When the Citizens Research Council of Michigan report, Michigan Highway Finance and Governance, was published in May 1997, it acknowledged the need for additional highway funding. But it also made the point that without structural reforms in the way in which the money collected for our roads is distributed and spent, inefficiencies will result in these dollars purchasing a lower level of transportation services than they should. The report suggested attention be directed toward:

  1. Jurisdictional control. Proper alignment of jurisdictional control and road function would help to assure greater accountability in the construction and maintenance of roads and bridges in Michigan.
  2. Priority Determinations. If projects are carried out that should be of lower priority than some that are not, inefficiency will occur.
  3. Physical Structure. An analysis should be performed that would show whether it would be more efficient to construct roads and bridges to higher standards before significant rebuilding of the current system takes place. Additionally, proper maintenance should now receive greater emphasis.
  4. Administrative Efficiency. Opportunities to achieve greater efficiency and to reduce overlap and duplication are found in pursuit of privatization and intergovernmental cooperation.
  5. Highway Funding Allocation. Unless the formula (within Public Act 51 of 1951) is changed to reflect highway usage, dollars will continue to be maldistributed and result in unnecessarily high expenditures statewide in order to meet the needs of heavily used roads and bridges.

To date, each of these suggested reforms have received at least some attention. The most meaningful attention came in the form of the “Build Michigan II” proposal introduced in May of 1997. While some of the issues discussed are in some form of implementation, as will be reviewed in this paper, other issues are receiving less attention. For example, because the distribution formula is scheduled to sunset later this year, it has not yet received a great deal of attention, but it certainly will. Unfortunately, while jurisdictional control, priority determination, and administrative efficiencies have received some attention, each issue is bogged down in the politics of state/local relations that seem to constantly be deteriorating from bad to worse.

Tax Revenues

The Build Michigan II proposal included a four cents per gallon increase in the State gasoline tax and other revenues from commercial trucking, which was enacted in July of 1997. Additionally, this proposal relied heavily on increased federal funding. This is likely to occur at levels greater than anticipated sometime soon. The U.S. House and Senate have both passed separate versions of ISTEA renewal legislation. The product of a conference committee will have to receive presidential approval to be enacted. While Report #321 dealt with revenues, it made no specific recommendations as to the proper level of tax increase.

Reform Issues

Jurisdictional Control

Improved jurisdictional control involves a rationalization of responsibilities for road and bridge construction and maintenance. This will occur by shifting control of roads and bridges among the different levels of government to reflect current travel patterns, road usage, and the incorporation of new municipalities since most roads were constructed and assigned to a level of government.

The State, through the Build Michigan II proposal, has proposed shifting roughly 9,100 miles of roads to state control. These are roads currently under county and municipal control that carry about 85 percent of commercial traffic in the state. The state has distributed an explanation of the logic behind its proposed shift as well as corresponding maps to local governmental units for their response.

While some local governmental units have responded with a willingness to transfer the roads to State control, a majority of the cities, villages, and counties has responded with reluctance to such a shift. Some of the major concerns have involved:

  • Concerns about whether a disproportionate portion of the funding would follow the roads — with local units losing funding as a result of such a shift;
  • Concerns about decision making shifting to higher levels of government, with less direct citizen input;
  • Concerns about State priorities – Parochial biases tend to result in the perception that roads in other parts of the state are in better condition than local roads. These units are concerned that each region’s local roads will continue to suffer from State priorities that shift funding elsewhere; and
  • Concerns over the mismatch that would result with the State having control over roads while local units control zoning, drainage, and wetlands along those roads.

At present, the State proposal to shift commercial roads to their control seems to be in a holding pattern. Local governments, for the most part, are unwilling to buy into this proposal. This unwillingness may have as much to do with politics, and the poor relationship between the Michigan Department of Transportation and the county road commissions and municipalities as it has to do with the concerns expressed in reaction to the State proposal.

There has not been, to this point, any effort to rationalize control of roads among the counties and the cities and villages. Legislation has been introduced in the House to give control of local access roads to those townships interested in assuming such a function, but there has been no action. While the Build Michigan II proposal addressing state jurisdiction has received a great deal of attention, addressing this issue among lower levels of government is equally important and should be addressed in some manner.

Needs Assessment

The second recommendation was that a uniform measure of road conditions should be utilized to perform a statewide evaluation of road conditions among all levels and units of government. The results should play a meaningful role in setting revenue levels and in distributing highway-user tax revenues in a manner that reflects needs.

This issue also was discussed in a Michigan Auditor General’s Audit Report on administration of Act 51 of 1951. One objective of the audit was to determine if Act 51 provides a process that is effective and efficient in the allocation, distribution, and use of transportation dedicated funding. The recommendation that followed a negative finding was MDOT should,

… In conjunction with local units, establish a Statewide process that identifies needs and prioritizes the use and allocation of road funds for primary roads and major streets that cross jurisdictional boundaries.

Build Michigan II did not directly address the issue of a needs assessment. However, by consolidating more major roads under State control, the State would be able to address many of the problems that have complicated the needs assessment process to this point. With a greater percentage of major roads under the jurisdiction of one unit of government, assessing the road conditions of different levels of government would become less of an issue.

Pending any action to transfer jurisdictional control as proposed by Build Michigan II, the need for a uniform needs assessment methodology and a statewide assessment of the results to distribute tax revenues in a meaningful way remains a major concern.

Physical Standards

The new revenues raised from state and federal sources will be used to maintain roads and bridges in the middle of their lifecycles, to reconstruct roads and bridges at the end of their lifecycles, and to construct some new roads. The standards used in these processes should be examined. The standards currently used were formulated at a different time in highway use. A cost-benefit analysis should analyze whether roads and bridges should be constructed to last longer, with less need for reconstructing as often as is required with the current standards. While other states and countries are incorporating new technologies and methodologies to build better roads and bridges, MDOT and the local units of government are slow to incorporate what has been developed elsewhere.

It also is necessary to direct more resources to proper maintenance of the roads already in place. Maintaining roads in fair condition costs one-third to one-fifth as much as reconstructing roads that have deteriorated into poor condition. MDOT has doubled its budget for capital preventive maintenance for 1998, reflecting recognition of the importance in maintenance and the new ability under ISTEA to spend federal dollars for this purpose.

Administrative Efficiencies

Intergovernmental cooperation and privatization present opportunities for savings in highway maintenance. Some intergovernmental cooperation and privatization currently take place. However, because highways run throughout the state, they lend themselves to greater use of these tools.

Build Michigan II would build on MDOT’s experience with these tools. For as long as Michigan has had a state trunkline system, State government has contracted with local governments to maintain those roads. More recently the state has experimented with competitive bidding by putting the contracts for maintenance of I-496 in Ingham County and for a portion of I-94 in Wayne County out for bid. A private company was awarded the contract for the contract in Ingham County, and the Wayne County Department of Public Works had continued to maintain I-94.

A recent Senate Fiscal Agency analysis of the I-496 contract points out a major deficiency that should be addressed before contracting is pursued too far. MDOT, and to a lesser extent the county road commissions and municipalities, have a very poor grasp of their unit costs in maintaining the highway system. Without a good cost accounting system, the ability to evaluate contract proposals and manage contracts to minimize the costs is severely hampered.

While MDOT currently has contracts with 62 of the 83 counties and with 125 of the 534 municipalities, the Build Michigan II proposal would put maintenance of all state trunkline roads out for competitive bid. Local units of government would have to bid against each other and private companies interested in contracting for highway maintenance to maintain these contracts.

Additionally, this proposal would amend Act 51 to allow county road commissions to maintain roads that extend beyond their boundaries, and to cooperate in the tasks they are permitted to perform as individual bodies.

The Allocation Formula

Finally, measures of highway use or road conditions should be incorporated into the Michigan Transportation Fund allocation formula so that state revenues are not maldistributed. Under the current formula, it would be necessary to increase taxes to higher levels than is optimal, with allocations resulting in unnecessarily high expenditures in some counties, so that adequate funds can be distributed to counties with multi-lane roads carrying higher traffic volumes.

Neither MDOT nor the local units of government can do much to resolve this issue. It is ultimately a legislative issue. While the distribution formula is scheduled to sunset later this year, there has been some discussion of continuing the current distribution to put off the politically difficult issue of changing the distribution of revenues until after the November election.

The Audit Report addressed this issue as well. The Report stated that

The Act 51 distribution formula did not include significant factors that have a bearing on the useful life of a road or a road’s need for repair. As a result, road funds may not be directed toward roads with the greatest need for maintenance.

The Audit Report went on to recommend that

MDOT, in conjunction with the local units, identify factors that have a bearing on the useful life of a road or a road’s need for repair for legislative consideration in any future changes in the Act 51 distribution formula.

Build Michigan II would allocate revenues to counties based 50 percent on road miles and 50 percent on vehicle miles traveled. Cities and villages would continue to receive revenues based on road mileage. Local units of government would be responsible for fewer miles of road under the Build Michigan II proposal and the roads for which they would be responsible do not carry high levels of traffic.

Comparison of CRC Findings
(in Michigan Highway Finance and Governance, Report #321)
to Build Michigan II Proposal and Current Status

Topic CRC Findings Build Michigan II Current Status
Tax Revenues A strong case can be made for additional revenues. The Gas Tax is the most likely source of additional state revenues. Property Taxes or a Local Option Gas Tax could be used for local revenues. A 4-cent per gallon Gas Tax Increase was proposed, and more Federal Funds are relied upon. Gas Tax increase was enacted in July 1997. Increased federal funds should result from ISTEA reauthorization, which should go to President Clinton soon.
Jurisdictional Control Jurisdictional Control needs to be addressed. Need to study and rationalize responsibilities. Would shift commercial roads to State control. Discussions are currently on-going.
Priority Determination Conduct a Needs Assessment and make it play a meaningful role in determining proper revenue levels and how revenues should be allocated. A needs assessment is not directly addressed, but MDOT would be in a position to use one methodology to assess the condition of more road miles and to prioritize construction and maintenance needs. Michigan Auditor General recommended that a Statewide process be established that identifies needs and prioritizes the use and allocation of road funds
Physical Structure Construction And Reconstruction Standards should be revisited to evaluate whether higher standards could be used to build roads and bridges with longer expected lifespans. Adequate resources should be devoted to Maintenance of roads already in place. Construction and maintenance were not discussed as part of the Build Michigan II proposal. The state has made a commitment to spend more resources on maintaining roads that are in fair and good condition.
Administrative Efficiencies Greater use of Privatization and/or Intergovernmental Cooperation would provide an ability to gain efficiencies, reduce duplication, and save taxpayer dollars. Cities, villages, county road commissions, and private business would bid for contract to maintain all state trunkline roads and bridges. Act 51 would be amended to allow county road commissions to compete.  
MTF Allocation Measures of Highway Use, such as vehicle miles traveled or a direct measure of needs, should be incorporated in the allocation of state revenues to the local governmental units. Allocation to county road commissions would be based 50% road miles in the county as a percent of all county roads, and 50% vehicle miles traveled in the county. Municipal allocations would not include vehicle miles traveled as a component. Michigan Auditor General recommended that factors be identified that have a bearing on the useful life of a road or a road’s need for repair for legislative consideration.

 

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