Michigan lawmakers Nov. 3 approved increases to the state’s motor fuel taxes and vehicle registration fees as part of a $1.2 billion plan to fund the state’s transportation infrastructure. The compromise, consisting of seven bills that were long debated between the House and the Senate, will now go to the desk of Gov. Rick Snyder (R) for approval.

Beginning in 2017, the plan includes:

  • Increasing the state gasoline and diesel taxes to 26.3 cents-per-gallon (an increase of 11.3 cents-per-gallon for diesel and 7.3 cents-per-gallon for gasoline);
  • Annually adjusting the state motor fuel tax rates based off of changes in inflation as reported by the Consumer Price Index, starting in January 2022;
  • Applying the state motor fuel tax to alternative fuels (based on the motor fuel gallon equivalent);
  • Establishing an alternative fuel dealer license and fee of $500;
  • Raising vehicle registration fees by approximately 20 percent;
  • Creating a new annual fee for electric-powered motor vehicles; and
  • Earmarking a portion of income tax revenue—starting in Fiscal Year 2018-2019, and gradually increasing for three years until $600 million per year is transferred—for the Michigan Transportation Fund, to be distributed to state and local road agencies.

As part of the compromise, the package of bills will also expand the Homestead Property Tax Credit and amend the state’s income tax.

The $1.2 billion per year in new revenue, gradually phased in over the next five years, would be distributed through the Michigan Transportation Fund to:

  • The Comprehensive Transportation Fund for public transportation (10 percent of new revenues, excluding General Fund transfers, estimated at $62 million per year);
  • The State Trunkline Fund for state highway construction and maintenance ($454 million, or 39.1 percent of remaining funds);
  • County road agencies (39.1 percent of remaining funds, estimated at $454 million per year); and
  • Cities and villages ($253 million, or 21.8 percent of the remaining funds).

Michigan lawmakers have been debating how to solve the state’s dire transportation funding shortfall for several years. In 2014, the legislature approved a ballot measure that would have provided $1.2 billion for transportation funding if approved. On May 5 voters failed to pass the measure, sending lawmakers back to look for a different solution. Several proposals were rejected by lawmakers prior to the package that was approved Nov. 3.

Gov. Snyder released a statement upon passage of the package: “The state House and Senate today approved a fiscally responsible, comprehensive transportation plan that provides a long-term solution with new revenue that also provides long-term tax relief. This is the largest investment in Michigan roads and bridges in more than half a century, making them safer for Michiganders long into the future.”

Michigan is the eighth state in 2015 to increase their state taxes on motor fuel, joining Idaho, Iowa, Georgia, South Dakota,  Utah, Nebraska, and Washington. Read in-depth analyses on the most recent transportation funding increases here.