Recap: Local Government Finance – Road Funding 101

Last month a SEMCOG University workshop entitled, “Local Government Finance: Road Funding 101,” focused on understanding how Public Act 51 works and how federal road projects are selected. You can view the slides from this workshop here. Given the extensive discussion centered on our roads and how they are funded, this workshop seemed to be a timely issue and the turnout justified that assumption.

Quite unexpectedly, the workshop also happened on the same day Governor Whitmer presented her new road funding budget to the legislature. As a result, the last hour of the workshop focused on the new proposal.

PA 51

Public Act 51 of 1951 has become the brunt of quite a bit of criticism over the last number of years. Many claim that the funding formula is outdated and causing many of the problems with our roads. While the formula, at its heart, remains fairly true to its origins from nearly 70 years ago, it has been modified in numerous ways over the decades. One look at the formula flow chart, which covers three sheets of paper, gives a clue about how diverse the transportation funding formula has become.

It is true that PA 51 distributes revenues to cities, villages, and counties based on centerline miles of roads. This does not take into account how many lanes a particular road may have and the associated cost of maintaining or improving that road. But that is only one component of the formula. As a result, some have incorrectly concluded that road agencies in our area receive the same amount per mile of road as do road agencies in areas like the Upper Peninsula.

What this ignores is that other parts of the funding formula distribute extra money for roads in urban areas and that half of the money distributed to county road agencies is based on revenues collected from vehicle registration fees. Cities also receive funds based on centerline miles, but their revenues are adjusted for the population of the city. More populous cites receive more per mile than less populous cities.

Is it fair?

During the presentation, there was some discussion regarding the “fairness” of the formula. “Do I get my fair share?” Last year, on average, PA 51 distributed approximately $23,000 per mile of road to counties, cities, and villages in the SEMCOG region. The road agencies in the rest of the state received, on average, just over $8,000 per mile.

Looking at the funding from a different perspective, Southeast Michigan road agencies received $10,500 for every lane mile of roads, compared to $4,000 per lane mile for the rest of the state. If you look at the distribution from the standpoint of population, we received $125 per person to operate Southeast Michigan’s road system last year as opposed to $154 per person for the roads outside the region. No matter where you live in this state, you can use one of these figures to show how your road needs are treated unfairly compared to elsewhere in the state.

At the workshop, SEMCOG presented these basic facts.

• Michigan has 120,000 centerline miles of roads, of which 20.7 percent are in the seven-county SEMCOG region.
• Michigan has 250,000 lane miles of roads, enough to stretch from the earth to the moon; 21.7 percent of the lane miles of roads in the state are in Southeast Michigan.
• Southeast Michigan has 47.6 percent of the state’s population; 45 percent of the vehicle miles traveled in the state occur in our region. For this, 42.5 percent of the revenues distributed to local governments under PA 51 come to Southeast Michigan.

The real issue

After discussing “fairness” issues, the conversation turned away from how big a piece of the road funding pie our region receives to the overall size of the pie. Michigan has consistently been last in the nation in road construction expenditures when viewed from a per capita basis over the last quarter of a century. Our state is not just last, we are far below the national average. Our region needs to more than double road construction expenditures for the next 25 years to get roads back to 80 percent fair or good condition. Since there are no additional federal funds coming to our state, all of this new revenue must come from the state or local sources. The need is $1.2 billion per year for our region alone, just for the major roads!

A new proposal, a different formula

As the SEMCOG University workshop was taking place, Governor Whitmer was presenting her new road funding proposal to the legislature. As any good teacher would do, we shifted the presentation away from prepared materials and instead focused on the “breaking news” of the governor’s proposal. It certainly helped that the governor released some of the details of her plan to SEMCOG the night before so that we could brief local officials in attendance.

Financially, the big news was a plan to increase the fuel tax by 45 cents a gallon, which generates $2.5 billion per year and putting Michigan in line with what most other Great Lakes states spend on roads. Administratively, the story was that the new money will not flow through the PA 51 formula; instead, the money will only be used for what is best described as Federal-Aid-eligible roads – the roads that are PASER rated by SEMCOG and the state.

While all public roads in the state have a classification under PA 51, such as County Primary or City Local, they also have a National Functional Classification (NFC). Governor Whitmer is proposing that the new road funds be used in the following manner:

• Interstates and other freeways: $1 billion
• Principal arterials: $640 million
• Minor arterials: $150 million
• Major collectors: $150 million
• Local bridges: $85 million
• Multi-modal innovation projects: $64 million
• Local rural economic corridors: $43 million

Interstates and other freeways are exclusively under the jurisdiction of the state; all of the funds will be retained by MDOT. Principal and minor arterials, as well as major collectors, can fall under state, county, or municipal jurisdiction; revenues will be distributed based on a per-lane-mile basis. Principal arterials will receive substantially more per lane mile under this formula. SEMCOG has updated its interactive pavement condition map that displays each NFC road by type and who has jurisdiction in our region to better understand how the funds will be distributed.

The debate on road funding is just beginning. Our hope and our goal is that this information can play a critical role when policy leaders make decisions regarding the future of the transportation system.