Agema bill would shift some sales tax revenue to airports

The Michigan House Transportation Committee on Wednesday took testimony on legislation that would dedicate a portion of sales taxes on airplane fuels into the Michigan Aeronautics Fund (MAF).

HB 4025 sponsor Rep. Dave Agema (R-Grandville) told the committee that the legislation was about creating jobs and snagging millions more in federal funding to repair and keep up Michigan’s airport infrastructures.

“There is no better job creation,” Agema said. The conservative lawmaker is a former airline pilot.

The bill was introduce the same day as a proposal that would have take money out of the Healthy Michigan Fund Initiative and sent the money to the MAF. The proposal was quickly and harshly condemned by advocates who called it “cruel.” If the original proposal becomes law, Michigan will face a quandry on how to come up with million of dollars to match federal cash on HIV programming. Without that match, the state’s drug assistance program and medical case management for those living with HIV could have collapsed, jeopardizing the lives of thousands of Michigan residents. Agema argued that HMFI funding for HIV programming was redundant, but a Michigan Messenger investigation revealed that to be false.

HB 4025 would divert a small percentage of sales tax revenue from the General Fund to the MAF. The exact amount of the proposal is unknown, according to the House Fiscal Agency’s legislative analysis of the bill.

“Redirecting sales tax revenue to the State Aeronautics Fund would effectively reduce the amount of General Fund revenue available from the sales tax — the amount left over after constitutional earmarks,” said the HFA analysis. “The increased earmarking would effectively reduce General Fund revenue and would have to be offset by reductions in General Fund programs or through a combination of reductions in General Fund programs and other statutory sales tax earmarks (Comprehensive Transportation Fund, statutory revenue sharing or health programs).”

Currently state law allocates sales tax to the School Aid Fund as well as local government revenue sharing. It also allocates funds to the HMFI. All three areas were cut in the 2011-2012 fiscal year budgets. Under Agema’s plan, some of the sales tax revenue from the sale of aeronautics fuel and products would be diverted into the MAF.

The Michigan Aeronautics Fund was created in the 1950s and has not been changed since its passage. The fund is paid with a registration fee on airplanes of one cent per pound of the plane weight and with a dedicated three cent tax per gallon of airplane fuel.

The fund, however, included a tax refund which returns 1.5 cents per gallon of fuel purchased by airlines which are based in another state.

“If the airline is engaged in interstate travel it is eligible for that refund,” explained Rick Hammond, administrator for the Airports Division of the Michigan Department of Transportation. Hammond spoke to Michigan Messenger back in January.

The Michigan Aeronautic Fund, Hammond said, currently has a fund balance of $22 million, but $15 million of that is already dedicated to projects that are underway.

Hammond says the state will refund about $2.5 million to airlines this year in fuel taxes.

“About $6.8 million is unencumbered, and that’s what we have available,” says Hammond. “That’s what it costs to do business [for the department].”

He says when all the bills are paid — including salaries, electricity and other costs — about $2.5 million is left. That $2.5 million is used to leverage about $150 million per budget cycle.

Hammond says that airlines have threatened to cease operations in the state if the refund is cut, or to bring in fuel from other states rather than buying it here.

He says he thinks cutting the refund would not negatively impact the airlines, however.

“It depends on who you’re asking, but I don’t think it would be an incredible impact on airlines,” Hammond said. “But the airlines would say differently.”

Agema, however, argued in the hearing Wednesday that increases taxes, including removing that rebate, would result in airlines trucking fuel into Michigan’s airports from cheaper states, or overloading plane fuel tanks to allow them to land in Michigan, drop off passengers, load up new ones and then fly to another state where fuel is cheaper. Agema and aeronautics representatives argued Michigan has the second highest airline fuel tax in the country when the rebate is removed.

In an earlier interview Hammond said the rebate removal would also result in a change in buying habits for airlines.

A spokesperson for Republican Gov. Rick Snyder did not immediately return emails seeking comment on the tax rebate for large airlines.

David Holtz, executive director of Progress Michigan, slammed the credit.

“Struggling Michigan families, already paying more than $4 at the pump, shouldn’t be asked to pick up any part of the fuel tab for big airline corporations like Delta,” Holtz said in an email to Messenger. “The old Republican Party of May, 2011 was against picking winners and losers by giving out tax breaks. But the new Republican Party of June apparently is for picking winners and losers now that they’ve given Michigan corporations an 86% tax cut paid for by the rest of us.”

Editor’s note: Michigan Messenger mistakingly identified HB 4025 as the being a replacement bill for HB 4022. This story has been edited to accurately reflect that there are two separate pieces of legislation aimed at shifting monies to the Michigan Aeronautics Fund.

The legislation is likely to be voted on by the Transportation Committee Wednesday.