Good roads depend on solid foundations

Washington eventually responded to the pressure from Michigan and other “donor” states. Today, every state receives back at least all of the gas-tax revenues generated within the state. Michigan is no longer a transportation donor state. No state is a donor state, and that is a problem. Unfortunately, this is not Lake Woebegone where every child is above average.

If every state gets back what they sent in tax revenues and many states receive more, this causes a funding problem. The federal government has subsidized gas tax revenues for years to fund the federal transportation program. Additional funds have not come from a specific revenue source, as has been the case historically; instead, revenues have come from the general federal budget. This is where the base of road funding has been structurally compromised.

Federal road funds have been constantly at risk since the decision was made in Washington to simply add funds from other sources instead of increasing the gas tax. For years, transportation funds have been in jeopardy because Congress had not approved funds for ongoing operations. Instead, we saw continuing resolutions to keep the Federal Transportation Fund solvent for another six months, or two months. In December, Congress adopted the Fixing America’s Surface Transportation (FAST) Act. This means that the federal transportation program is now funded for the next five years. However, the FAST Act is a bit like running a new two-inch coat of asphalt over an old road – it looks good, but the base is not solid.

While 75 percent of the money comes from the federal gas tax, the other 25 percent of the money comes from other one-time revenue sources. In five years, we will be right back in the same situation where gas taxes will only fund 75 percent of the federal spending and there is no identified revenue source to make up the difference. A 25 percent shortfall is a pretty big pothole.

State funding

At the state level, we have also seen the base for transportation eroded. Michigan went for decades without enhancing the funding for transportation purposes. As a result, our roads have continued to deteriorate. Just like Washington, Lansing would not increase the rate of the gas tax. As a result, inflation eroded those revenues to the point where needed improvements could not be considered.

Eventually, the legislature responded to public pressure in much the same way Washington responded to states demanding their fair share. The legislature began adding some state operational funds into the transportation budget. Historically, this department only ran on gas taxes and vehicle registration fees. This year, the legislature added $400 million from the state’s General Fund to the transportation budget.

When the state finally approved increases to the gasoline and diesel fuel taxes and increased the registration fees for trucks and cars, they increased revenue for transportation purposes by $600 million per year. However, the legislation creates some other dynamics as well.

Starting next year, as the gasoline and vehicle registration revenues start flowing into the transportation fund, the $400 million in General Fund revenues will be removed from the transportation budget. This swap of revenues will significantly assist the state in its immediate financial needs such as funding the Flint water and Detroit schools crises. The state would have been hard pressed to deal with Flint’s needs if they had not passed the transportation plan. It needs to be stated that the fuel taxes and registration fees are strengthening the base for transportation funding in the state. It is the second phase of the transportation plan that has the potential to undermine the funding base.

Beginning in 2019, the state transportation funding plan requires the state to start shifting the coveted General Funds back into the transportation budget. By 2021, the state has legislatively “promised” to shift $600 million in General Funds per year into road funding. This money will be deposited into the transportation fund until some future legislature modifies the law in order to shift this revenue to deal with the latest crisis of the day. In other words, when is starts raining on the state budget in the future, those road funds will likely be the emergency “rainy day funds” and it will be our roads that get washed out.

The road ahead

Both the federal and state transportation funding plans are going to be very important to the state’s efforts to improve our transportation system over the next few years. The concern is that both also have huge potential to undermine those efforts right around 2021. We will take what we got, but this issue is going to be back before you know it.