A tax hike on aviation fuel gains support

June 7, 2009
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While state lawmakers debate how to increase funding for ground transportation, they also will consider two potential changes for air travel as part of their 13-bill package.

One bill would replace the current 3-cent per-gallon tax on aviation fuel next year with a 2.5 percent tax on the wholesale fuel price. The switch has been projected to raise revenue to the state in 2010 from $5.8 million to $8.75 million, a figure based on the current wholesale price. But the tax would rise in 2011 to 3 percent and to 4 percent in 2012, and would give the state estimated revenue totals of $11 million and $15.7 million, respectively.

An increase in the aviation-fuel tax would be the first in the state since 1929 — the year the levy was created.

The second bill would double the aircraft registration fee from one cent per pound to 2 cents, based on the maximum gross weight of the plane. The legislation would create a minimum registration fee of $25. The bill would also raise the aircraft-dealer license from $25 to $100 and the monthly penalty for failing to register a plane from $5 to $10. The changes would more than double state revenue from these sources to $590,000 next year. Currently, the state gets $290,000 annually from license fees and penalties.

Gerald R. Ford International Airport Executive Director James Koslosky said amending the Michigan Aeronautics Code to include the higher fuel tax and fees would have little or no direct fiscal effect on the airport, as the impact would be on the aviation side.

“The fuel tax that has been collected supports aeronautics programs and is principally providing matching grants to the federal grants that support airport capital improvements, and it has been at 3 cents for 80 years. It’s never had an increase,” said Koslosky, who served on the governor’s task force that unanimously recommended changes to the state’s transportation funding.

“So between inflation and the fact that activity is down, the aeronautics fund is being dramatically impacted to the point where it’s not going to be in the position in a couple years to match the federal grants, which means the local communities are going to have to come up with more money to fund capital projects. And many small communities can’t afford to do that, which means the state will lose those federal dollars to other states,” he added.

So Koslosky is certain that state lawmakers have no choice but to raise the tax on aviation fuel, otherwise the industry throughout Michigan will suffer. As for the hikes to registration fees, Koslosky sees those as being relatively modest increases.

“I think you pay less to register an airplane in the state than you do your car or boat, believe it or not. The recommendation of the task force was to raise both the fuel tax and the registration fees,” he said.

Local transportation officials are hoping that lawmakers make what they see as necessary changes before legislators leave Lansing for the July 4 recess, which is rapidly approaching. Passing both bills would add roughly $3.25 million to the state’s aviation fund next year.

“Obviously, nobody is excited about raising fees or taxes during a recession. But, again, the real downside here in both surface transportation and air transportation is we’re at a point where we’re not going to be able to match federal grants and we’ll lose that money. And you know how bad our roads and our airports need capital improvements,” said Koslosky.

“Without a viable transportation system, both surface and air, this state is not going to be able to recover.”

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