds. If the gas tax passes, it would free up about $500 million of general fund money for higher education. And some of the money from the school aid fund that has aided community colleges and universities, would be shifted back to the K-12 school aid fund.
The long road to passage
To be sure, there are many other details to the four proposals, and there is much more to the governor’s proposed budget. Many of those topics call for separate columns. The governor is beginning a statewide tour, trying to sell the budget to the voters, and hearing suggestions about what might be changed or modified.
It still has to work its way through the state House and Senate, both controlled by Republicans. After hearing from the public, and wending its way through a series of legislative committees, the budget is likely to be different in the end. The trip through the legislature may be longer and more complex than the governor’s tour through the state. The normal target date to complete the budget is late June, and the official budget year begins on Oct. 1.
Meeting that deadline may be more of a challenge this year than it has been in the past. But the new budget may also be a blueprint for the future.
EVM political columnist Paul Rozycki can be reached at email@example.com.
Banner photo of the Michigan State Capitol building from the Capitol Home Page, capitol.michigan.gov.