LANSING, Mich. (AP) — Gov. Rick Snyder plans to propose dropping the tax Michigan charges on each gallon of gasoline and diesel fuel in favor of a tax on the wholesale price of fuel, Snyder senior adviser Bill Rustem told The Associated Press on Tuesday.
The tax switch is part of a major speech the Republican governor plans to give Wednesday at Lawrence Technological University in Southfield laying out ways to improve the state's roads, bridges, water and sewer systems, Internet access and regional transit.
The wholesale tax of about 6.7 percent initially wouldn't cost drivers any more than existing taxes, Rustem said. But as inflation pushes up the price of fuel, the state could gain more money to fix roads and bridges. The state now raises about $965 million annually through the current fuel taxes.
"We're not looking to have a windfall," he said. But "everyone in the state recognizes we need to do a better job of maintaining our roads. ... It's all about making sure Michigan is competitive in the 21st century."
Still, Snyder could face a fight in getting the tax switch through the Republican-controlled House and Senate. He's failed so far to get much GOP support for a new international bridge between Detroit and Canada separate from the existing Ambassador Bridge.
Most GOP lawmakers have signed a pledge not to raise taxes, so they'll have to be sure the fuel tax switch won't raise pump prices, at least initially. Many drivers already are struggling to deal with gas prices that last week averaged $3.38 a gallon statewide, about 57 cents per gallon higher than last year at this time, according to AAA Michigan.
A spokesman for House Speaker Jase Bolger, R-Marshall, said it's likely GOP House members will have several questions when they review Snyder's plan.
"The movement to a wholesale tax on fuel has been talked about previously and got little traction," Ari Adler told The Associated Press. "We are willing to review it with open minds, but we do have concerns. Among those are what happens to the current sales tax on gasoline — would that be applied to the wholesale price? If so, that would be creating a tax upon a tax and we already have too much of that going on at the gas pump."
The state now charges motorists 19 cents per gallon for gasoline and 15 cents per gallon for diesel fuel. The state gasoline tax was last raised in 1997. Michigan also collects a 6-cents-per-dollar sales tax on what motorists pay at the pump. Some lawmakers have proposed dedicating that nearly $1 billion in annual sales tax revenue to roads, but Rustem said that isn't on Snyder's agenda now because the move would take away money from public schools.
Here's what the change means in practical terms: When drivers now fill up at the pump, they pay the same 19 cents per gallon on gasoline regardless of the per-gallon price. For each 15-gallon fill-up, the tax amounts to $2.85.
Under the wholesale tax, motorists would pay a tax on the wholesale price, which generally is about 50 cents per gallon lower than the retail cost. When purchasing 15 gallons at $3.25 per gallon at the pump, a 6.7 percent wholesale tax would amount to $2.76. The tax on that fill-up would rise to $3.27 if gasoline were priced at $3.75 per gallon.
"The price at the pump will be the same," Rustem said. "It's not going to be a change in the experience for the driver."
Mike Nystrom of the Michigan Infrastructure & Transportation Association, which has pushed for more money for roads, said the proposal was unique nationally. Wisconsin charges both a wholesale tax and a per-gallon tax on gasoline, but he said Michigan would be the only state with strictly a wholesale tax.
"We were hoping for big, bold new ideas, and that's what we have in this proposal," he said.
Lawmakers would have to approve legislation switching from the per-gallon to the wholesale tax and setting the upper and lower limits for how much could be collected. Rustem said the limits would be put in place so that sudden spikes or drops in fuel prices wouldn't drastically change pump prices.
Despite lawmakers' past reluctance to change the fuel tax, he thinks they realize the state needs to invest more to improve the 43,000 miles of state and interstate highways, major county roads and bridges eligible for matching federal transportation dollars. More than a third of those roads are in poor condition, a percentage that's expected to grow unless more money is raised.
Michigan has been watching its transportation revenue shrink each year as motorists drive less to save money or switch to electric or more fuel-efficient vehicles. It must provide one state dollar for every four dollars in federal transportation funds it wants to receive, and could end up unable to match $300 million to $450 million in federal funds in the next fiscal year if it sticks with the current system, according to state Transportation Director Kirk Steudle.
A bipartisan legislative commission issued a report last month warning the state will have $1.4 billion in unmet needs each of the next four years on federally aided roads if revenue isn't increased. The shortfall could grow to $2.6 billion annually by 2023, the report said.
The commission's conclusion was blunt: Without action, "either the deferred cost of maintaining our roads will be much higher or we choose to accept lower quality roads."
Rustem wouldn't comment on whether Snyder also might propose higher vehicle registration fees, which could help ensure electric and hybrid vehicle owners pay toward road upkeep even though they're buying little or no gasoline. Under some proposals, those fees could be increased by local governments to help raise more money for local streets and roads, but the hikes would need voter approval.