Sen. Rick Bennett, R-Oxford, said the compromise on financing for the state’s highway fund is going to make a “dramatic difference” in funding highway projects, such as the replacement of the Veranda Street Bridge, above, in Portland in April 2022. Derek Davis/Staff Photographer

Lawmakers have reached an agreement on changes to the state’s highway fund to make it less reliant on fuel taxes and borrowing, a move that decreases the likelihood of a partial government shutdown on July 1.

On Wednesday night, the Senate unanimously passed a modified version of a Republican proposal to dedicate a portion of vehicle sales taxes to the fund, rather than continuing to rely on one-time funding and bonding to sustain the fund and pay for highway improvements and some state operations.

The House unanimously approved the deal Thursday morning without debate. Gov. Janet Mills is expected to sign it into law in the coming days.

Sen. Rick Bennett, R-Oxford, applauded the compromise on the Senate floor Wednesday night, saying it’s going to make a “dramatic difference” in funding highway projects, which are financed by a diminishing stream of fuel tax revenues as electric vehicles become more common.

“This is an amazing thing we’re doing here tonight,” Bennett said. “I applaud the Legislature for grappling with this now and putting us on a road of sustainability for the highway fund.”

Tensions over the highway budget have grown in the closing days of the session, as Republicans mounted a late push to dedicate a portion of tax revenues from the sales of automobiles and parts to fund the highway budget. The highway fund exists outside the core state budget and supports operations and projects at the Maine Department of Transportation and the Bureau of Motor Vehicles.

Although Democrats passed a continuing services state budget in March as a way to reduce the prospects of a government shutdown over Republican demands for tax cuts, the highway budget was unresolved. That means it needs to pass as an emergency bill in order to take effect July 1, requiring Republican support to reach the two-thirds voting threshold.

Sen. Peggy Rotundo, D-Lewiston, who chairs the Legislature’s budget-writing committee, said in a written statement Wednesday night that the Senate-backed bill provides a new revenue stream but avoids forcing small-business owners to change the way they collect sales taxes on auto parts, a concern raised by the original plan.

“This is a clean amendment that achieves the goals of the Transportation Committee to establish a sustainable source of funding for the Highway Fund and that makes things easier for small businesses,” Rotundo said. “Our hope is that this will save small-business owners who do not separate out sales tax on auto parts from having to set up a new tax program that would be cumbersome and difficult to administer.”

The governor has committed to a record $400 million investment in transportation projects, using one-time revenue from the state surplus, in hopes of unlocking $1 billion in federal funding. Half of that would result from a one-time transfer from the state’s core budget.

The change approved by the Senate would replace that one-time transfer by dedicating 40% of the 5.5% sales taxes on automobiles collected by the Department of the Secretary of State and 40% of the 5.5% sales and use tax collected by the Bureau of Motor Vehicles. That proposal is estimated to generate nearly $206 million over the next two years.

The transfers will be made in a way that does not reduce the amount of revenue that is sent back to municipalities.