LANSING — Michigan lawmakers said Thursday night that they’d reached a long-awaited agreement to avoid a state government shutdown on Oct. 1.
Many specifics still need to be worked out, but the plan will provide billions of dollars in road funding through a combination of spending cuts and increases in tax revenue.
“We’ve all committed to getting this done on time,” said House Speaker Matt Hall. “We’ve all agreed to the major components that have been holding up this process, and now we’ve got to sprint to the finish line to get this done for the people of Michigan on time”
The agreement, described as a ‘framework’, was announced by Hall with Democratic leaders Sen. Winnie Brinks and Gov. Gretchen Whitmer.
The development clears the way for a state budget framework and a long-term road funding plan.
“We put $1.5 billion into our local roads, and that goes up to over $1.8 billion over the next five years,” said Hall, (R) District 42, Richland Twp.
That funding would come from a handful of sources, including the corporate income tax, cuts to spending and a new marijuana tax.
“$1.5 billion of revenue — we will have $1.5 billion of cuts also to offset that,” said Rep. John Roth, (R) District 104, Interlochen.
Overall, around $700 million from the corporate income tax would be shifted to road funding annually, increasing to a billion dollars over the next five years.
The plan would decouple Michigan from some of the federal tax changes signed into law earlier this year, which would maintain about half a billion dollars a year for the state.
Also, $500 million in state spending would be freed up from SOAR, the state’s business incentive program that offers billions of dollars in tax incentives to encourage investment in Michigan. Half of that would go to state Medicaid costs, while the rest would go to other areas of state spending.
The plan doesn’t directly raise taxes on Michigan residents or consumers — but a proposed wholesale tax on marijuana would almost certainly raise prices for buyers.
“You’re going to have a 24% wholesale tax on marijuana dedicated to roads,” Hall said.
Michigan consumers already pay the state’s 6% sales tax on all marijuana products, on top of a 10% excise tax.
Those current taxes generate more than $300 million for the state annually, while the new wholesale charge is projected to generate — get this — $420 million a year.
Michigan’s marijuana market is one of the largest in the country, representing more than $3 billion last year.
But prices have been falling due to oversupply, challenges that marijuana growers say would be worsened by the wholesale tax.
The plan would change some other state tax policies, like shifting revenue sources so that all taxes paid at the gas pump go toward the funding of road work.
“We’re prioritizing what matters, and that is quality public schools, quality public safety and long term road funding,” said Rep. Alabas Farhat, (D) District 3, Dearborn.
The plan would also exempt certain overtime and tipped earnings from individual income taxes, along with Social Security benefits for residents born after 1952.
The nonpartisan House Fiscal Agency estimates that these exemptions would cost the state around $175 million a year.
Information on other aspects of the agreement remained scarce — lawmakers are still deciding how much each state agency will receive.
It also isn’t known whether school funding will follow a per-pupil model based only on the size of a student body, or whether the state will maintain needs-based support for specific initiatives.
Lawmakers say they’re all but certain that next week will go off without a hitch, despite the unanswered funding questions.
“I think we have — we bypassed a shutdown,” Roth said. “We feel really good about it. If there’s any shutdown, it’s tiny, or hours maybe — but the plan right now is to finish everything by Tuesday night, get everything signed. And I think we’ve avoided a shutdown.”