Analysis of Gov. Whitmer’s Gas Tax Proposal

Executive Summary

Gov. Gretchen Whitmer proposed a fuel tax to raise funds for statewide road repair. The tax exclusively targets vehicles with internal combustion engines (ICE) but also effectively raises the ownership fees for electric vehicles (EVs). Experts debate the policy’s effect on taxpayer equity, environmental sustainability, and economic growth. The State Legislature appears unlikely to pass the current draft.

Background

Poor road conditions cost Michigan motorists an average of $686 per year in vehicle repairs. Insurance fees, lost productivity, and other factors raise the cost to $1,980. Studies point to underinvestment in infrastructure. The State ranks No. 42 in road expenditures per vehicle miles traveled. It funds road maintenance through the Michigan Transportation Fund (MTF), which is financed by fuel taxes and vehicle registration fees. The revenue source has seen little growth over the years. Registration fees have risen proportionately with vehicle values, but until 2015, fuel taxes had never been adjusted for inflation and had not increased since 1997. The State had issued bonds to offset funding deficiencies; the Michigan Department of Transportation (MDOT) is now paying down $1.2 billion in outstanding debt.

In 2015, Michigan approved a $1.2 billion-per-year funding package for road and bridge repair. A five-year phase-in began in 2017. The plan included a 7.3-cent increase in gas taxes to 26.3 cents, an 11.3-cent increase in diesel fuel taxes to 26.3 cents, a $20 hike in registration fees, and a $600 million allocation from the general fund. It also indexed the fuel tax for inflation; effective in 2022, the tax will rise annually by either 5% or the inflation rate, whichever is lower. MDOT said the 2015 plan has slowed road deterioration but cannot solve the state’s infrastructure problems. Studies suggest the roads need another $2 billion to $2.6 billion annually.

Fuel Tax Proposal

To fill the funding gap, Gov. Whitmer proposed raising fuel taxes from 26.3 cents to 71.3 cents. The increase would be phased in with 15-cent hikes in October 2019, April 2020, and October 2020. Inflationary indexing would begin as planned in 2022. Whitmer expects $2.5 billion in gross annual revenue from the new tax beginning in 2021. The sum would be apportioned to a new Fixing Michigan Roads Fund ($1.9 billion) and restoration of the general fund ($600 million). The proposal eliminates the general-fund earmark for roads and restores $500 million siphoned from the School Aid Fund.

Those who oppose the plan point to its impact on Michigan’s at-pump taxes, which would become the highest in the nation, according to the Tax Foundation. Michigan fuel taxes are compounded by a 6% sales tax. The additional 45-cent-per-gallon excise tax would raise the average at-pump tax from 44.13 to 89.13 cents per gallon. For a 15-gallon tank, the total tax increase would cost an extra $7.16 per fill-up.

Whitmer’s plan would also indirectly raise registration fees for battery electric vehicles (BEVs) and hybrid electric vehicles (HEVs) to the highest rates in the country. The Michigan Vehicle Code ties each one-cent increase in fuel taxes to a $5 increase in BEV fees and $2.50 increase in HEV fees. For a 45-cent fuel raise, EV owners would pay an extra $102.50 to $225. The average ICE vehicle that gets 27 miles to the gallon could travel 13,500 miles before breaking the BEV rate. Since the average U.S. driver travels 13,476 miles annually, the proposed tax appears to draw comparable contributions from the average BEV and ICE owners. Altogether, EV fee increases are expected to generate $3 million in new revenue.

Five years into Whitmer’s 10-year road plan, a commission would be appointed to examine the market share of fuel-efficient and electric vehicles. The commission would explore fuel-tax alternatives to capture an evolving tax base.

Policy Analysis

Industry Impacts  —  The Michigan Petroleum Association and Michigan Association of Convenience Stores say the average gas station will pay an extra $1,125 per day in taxes. This figure represents the statutory tax incidence, not the economic incidence. Gas is a relatively inelastic good, which means consumers would bear more of the tax burden than gas stations would. The associations also expect consumers to offset higher gas expenses by cutting spending in station convenience stores. Station owners record higher margins from commodities than fuel, so lost store sales could hurt operations. Consumers near state borders are predicted to escape the tax altogether by buying gas in Ohio and Indiana. Washtenaw County commuters may similarly pursue substitutes; they can avoid the fuel tax by biking or electric scootering. These changes in consumer behavior would hurt local gas stations.

Economic Impacts  —  Road improvements are expected to increase travel efficiency and reduce vehicle-repair expenditures across Michigan. These factors free up consumer time and resources for discretionary spending. The economic benefits could be offset by the fuel tax increasing business transportation and distribution costs. Rising input costs would yield higher prices for consumer goods and services, which could hamper the broader consumer spending and decrease Michigan’s national price competitiveness.

Environmental Impacts  —  The tax could help reduce Michigan’s carbon emissions by inspiring drivers to cut consumption or purchase more fuel-efficient vehicles. However, the University of Michigan Energy Institute expects rising registration fees to disincentivize purchases of cleaner vehicles. This would undermine carbon-reduction efforts. Policy proponents argue the $225 fee increase is minimal.

Equity Impacts  —  The policy mitigates negative effects on low-income motorists by doubling the Earned Income Tax Credit from 6% to 12%. In the near term, though, high-income earners may escape fair contributions to the road-repair fund and shift the cost burden onto low-income earners. As EV prices remain prohibitively high, EV ownership may be the exclusive privilege of high-income drivers. After about 13,500 miles, ICE drivers would pay higher annual taxes per mile than their EV counterparts would. Low-income motorists would effectively subsidize the road use of high-income drivers. Some experts propose an electricity use tax as an equitable alternative to charging static EV registration fees.

Political Analysis

The Michigan House Speaker and Senate Majority Leader (both Republicans) acknowledge the need for road repair but oppose the fuel tax. They propose to fund roads with revenue from the existing sales tax on fuel. That revenue currently supports schools and local governments. Whitmer is willing to negotiate on other budget points, including a GOP-opposed business tax, to advance her fuel tax proposal as is.

Member Spotlight: Weber’s Restaurant and Hotel

Name: Michael Weber

Title: Vice President, Weber’s Restaurant and Hotel

How long has your company been a member of the Ann Arbor/Ypsilanti Regional Chamber?

Since 1967!

What is a typical day like for you?

My typical day is never dull. From working with and serving our guests to planning our next renovation, there is always something to keep me engaged. The fun thing about owning and operating a hotel is the variety of things you get to learn about day in and day out.

What do you enjoy most about the A2Y Chamber?

I enjoy networking with other chamber members and keeping updated on events that affect the business community.

What’s your favorite tip for someone in your industry?

Hard work is good for the soul.

What is a surprising fact about your business?

We started as a gas station that served hamburgers, beer, and had a pinball machine in 1937

If you would like to be featured in our Member Spotlight, contact us.

A2Y Chamber Welcomes Lizzy Balboa, Public Policy Intern

The A2Y Chamber is always looking for better ways to serve our members. One area of great importance to our community is public policy. This includes a better understanding of the participants and processes involved, along with an objective assessment of the political dynamics at work.

To keep our members updated on legal and regulatory changes, the A2Y Chamber has partnered with the University of Michigan’s Ford School of Public Policy to host a policy research intern. Lizzy Balboa will join us through July and will be available to help answer your policy questions regarding process, participants, and assessment of the practical outcomes. She will provide details on proposed or approved policies, explain their implications, and offer analyses on the political likelihood of implementation. In addition to answering your questions, Lizzy will also help us deliver updates on local, state and federal policy developments. These updates will be designed to serve as informative and objective summaries.

We are excited to have Lizzy on board and we know you will find great value in her work. A Michigan native, and graduate of Grand Valley State University, Lizzy is pursuing a Master of Public Policy degree at the Ford School of Public Policy. Along with her educational background, Lizzy brings experience as a financial and business journalist. She is pleased to field your policy inquiries at lizzy@a2ychamber.org.

Member Spotlight: Governmental Consultant Services (GCSI)

Name: Kirk A. Profit

Title: Owner/Director, Governmental Consultant Services Inc.

How long has your company been a member of the Ann Arbor/Ypsilanti Regional Chamber?

… Decades!!

What is a typical day like for you?

Every day is different with new challenges and opportunities as are presented [with a] broad range of issues facing our local community, region, and state.

What do you enjoy most about the A2Y Chamber?

The engagement of its leadership team and membership in issues that matter to our community and region.

What’s your favorite tip for someone in your industry?

Be relevant!

What is a surprising fact about your business?

Most of our clients are long term relationships spanning decades. While we continue to attract new clients with interests in impacting local, regional, and state decisions, we have a number of clients who have been with us for nearly 40 years.

If you would like to be featured in our Member Spotlight, contact us.

Member Spotlight: The Back Office Studio

Name: John Newman

Title: Community Manager, The Back Office Studio

How long has your company been a member of the Ann Arbor/Ypsilanti Regional Chamber?

We opened in 2018

What is a typical day like for you?

A typical day for The Back Office Studio involves giving individuals, remote workers and entrepreneurs a great place to do meaningful work. We have fast WiFi, conference rooms, phone booths, cafe seating, sit-to-stand desks, private offices, and fresh Hyperion coffee.

What do you enjoy most about the A2Y Chamber?

The A2Y Chamber is a great way for us to connect with other businesses in the Ypsi and Ann Arbor area. We love the programming and events that the chamber supports.

What’s your favorite tip for someone in your industry?

You don’t have to work at home or at a noisy coffee shop. We have a great space for you to do your best work in downtown Ypsi. Come join us for a day and see if coworking is good fit for your work.

What is a surprising fact about your business?

In a recent study of coworkers, 84% report that they are more engaged and motivated, 67% experience improved professional success, and 69% feel more successful.

If you would like to be featured in our Member Spotlight,contact us.

Member Spotlight: Beyond Primary Care

Name: Dr. Jeff O’Boyle

Title: Owner

How long has your company been a member of the Ann Arbor/Ypsilanti Regional Chamber?

Beyond Primary Care, a family medicine and addiction medicine clinic has been a member of the Ann Arbor/Ypsilanti Regional Chamber since October 2018.

What is a typical day like for you?

A typical day for Dr. Jeff O’Boyle involves getting out of bed early for a cardio, yoga, or weight work-out (need to do what I myself encourage my patients to do!) followed by a dog walk with my two huskies. Then I make an oatmeal or yogurt parfait breakfast and it is off to the clinic!

First I start my day by answering any emails from patients. Then I mix in patient appointments, in-clinic medication refills, in-clinic blood draws, business appointments, and personally following up with my patients over phone, webcam, or text.

I spend time in coordination of care between my patients and their other healthcare providers, as well as connecting to learn more about other physicians, chiropractors, naturopaths, pharmacists, health coaches, and nutritionalist in the community.

In the evening I head home, where making and sitting down for dinner with family is an important daily routine (also encouraging my patients to do the same).

What do you enjoy most about the A2Y Chamber?

As a small business owner, I know that great employees are important to success, and treating them like family helps build loyalty. I know how challenging it is to provide affordable health care for employees. As a physician, I also know that having health insurance does not guarantee healthcare. Through the chamber, I have had the absolute pleasure of meeting and connecting with some of the most genuine people and small business owners one could hope to meet in the community. I listen to the stories and concerns regarding the ever-increasing cost of health insurance and share everyone’s desire for affordable and accessible healthcare.

What’s your favorite tip for someone in your industry?

My advice is to keep innovating to add value to your services, never be content to rest on your laurels. At Beyond Primary Care, one way we provide innovation is routinely offering same-day access to appointments with minimal wait times with a dependable physician is who can address more than one concern at a single visit.

What is a surprising fact about your business?

Beyond Primary Care is a new approach to family medicine that creates the time and space that your health deserves. All appointments at Beyond Primary Care are a minimum 1 hour long. Our patients don’t have to stay that length, but the option is there for them. We love taking care of people who are looking for individualized healthcare, a strong and seamless doctor-patient relationship, and affordable and accessible healthcare that we create through eliminating the unnecessary overhead in the insurance model.

If you would like to be featured in our Member Spotlight,contact us.

Member Spotlight: Red Effect Infrared Fitness

Red Effect Infrared Fitness offers an unparalleled fitness experience, fusing infrared heat with class-based high intensity interval training,

kick boxing circuit training, cycling, yoga and barre, and combinations of these concepts under one roof. Red Effect also deploys revolutionary heart-rate monitor technology that creates the ultimate workout. The HIIT workouts are designed to achieve and maintain heart rates in the target zones that stimulate the metabolism, increase energy and achieve an “after-burn” effect that can last up to 36 hours post workout.

The infrared heat emitted throughout the Red Effect fitness studio warms the body naturally, which raises core body temperature and enhances the workout to produce a deep, healthy and detoxifying sweat at a cellular level where most toxins reside. Among the many workout benefits of weight loss, conditioning, toning and stress relief, working out in an infrared environment is also known to reduce inflammation, aid in anti-aging and produce overall cardiovascular health.

Ann Arbor members will enjoy numerous extra perks at the Ann Arbor Executive Club 10,000-square foot Studio, including unlimited use of infrared saunas, a full schedule of watch and post-game victory parties in the studio’s social lobby, a full service Stretch Smart Infrared Therapy Center and a smoothie bar.

SOS Community Service’s Road to Home fundraiser was a big success!

We would like to thank everyone who participated in making Road to Home 2018 SOS’s most successful fundraiser to date. Two hundred guests enjoyed appetizers and a silent auction of artisan bowls at Zingerman’s Greyline on October 4, 2018. The event raised a record $105,970 this year. SOS would like to thank the event co-chairs, Emily Moore-Marshall and Tim Marshall, and the event sponsors.

Member Spotlight – Northwestern Mutual Carol Hoffer

Together, we’ll create a blueprint to guide your financial life.

Create your financial plan with Northwestern Mutual. From financial planning to long term care planning and employee and executive benefits, together we’ll design a personalized plan to help you achieve financial security. Who’s helping you build your financial future?

Carol Hoffer,
CLU®, CASL®
Financial Advisor
(734) 663-8374
carolhoffer.nm.com