Proposal 1 has kept Craig Thiel busy lately. The research consultant has been talking to school, business and civic groups around the state, helping them understand the multifaceted tax proposal Michigan voters will see on their May 5 election ballots.
“It’s about as complex as we’ve had in recent times,” said Thiel, a senior research associate for the nonprofit Citizens Research Council of Michigan, of the package of tax increases to fund roads, schools and local governments.
Not since Proposal A, the school-funding overhaul approved by voters in 1994, has a ballot issue asked voters to amend the state Constitution as well as “understand a whole bunch of law changes that are tied up with the public vote,” Thiel said.
State Rep. Robert VerHeulen, R-Walker, isn’t saying how he will vote on the May 5 ballot proposal that would provide funding for roads, schools and local governments. But he’s adamant about cautioning voters that there is no secret “plan B.”
“I haven’t heard a ‘plan B’ that’s viable,” said VerHeulen, who last term chaired the House Appropriations Subcommittee on Transportation, which oversees Michigan roads. “I tell people not to expect one if Proposal 1 fails, because there isn’t one.”
VerHeulen also doesn’t fault colleagues in the state Legislature for the political realities they face. But he concedes that in some ways state lawmakers kicked back to voters a decision that’s complicated and hard to swallow.
The staunch budget hawk has long opposed tax increases. But he voted in favor of asking voters to decide the matter once legislative leaders on both sides late last year proposed a sales tax increase, which requires a constitutional amendment.
“In some respects that’s a fair criticism,” said VerHeulen, the House Majority Whip. “We certainly tried, but if you’re going to raise the sales tax, that requires a constitutional amendment, which the Legislature can’t do. You have to go to the voters if you’re going to raise the sales tax.”
Those changes in law, along with constitutionally increasing the sales tax from 6 percent to 7 percent, would increase tax revenue by an estimated $2.1 billion in the 2016 fiscal year, according to the House Fiscal Agency. That would include about $292 million to the School Aid Fund and $1.2 billion for road and bridge repairs and transportation debts.
Yet while Proposal 1 appears complicated and confusing, “in essence it is relatively simple,” a prominent school administrator insisted.
“Taxes collected at the pump go to repair and maintain Michigan’s transportation infrastructure, and the sales taxes we pay go to finance education and municipal government,” said Ron Koehler, assistant superintendent of the Kent ISD.
But beyond that relatively simple formula lies a wide array of detail that keeps Thiel on the road, presenting PowerPoints and answering questions with the aid of a CRC analysis.
“The reason it’s so complex is it’s serving a number of masters,” Thiel said. “When you try to serve all those masters, it by default becomes very complicated.”
A Creature of Compromise
Despite having been endorsed by about a dozen Kent ISD school boards and other education groups, Proposal 1 did not fare well in a recent EPIC-MRA voter poll. That’s consistent with past attempts to raise the sales tax, Thiel said. The exception was 1994’s Proposal A, when voters were faced with an income-tax hike if they didn’t raise the sales tax, he said. They chose “what they thought was the lesser of two evils,” he added.
Besides voter tax resistance, proponents also must overcome the complexity of a proposal that calls for both constitutional and legislative changes. It asks voters to approve changes to the state constitution, including raising the sales tax. If they vote yes, only then will laws previously approved by the Legislature take effect, including increasing fuel taxes to pay for transportation improvements.
This hybrid package came about because of a legislative impasse on how to fix Michigan’s crumbling roads and bridges. Democrats and Republicans agreed on a compromise that would increase road funding without reducing money for schools and local governments (see related story).
As a non-partisan organization that provides information on government issues, the Citizens Research Council has aimed to clarify Proposal 1 in presentations ranging from Michigan School Business Officials to the League of Women Voters.
So, How Would This Work?
Thiel, who co-authored the CRC analysis, breaks down the proposal to five main objectives:
- Raising more revenue for fixing roads and bridges while preventing a spike in gasoline prices;
- Ensuring alltaxes drivers pay at the pump go to transportation improvements;
- Exempting gasoline and diesel fuel from sales and use taxes;
- Ensuring schools and local governments are not hurt by those three changes;
- Providing tax relief to low-income people who would be most impacted by the sales-tax hike, by increasing the Earned Income Tax Credit and Homestead Property Tax Credit.
The tax changes may be confusing but are necessary to achieve all objectives, proponents say. Here’s how the changes break down on each side:
Transportation: Sales and use taxes on fuel would be removed and replaced by increases in per-gallon taxes on the wholesale price. This would raise taxes paid at the pump, by how much depending on the price of fuel. Rates would be allowed to rise with inflation, within parameters, to prevent large swings. Along with increased registration taxes, this would yield a net revenue increase of $1.2 billion for roads, mass transit and debt payments, the House Fiscal Agency projects.
Schools and governments: Because schools and local government would lose close to $700 million from removing the sales tax on fuel, the sales tax rate on everything else would increase from 6 percent to 7 percent. Constitutional changes would also guarantee a certain percentage of sales and use taxes go to schools and municipal revenue sharing. The House Fiscal Agency projects a net increase of $845 million for schools, local government and the state general fund.
Significantly for schools, Proposal 1 also would limit the School Aid Fund to school districts, community colleges, and career and technical education programs. It would exclude school-aid money going to four-year universities, which have received $200 million or more in recent years.
Adding it up
All told, voter approval of Proposal 1 would raise nearly $2.1 billion in the fiscal year beginning this October, $1.8 billion in 2016-17 and $1.9 billion the following year, according to the House Fiscal Agency.
Over the same period, the School Aid Fund is projected to receive $292 million, $220 million and $200 million. In light of school funding cuts in recent years, that’s one reason school boards have passed resolutions of support in districts including Forest Hills, Grand Rapids and Rockford. They worry that if it is defeated, the Legislature will opt for a previous House-approved plan officials say would sharply reduce funding to schools and cities.
In any case, educators hope voters will engage in some education themselves, and come to the polls May 5 to cast well-informed votes.