Fixing the Michigan Roads:  The Great Debate

Brian G. Long, Ph.D., C.P.M.

Director, Supply Management Research

Grand Valley State University

Recently, the word went out that one of our Republican legislators was proposing a 40 cent increase in the gasoline tax.  Ouch.  That definitely got everyone’s attention.  Of course, 40 cents per gallon wasn’t the primary thrust of the proposal and would not be fully implemented for many years. What got reported, however, was the 40 cent increase.

Today in Michigan, fixing the roads is a top priority for almost everyone.  Granted, the quality of Michigan roads has been declining for the past twenty years, and good maintenance should have been a top state priority.  It wasn’t a top priority, which has led to under-investment in our infrastructure for decades and roads and bridges in desperate need of repair.

The MDOT tells us that trucks (and salt) are by far the biggest culprits damaging the roads, especially in the spring each year.  In an automotive state, we are heavily dependent on trucks for factory deliveries, not to mention deliveries to stores.  In Michigan, 67% of our total commercial tonnage is delivered by truck.  More trucks on the road mean more jobs for Michigan and subsequently, more potholes.  For this reason among others, Michigan weight restrictions allow trucks to carry MUCH more weight than other states by regulating weight on a “per axle” basis rather than regulating based on total weight. Most people, when forced to choose between safer roads during harsh winter months or less salt on the roads, prefer to feel more secure while driving than consider the long-term damage caused by salt.

Current funding available for Michigan roads amounts to about $3.2 billion, of which $1.1 billion comes from Washington and  $2.1 billion comes from gasoline, diesel, and vehicle registration fees. According to transportation experts, the condition of about 20% of our roads is now below what it should be.  For a respectable “down payment” to restore our roads, the current number bandied around Lansing is $1.2 billion per year for the next several years.

Out of a $53 billion state budget, finding $1 billion wouldn’t seem like a hard task at first glance. Taking a closer look, however, paints a different picture riddled with political complexities. Building and maintaining roads and additional infrastructure has been a primary function of government for thousands of years.  Because taxpayer dollars entirely fund road construction, it is easy to argue that road building and maintenance should be near the top of the state’s priority list.  In recent years, road repair has somehow not received the attention it deserves, largely due to lack of political will and electoral considerations.  Allocating $1 billion from the top of the budget today means cutting funding from some OTHER department’s budget or raising taxes (or both), which becomes much more difficult in practice when taking into account the politics involved.  Political reality tells us that politicians who propose ideas such as cutting the state police in half or slashing school funding have a difficult time getting re-elected.

Even though generating more revenue for roads has been an elusive goal for years, the deteriorating nature of our infrastructure demands action now. Over time, priorities can be shifted, but waiting much longer to deal with this unaddressed problem will only cost taxpayers more in the future.

This leads to discussing possible solutions that are realistic, but sustainable. What about the widely heralded “budget surplus?”  Already gone.  It turns out that the estimate was too high.  Of course, Detroit also got a piece of the extra money we had “laying” around.  Furthermore, a multi-year solution is needed, not just a one-time budget allocation.

Hence, the discussion now centers on raising revenues. By far, the most favored source of financing roads and road improvement comes from Uncle Sugar in Washington.  Most people seem to think if Washington pays for a whole project, it “doesn’t cost us anything.” However, the current discussion in Washington centers on the Highway Trust Fund running out of money, and we will soon be looking at less, not more, money from Washington.

A more reasonable idea calls for the reallocation of revenues.  The sale of gasoline generates 6% sales tax, NONE of which is credited to the revenue pool for Michigan highways.  Herein lies the BIG controversy.  Gasoline sales tax totals about $1 billion, which many people feel should be allocated to fix the roads rather than just dumped into the general fund along with other sales tax collections.  However, to shift the entire amount all at once would short the rest of the state budget, particularly the School Aid Fund.  If a shift is discussed or an additional one percent sales tax proposed, those funds should be permanently dedicated to roads.  However, a hike in the sales tax requires a state constitutional amendment, and again the general public will not buy into it.

Another idea has been adjusting Michigan’s 19 cent per gallon gas tax to keep up with inflation. The current method of assessing tax on “per gallon” usage has not kept pace.  At the national level, the 1956 Federal Highway Act set up the Highway Trust Fund, which primarily relied on a 3 cent gasoline tax.  Although it has been increased many times and is now 18 cents per gallon, the federal tax is still 8 cents shy of where inflation has taken us.   At the state level, we are also about 7 or 8 cents short of keeping up with inflation.  Hence it is now necessary to dip into other state revenues in order to maintain proper road quality.  On this basis, adjusting gas taxes for inflation could easily be justified.

This solution would certainly be a good start, but won’t necessarily solve the problem entirely.  For instance, the costs of everything necessary to maintain the roads (cement, rebar, earth moving equipment, labor) have risen much faster than original estimates.  Also, because of more fuel-efficient cars and trucks, collecting revenue based on a “per gallon” tax results in less revenue.  Obviously, electric cars would still use roads, but pay no gas tax.  Hybrid cars also use the roads, and pay less tax.  Hybrid semi-trucks will be on the road in about four years, and they will pay less tax.  Logic says that you cannot fund roads on falling revenues.

Raising taxes usually has negative economic consequences.  However, an increase in the gasoline tax by 7 to 10 cents per gallon would result in almost no change in behavior by the motoring public.  From an economic standpoint, gas prices fluctuate widely from one side of a town to the other, and an additional few cents for taxes would go almost unnoticed.  However, a higher tax on diesel fuel WILL impact the cost of motor freight, which will be reflected in noticeably higher costs for some businesses.  Catch 22:  It is the trucks (and salt) that do MOST of the damage to the roads, and should probably pay more.  Second Catch 22:  Raising the cost of doing business in Michigan discourages commerce and lowers revenues over the long term.  Hence, the first and best recommendation is to raise the gasoline tax.

The second recommended source for additional revenue comes from heavier trucks that damage the highways.  Yes, raising truck licenses increases the cost of doing business, but the impact is not as severe as the fuel tax.  Truck license fees should be marginally increased to reflect the cost they impart on most drivers.  Registration fees for non-gasoline vehicles should also be increased to reflect the use tax on gasoline that they do not pay.  It should be kept in mind that the average hybrid car owner has an income of $175,000 per year, and can afford to pay a little more for their licenses.

A third recommendation calls for a Michigan lock box for all highway funding.  This fund would include all automotive-related fuel and use taxes, as well as the sales tax generated by gasoline AND diesel sales.  All of the fuel sales taxes should be moved to the highway lockbox over the next few years, not overnight.    Granted, all money today exists in cyberspace and in cyber budgets, but the revenues, expenses, disbursements, and reserves should all be reported separately.  In this manner, we will be assured that tax money collected for the use of roads will always be used for roads.

After several thousand years of building roads, we should hope that our government will figure out how to keep our drivers safe for many years to come. While finding a workable, multifaceted solution won’t be easy, our legislators have a responsibility to fix our roads and bridges before they crumble right before our eyes, or even worse, under our feet!