In a Nutshell

• Michigan is in danger of squandering an historical opportunity to leverage a windfall of transportation funding.
• The current distribution formula determined by Act 51 of 1951 is not only unrepresentative of current needs, but the entire legal framework has become inscrutable.
• Act 51 and the myriad of associated codes must be repealed and replaced with a contemporary approach to make sustainable improvements in the condition of the state transportation system.

Michiganders have largely come to accept potholes and crumbling roads as a fact of life. The funding being made available by the 2021 federal infrastructure bill and the state’s $3.5 billion bond-financed road funding plan create a rare opportunity to address this issue on a grand scale. Unfortunately, there is very little reason to believe that we are on such a path. The only thing more broken and busted than Michigan’s roads is the funding system that we’re using to try to fix them.

Act 51 of 1951 (as amended) – The Basis of Transportation Funding in Michigan

Michigan’s current era of highway funding began with Public Act 51 of 1951. There were two features of Act 51 that represented significant change upon its enactment. The first was that revenues from motor fuel and vehicle fee taxes were consolidated into a single fund (now called the Michigan Transportation Fund) that was dedicated to highway funding. The second was a formalization of road classifications and a new formula to distribute funds to various road categories within various jurisdictions. The result of these two shifts was that statewide highway funding was rationalized and made more transparent (at least in terms of financial accounting). However, that transparency ends as soon as monies are distributed. The decision-makers at ground level are largely trusted to use distributed funds for their highest and best use within broad statutory requirements.

Act 51, as amended, has been drastically expanded in scope and complexity but retains this fundamental decentralization. The high degree of decentralization makes it essentially impossible to catalog the condition of, or expenditures on, the statewide transportation system. In addition to the Michigan Department of Transportation (MDOT), there are 614 road agencies that receive Act 51 funds, and dozens of other agencies involved in the planning process that do not (e.g., municipal planning organizations). It is widely believed that this decentralization is a fundamental problem with transportation funding in Michigan. 

With this hypothesis in mind (and concerned that Michigan’s revamped infrastructure efforts may go to waste), I initiated a research project to map out the full extent of actors in Michigan’s transportation ecosystem and their respective roles, statutory and otherwise, focusing on Act 51 of 1951. I began sequentially skimming and summarizing Act 51 sections. The task was much more difficult than I anticipated. A week later I was not yet halfway through and completely stuck trying to interpret the most god-awful confusing legal language I have ever encountered. I soon learned that I am not the only one confounded by the labyrinthian morass that is Act 51. … 

2022 Michigan Office of the Auditor General, Act 51 Performance Audit Report

On January 12^th Michigan’s Office of Auditor General (OAG) published a performance audit report of MDOT’s administration of Act-51-related funds. I redirected my research efforts on this report in the hope that it would help me de-encrypt the Act 51 distribution formula and respective statutory responsibilities of road authorities. The stated audit objective was to “assess the accuracy of MDOT’s allocation and distribution of Act 51-related funding.” MDOT’s function was broken down into three bullet points:

1. Allocate MTF funds to the state (39.1 percent), counties (39.1 percent), and cities and villages (21.8 percent) after various statutory deductions
2. Use the Act 51 Distribution and Reporting System (ADARS) to calculate monthly distributions to each of the 614 local units
3. Use ADARS to calculate annual distributions to state and local units for snow removal, engineering expenditures, and jurisdictional mileage transfers

I was immediately struck by how much simpler this interpretation of Act 51 was from the understanding that I had been building manually. On the first bullet point I noted that an entire volume of requirements was glossed over as “various statutory deductions.” I had just spent days trying to identify and summarize the statutory earmarks in Section 10(1) of the Act; this is not a trivial step and the OAG report does not address it. 

On the other two points, I noticed that the emphasis was on the Act 51 Distribution and Reporting System (ADARS), a theme that carries across the report. It is evident that the OAG  was relying heavily on ADARS to determine if MDOT is in statutory compliance. It is likely that if there is a mistake in ADARS in interpreting the Act 51 formula, or if any activities happen outside of ADARS, this would be outside the scope of the audit.

Even with the limited audit scope, the OAG arrived at a few disconcerting findings. For example, it was found that MDOT failed to distribute $16 million to municipalities across fiscal years 2019 and 2020. Sixteen million dollars may not seem like much relative to the total $2.4 billion distributed to Michigan road agencies annually, but this can make a real difference for cash-strapped local authorities. The City of Flint was shorted over $500,000 in these two years. Kalamazoo missed out on over $700,000. In response to this finding, MDOT stated that it would “seek out cost effective remedies to ensure further accuracy.” There was no discussion of making municipalities whole. The confusion relates to a 1992 amendment to Act 51. (Has MDOT been short-changing local road agencies for 30 years under this provision?)

There were other points of concern that the OAG highlighted but did not reach a conclusion due to lack of clarity. The report states that “the financial audits do not provide the necessary assurance to MDOT that local units spent Act 51 funds in accordance with the statutory requirements.” The OAG recommended that MDOT enhance its monitoring process to track Act 51 expenditures more closely. MDOT declined this recommendation, pointing out that they are not explicitly required to do so and no budget has been earmarked for compliance monitoring of local expenditures. 

The OAG found particular reason to be concerned about compliance monitoring of local expenditures. For example, It was found that for fiscal years 2018 and 2019, 43 and 32 local units, respectively, did not meet a requirement to spend at least one percent of a particular subset of distributed funds on nonmotorized transportation services and facilities. MDOT agreed with this finding and pledged to “seek to identify improvements to our process for reviewing local units compliance with the nonmotorized transportation requirements.” So in one of the very few ways that the OAG was able to use MDOT’s accounting records to evaluate local road agencies’ Act 51 expenditures they found non-compliance—a finding with which MDOT agreed. 

And they’re both wrong. 

The pertinent language in Act 51 Section 10k(4) clearly states: “Units of government need not meet the provisions of this section annually, if the requirements are met as an average over a reasonable period of years, not to exceed 10.” In other words, at least 10 years of records would have to be audited to find non-compliance to this provision. The OAG audit covered only two years and so was in no position to reach any conclusion. The fact that neither the Auditor General nor MDOT understood this speaks to the difficulty in comprehending and interpreting the statutory language of Act 51.

It is clear that rejiggering the distribution formula and/or consolidating decision-making authority is not sufficient to fix Michigan’s transportation funding formula. Act 51 is fundamentally dysfunctional.

A Bit of Historical Perspective: How’d this happen?

Act 51 was broken at the outset. The original language was heavily influenced by a national automobile industry lobby called the Automotive Safety Foundation (now a less impactful organization known as the Roadway Safety Foundation), working through a state highway advocacy group called the Michigan Good Roads Federation. The suggested language was adopted by the legislature in 1951 without much critical thought or consideration of the preexisting highway funding laws that had been accumulating since before Michigan was a state. The result is something of a codified house of mirrors. 

In 1956, Allen M. Williams (President of the County and Local Roads Division of the American Road Builders Association and an Ionia County highway engineer), lauded Michigan’s efforts to financially support a modernized highway system but noted that Act 51 “was superimposed on a long history of archaic, obsolete and utterly useless laws, which remained in the Statutes.” Now, in 2022, it is much much worse.

For 70 years now the legislature has been piling amendments and revisions onto Act 51 in an effort to keep it working. It has been frequently noted that this effort is becoming increasingly difficult due to the myriad contextual and technological changes that have taken place since 1951. It is also likely that the formula is inefficient because resources deposited in the Michigan Transportation Fund must be distributed to 614 local road authorities (some of them glorified subdivisions). However, without this decentralized authority, Act 51 might not work at all. It is only because authority is spread across thousands of individual decision-makers who essentially ignore the law to put funds to work as best they’re able that anything gets done. The repeated amendments for carve-outs, spending caps, and statutory check-box oversight has hindered, not helped, Act 51 funds from being used appropriately.

Conclusion: We Can Do Better

We have to do better. Michigan’s roads are getting much needed funding right now with increased federal support and state bond financing. But there is no reason to expect that shoveling more money into the Act 51 distribution formula will put Michigan’s infrastructure in a better place 10 or 20 years from now. Not only is the distribution formula out of sync with current needs, but the basic legal framework is inscrutable and dysfunctional. Stakeholders appear to be afraid of change for fear that a substantial revision of transportation funding will create winners and losers. But under the current system we are all losing. Act 51 and the associated myriad of statutes must be repealed and replaced before we can expect any lasting improvement to Michigan’s road and transportation infrastructure.