Why Does Michigan Spend Less on Roads?

As part of preparing for a task force meeting focused on infrastructure issues, I began to look at what makes Michigan different from other states on transportation funding…other than the fact that we spend a lot less historically on road projects.

In today’s world, the first stop for a question like that is a web search! There were the usual sources showing various fuel-tax rates across the country. Most show Michigan’s being very high because of the fact that our sales taxes are applied to gasoline, even though sales taxes on gasoline go to the school-aid fund and revenue sharing in Michigan. However, one site caught my eye. It was a report by the U.S. PIRG Education Fund, written by the Frontier Group entitled, “Who Pays for Roads? How the ‘User Pay’ Myth Gets in the Way of Solving America’s Transportation Problems.”

As with all reports, you need to look at what is trying to be communicated. In this report, it is making the case that it is not just transit systems that are subsidized by taxpayers, but that all transportation systems require more than user-based fees to operate. One graph caught my eye in particular. It was entitled, “Percentage of Highway Spending from Various Sources, all levels of Government.” It showed that in 1957, just under 70 percent of expenditures on our roads came from user fees – gas taxes, license plate fees, and tolls, while 20 percent of road costs were covered by non-user sources, such as sales taxes, property taxes, and other general fund revenues. The final 10 percent was bond revenues, which are often paid off with user fees. The striking feature of the chart was this: in 1957, the country was funding transportation almost exclusively from user-based fees; but by 2011, user-based fees were only covering about half of the costs of our nation’s road system.

Source: Who Pays for Roads?: How the “Users Pay” Myth Gets in the Way of Solving America’s Transportation Problems by Tony Dutzik and Gideon Weissman, Frontier Group; Phineas Baxandall, U.S. PIRG Education Fund

The chart does not jive with the Michigan experience. Up until a few years ago, all funds coming from the state were user-fee based – fuel taxes and auto registration fees. Only in the last few years has the state expended anything except user-based fees on transportation. In fact, when the state increased the fuel taxes and registration fees at the beginning of the year, they cut all general fund support to the transportation fund for the next two years.

In 2011, Michigan collected approximately $1 billion in fuel taxes, $1 billion in vehicle registration fees, and received approximately $1 billion from the federal government. About three quarters of the federal money comes from fuel taxes; the rest is supplemented by the general federal budget. This means very little of the money spent on roads in Michigan came from non-user-fee sources. Outside of the minor portion of the federal aid that is not user-fee based, the only other money put into roads that does not come from user fees in this state is the property tax revenue put up by local governments. This makes Michigan look very different from the national 50-50 split as reported by U.S. PIRG. This is not even very close to the amount of non-user-based revenues reported in 1957!

So how does Michigan compare to other states? On average, our fuel-tax revenues, even with the increase that just occurred, put us on par with the national average. Our vehicle registration fees generate more than the national average, but that basically makes up for the fact that we don’t have toll roads. It would seem that the area where Michigan really falls short in road funding is in supplementing user-based fees with general operational revenue. If Michigan were just keeping up with the Joneses, it would have been appropriating at least an additional $1.2 billion from the state general fund in addition to the increased fuel taxes and registration fees. And this should have been taking place for years.

If the legislature manages to appropriate the $600 million promised for 2020, that will be a start. But at best, it is half the job. Given how far behind Michigan has been for decades in funding roads, it will take much more to get our road system back up to snuff.

If we continue to focus on increasing user fees to pay for roads, especially through fuel taxes and vehicle registration fees, Michigan will look out of place with other states. The reality seems to be that road funding has been changing. While fuel taxes are still a big contributor to funding our transportation system, other sources of revenue are becoming more prominent. This means comparing one state’s gas tax to another’s does not give a very clear picture of how much money is being spent on maintaining the state’s roads. The more appropriate measure is how much you are spending overall, not the rate of one or two taxes.