Guy (00:00.578)
Hello and welcome to the Facts Matter podcast. I’m Guy Gordon, our first podcast of 2026. And this is of course, coming from the Citizens Research Council of Michigan. Unabashedly unbiased, pathologically nonpartisan and dedicated to getting you the information you need to understand what’s happening in state and local governments. We’re going to pick up pretty much where we left off in 2025, one of the most compelling.

Eric (00:24.773)
Thanks.

Guy (00:27.434)
Issues of last year was the new funding package that was going to bring billions in new revenue to Michigan transportation and road agencies. So who better to be our lead off hitter for the 2026 season than Eric Paul Dennis, who is our research assistant for infrastructure at the CRC. Eric, happy new year belatedly.

Eric (00:50.224)
Hi Guy, I paid 2026. Pleasure to be here. Thank you.

Guy (00:52.814)
Maybe I should say happy Groundhog Day because I feel like we’ve been here before, right?

Eric (00:58.038)
Yeah, this is a kind of a continuation of the last conversation we had.

Guy (01:02.698)
Yeah, so the top line is this that for fiscal year 2026 and for the uninitiated or those of us that still focus on a calendar year, fiscal year 2026 actually started four and half months ago on October 1st, 2025. Within this fiscal year of 2026, we were to see one billion plus in new revenue going to roads under this transportation funding package. So we know what the anticipation and expectation was. What’s the reality?

Eric (01:31.824)
Yes, there was a lot of confusion when you’re talking about a billion dollars in new funding being sent out in fiscal 2026. That still may be true from the perspective of the state budget, but there’s some weird bureaucratic and administrative stuff that needs to happen between when tax revenues are accrued and reported to the state.

versus when they’re actually sent out to road agencies. And so last year we talked about this first quarter fiscal 26 gap related to there was previously an earmark of the individual income tax of $600 million a year that was sent out $50 million a month distributed to road agencies through the Act 51 distribution formula. so for the first

three months of fiscal 26, we knew that that old earmark was repealed and we weren’t going to get any of the new revenue sources, including the fuel tax increase until January. What I didn’t fully realize at the time was that, so those January revenues actually take another four months before they’re distributed.

to the road agencies. here’s the cadence of this. There’s a delay in distribution and then there’s also a delay in processing. So the cadence is…

Guy (02:59.18)
There’s a delay in collection and there’s a delay in distribution.

Eric (03:10.81)
Fuel distributors sell fuel in January and they record those fuel sales, but they don’t report that to the Michigan Treasury. The deadline is actually tomorrow, February 20th. And so the Treasury still doesn’t have all of the revenues from the January fuel sales in the state account. They will be there by the end of February.

Guy (03:26.871)
Okay.

Eric (03:38.064)
which is why, so from the fiscal year Michigan 2026 budget perspective, it will show eight months of the fuel tax increase. But so it takes a while to work that through the process. So Treasury should have all of that money by tomorrow, February 20th.

In March, they report that to the Michigan Department of Transportation and they send those revenues to the Michigan Transportation Fund. And so that will be in the MTF, which is controlled by MDOT. But then it takes another month. call what’s, March will be what they call the processing month, where MDOT figures out how to distribute those revenues to these.

state trunk line fund as well as all of the counties, cities and villages. so April 3rd should be the day when road agencies actually start seeing the benefit of the fuel tax increase. So that’s the seventh month of the fiscal year. they have six months with a 15 to 20 % funding cut and the final seven months should have at least the benefit of the fuel tax increase.

Guy (04:40.941)
You’re right!

Eric (04:53.981)
Might also by the end of the year be getting some of those other revenues, specifically the corporate income tax. But there’s still some uncertainty around that as well.

Guy (04:59.681)
Right.

Guy (05:03.501)
So that we, and we knew the corporate income tax that there there’s going to be a delay there as well. So, I mean, so they won’t see a dime of this money until half of the fiscal year is already in the rear view.

Eric (05:17.306)
Correct, which I don’t think was communicated very clearly in the beginning and it wasn’t really even clear to me. And so, you know, if you’re working in one of these road agencies, you’re working on budgets, you’re trying to plan your projects and it’s been a tough winter, everyone’s over their salt budget. And so they’re moving money around, they’re delaying projects, they’re taking out loans and it’s creating some confusion.

Guy (05:29.325)
Sure.

Guy (05:39.79)
So, I mean, the anticipation, the selling point on this was that there was going to be an immediate impact in FY26 of $1 billion. So between April 3rd and September 30th, will we see that $1 billion distributed or will it only be maybe three quarters collected and some distributed? What will we actually see by September 30th? What’s

Eric (06:08.464)
From the fuel tax increase, we should get about $540 million, which is less than the $600 million that was repealed. So if we do not get any of the corporate income tax revenue by the end of the fiscal year, funding will

Guy (06:25.005)
Okay.

Eric (06:33.154)
Effective funding what’s available for road agencies to actually spend will be down by the end of the fiscal year It is possible that some of the CIT revenue will come in so I think that Remember the CIT revenue the first 1.25 billion is dedicated to other uses So the Treasury probably can’t start depositing that in the new neighborhood road fund We should hit that

Guy (06:52.972)
Right.

Eric (07:01.21)
threshold maybe in May. And so there’s some potential that by July or August that could start being deposited in the Neighborhood Road Fund. But remember, the Neighborhood Road Fund is a completely new fund. doesn’t just, it’s not woven to existence by the legislation that creates it. It takes the state bureaucrats time to open these accounts and develop administrative processes for moving money around.

Guy (07:25.901)
Well, it sounds like they’re going to have a little extra time to do that, Eric, right? I mean, they should.

Eric (07:30.448)
Yeah, it’s not clear if even if that revenue is available to be distributed by July or August if MDOT will have set up those funds to be able to receive and distribute it another issue is remember there are about I 235 million dollars the first 235 million dollars that goes to the neighborhood road fund actually doesn’t get out to road agencies through distribution it goes to various grant funds

And so MDOT might have that to send to the Comprehensive Transportation Fund and the Bridge Fund and the Railroad Grade Separation Fund, these funds that, these grant funds that were in the NRF, those take priority. So it’s really very unlikely that road agencies will start seeing a direct benefit from that by the end of this fiscal year.

Guy (08:20.543)
Okay, so when we talk to road agencies and I’m, I mean, they were forewarned that there were going to be some funding delays here just because of mechanics, right? So how, you know, from the state side, they may say, well, it’s, they’re not really not getting the funding. It’s just going to be a little bit delayed. So they’re going to have to make some adjustments, but timing matters here, right? I mean, we want to lay pavement when the sun shines.

Eric (08:48.432)
Yeah, it is delayed. was, you know, this was really last minute and it did take a while for even a basic understanding of that to be relayed to the road agencies. Remember when we passed this in October, it was really celebrated. It was the message was in this year, we’re getting a 30 % increase in road funding. So imagine your boss tells you you’re getting a 30 % raise.

And then your next paycheck comes and it’s down 20%. It’s down 20 % for the next six months. And so it’s, they really want some confidence in what they’re going to be getting so that they can plan projects in advance and that this is the time of year that they’ll be doing that for the summer construction season. And I still don’t think we even have the ability to be very clear on how much they’ll be getting this year.

Guy (09:23.767)
Mm-hmm.

Guy (09:45.526)
Right, and I mean, we’re still seeing headlines as recently as January 21st saying that Michigan agencies are going to have 30 % more in funding for fiscal year 2026. So some folks haven’t quite got the memo yet that this is either going to be delayed or it’s going to be pushed into fiscal year 27.

Eric (10:02.512)
Right, which may be true from, again, the perspective of the state budget. When the state closes their books on fiscal year 26, if all the revenue comes through, including the marijuana tax revenue, which is up in the air, it will be true that the state budget will show a 30 % or so increase in state road funding, but that is not what will be available for road agencies to actually spend on projects in this year.

Guy (10:28.215)
So let’s get to, we understand the why and the who, but how? mean, was this oversold? Was, is this an unanticipated consequence? Is, was there maybe some hood winking and smoke and mirrors here? What, how did this happen that we may see a 15 % decline in actual funding getting to road agencies?

rather than the anticipated 30 % increase or $1 billion.

Eric (10:59.6)
Yeah, I remember this was kind of a last minute budget deliberation. don’t think that they went well, I know that they didn’t go through a lot of the typical processes where they consult with the Treasury and Michigan Department of Transportation. And so don’t think the legislature really had the opportunity to understand what the impacts would be. They talked to the fiscal agencies, which gave them the perspective of the state budget, which is how we got these numbers that in fiscal 26, it will be

about a billion dollars more, but they probably didn’t have the opportunity to consult with the treasury and MDOT and talk about the time that it takes to get these things up and running. And by the time road agencies get this money, it’s probably going to be fiscal 27. And remember it was kind of a panic because we were trying to avoid this fiscal cliff related to the decrease in the grant fund or the bond funding, the Michigan, what is it, the rebuilding Michigan bonds.

Guy (11:42.701)
Right.

Guy (11:57.452)
Right.

Eric (11:58.8)
But so not only have we not addressed that, we’ve actually created another fiscal cliff that will be followed by kind of a fiscal mountain in 2027. A lot of new revenue is going to come eventually, but it is still in the meantime a problem for road agencies that are dealing with these funding cuts and just this uncertainty of when this money is going to come.

Guy (12:19.031)
So if we talk to road agencies now, is this having an impact? Are they going to have to cancel some things that they had anticipated or do they know? Because the one thing that was kind of clear is that the repeal of the income tax earmark was going to be immediate, but there was going to be a lag in some of these funding mechanisms. And we certainly knew the marijuana tax was going to be in limbo because of the losses.

Eric (12:46.28)
Yeah, it’s not a total surprise. I know that some agencies in the first few months of fiscal 26 started pushing projects back into, you know, calendar 26, I guess, but I don’t know if it was clear to everyone that there would be an additional three months and they wouldn’t start even coming back to what their expected baseline was until April or that.

Guy (13:00.109)
Okay.

Guy (13:13.271)
that it’s going to be a two quarter delay rather than a one quarter delay.

Eric (13:16.738)
Right, and even in April, we are just going to be getting about back to what they would have expected before the funding package because the increased revenue from the Neighborhood Road Fund probably isn’t going to show up distributed to road agencies until after September 26. And it’s not, we still don’t have very much clarity from the Treasury on when that might happen.

Guy (13:45.453)
Okay. So is it a 15 % hit that they’re going to take because of the repeal and the delay? Or do we even know yet?

Eric (13:56.202)
It’s, we kind of don’t know. It’s not entirely clear how fast the Michigan Department of Transportation will be able to stand up this neighborhood road fund or when the treasury will start depositing money into the neighborhood road fund. If we look only at the MTF, by the end of the year,

The books will show a slight increase in funding through the MTF as the benefit of that fuel tax increase. But remember, there’s another two month delay into when that goes out to road agencies. So the money that they have to spend within the months of fiscal 26 will probably be down by a couple of percentage points.

Guy (14:49.837)
Okay, so was this avoidable? I mean, we know that our road funding system is overly complicated, that there’s sometimes a lack of clarity there. I know this is something that the Citizens Research Council has been recommending, you know, a more comprehensive study to understand where the inefficiencies are. This certainly might be a good time for that.

Eric (15:18.2)
I think it was avoidable if they could have left the previous $600 million individual income tax earmark in place, but they repealed that to make up for shortfalls in other parts of the budget that came from that sales tax to fuel tax swap. And so there was less revenue going to

Guy (15:44.631)
Right, because we were paying sales tax on gasoline as well as the fuel tax and they removed that.

Eric (15:51.04)
Yeah, so I think they just tried to do too much too fast and there were unintended consequences. I don’t know exactly how you would have avoided that with the approach that they took, but there are definitely ways that they just could have gone slower and been more deliberate and just communicated.

Guy (15:54.434)
Yeah.

Guy (16:08.107)
Well, you defer the repeal until your new funding mechanisms catch up, I guess, right?

Eric (16:13.74)
Right, which then they have to move that gap over to the general fund somehow. So there would have been a completely different set of deliberations and problems there. And so I don’t know how you’d avoided that, but I think a lot of the issue was they just tried to do too much too fast. It was kind of a panic move to get a bunch of funding, new road funding and fiscal 26. And there wasn’t, they didn’t spend the time to think about how this would function in practice. And so.

I think it was just kind of an oversight.

Guy (16:45.121)
Well, and understanding the context of it too, this was a very fraught budget process to begin with, with a huge amount of partisan finger pointing from jump and.

Eric (16:56.056)
Very fraught and a lot of stuff going on at the last minute without a lot of time to understand from the bureaucrats who understand how it works at the ground level. That probably wasn’t communicated to the legislature in the way that it should have been and normally would be in a typical budget deliberation process.

Guy (17:07.031)
Right.

Guy (17:15.617)
All right. So final message to our friends in county, township, municipal road agencies. I guess put on the big boy pants and just be patient.

Eric (17:27.33)
Yeah, think the main reason that I wrote this and got it published as soon as I could was just because I think there’s still a lot of confusion. think even the state could be communicating better with road agencies what they know. Even this morning, I read a story where the County Road Association of Michigan was claiming that actually the funding should come out in the new funding.

from the fuel tax should come out in the March distributions, but I’m 99 % sure that isn’t true. think that’s a mistake. Yeah, based on, and I think I know why they see that. So MDOT sent out in October, they sent out a fact sheet about the new law. And the very first question it says,

Guy (18:01.901)
you

Guy (18:06.955)
That’s the process month.

Eric (18:22.926)
Why is the estimated fuel tax revenue increase for fiscal 26 only two thirds of the fiscal year? And then MDOT explains the 20 % increase will begin January. Therefore, the revenues collected by the Treasury won’t be reported to MDOT until the February earnings month that will be provided in March. But that word provided doesn’t really mean anything. In March, the Treasury will send the fuel tax revenues

to MDOT and they’ll hit the Michigan transportation fund, but March is the processing month. The distribution month will be April. And remember, the treasury doesn’t even have all of those revenues yet. The deadline is tomorrow. So there’s almost, I don’t think, maybe there’s something I’m missing.

working with old information and the cadence has changed, but just the way that state governments work, I think it’s very unlikely that we’re going to get those revenues out that the Treasury doesn’t even have yet in the first week of March. That’s in two weeks. Government doesn’t work that quickly.

Guy (19:23.031)
But I got to tell you, still, on the consumer side, there’s got to be some frustration because we’ve been paying the new fuel tax for a while. Granted, we haven’t necessarily taken a hit, but we thought this was going to its intended purpose and it’s going to be delayed. Yeah.

Eric (19:36.964)
Yeah, and on the citizen side, think there’s going to be some frustration because we’re not, we’re probably not going to see any improvements this year because we’re not getting an effective funding increase this year, even though the state bench hit will show there’s a funding increase.

Guy (19:50.177)
Well, and you’re giving us a greater understanding as to why and that this is about the process and it is somewhat a clunky process. But you know, people are going to be pointing to the lottery and saying, see, I told you so. They do this all the time. It’s smoke and mirror. It isn’t. It’s an unintended consequence. We should point that out. It was just most likely a factor of a fraught process to begin with, and then a rushed process to try to produce this.

Eric (20:17.582)
Yeah. And within a year or so, even if not everything, there’s going to be some windfalls. I think low agencies are going to have the opposite problem. They’re going to have more money than they know how to spend that quickly.

Guy (20:20.639)
It’ll all come out in the wash.

Guy (20:30.709)
All right. So, as, as one of my friends that used to be a traffic reporter used to say pack your patients, we will do that. Eric Paul Dennis, great to start you off here in 2026. We appreciate it, sir. And great seeing you. if you believe that facts should drive policy, not politics, then you want to be part of what’s happening at the citizens research council of Michigan and supporting efforts like Eric Paul Dennis’s and our other experts.

Eric (20:44.826)
Thank you, Guy Grizino.

Guy (20:59.511)
who bring forth these research products. And it can only be done through contributions. We take no lobbying money, no government money. We are citizen funded. So if you want to go to crcmish.com or crcmish.org and make a contribution, that would be greatly appreciated. And also if you appreciate this, remind your friends where you can find the Facts Matter podcast on Spotify, iTunes, all the various places and platforms, including now YouTube.

Eric (21:06.92)
you

Eric (21:18.128)
you

Guy (21:29.117)
Until next time, I’m Guy Gordon for the Citizens Research Council of Michigan. Have a good day.