Claire Hendrickson (00:00.526)

Hello and welcome to Facts Matter, a podcast by the Citizens Research Council of Michigan. I’m Clara Hendrickson, politics reporter at the Detroit Free Press, and I’m here today with two analysts from the Citizens Research Council. We have Eric Paul Dennis, research associate covering infrastructure, and Bob Schneider, senior research associate for state affairs. Thank you both for joining me today.

Thank you. Happy to be here. Thanks.

So we’re going to be talking about the latest road funding debate in Michigan. And I’m really excited to dive in. I want to start with something brilliant that my colleague, Paul Egan wrote. This was in a piece last month when we were previewing Governor Whitmer’s plan that she was going to unveil for a new road funding proposal. And this is how he started it.

No two things may be more predictable in Lansing than spring potholes and talk at the capital of a new plan for how to pay for road repairs. So let’s start with that assumption that sort of baked into these plans, that Michigan needs to be spending more money on roads. Does Michigan have a road funding shortfall? Do we know how big it is? Let’s have Eric weigh in.

Yeah, I mean, I think we have a road funding shortfall. I do believe that. I think it’s difficult to evaluate how big it is. And the numbers that you see thrown around often are probably larger than a full analysis of it might otherwise suggest. So I’ll let Bob chime in because I know he’s dug more into this, but you know,

Bob Schneider (01:36.044)

How much of it is a revenue problem and how much of it is how we’re spending our money problem is a question.

I agree. think now for various reasons is a good time to be evaluating, increasing our revenue that goes towards roads. But I also point out that as opposed to conventional wisdom in this state, we are not one of the least funded states in the nation. did a very thorough

research analysis using financial data from the years 2012 to 2021, which is going a few years back, but just the nature of data coming through the federal government, takes that, it takes a while for it to get to us. And I found that overall Michigan ranks 30th in terms of road funding. And that combines a bunch of different things. But for example, if you were just to take.

our funding divided by system miles in our public road network, we rank 27th. On our interstate system, in terms of funding per lane mile, we actually ranked 13th nationally. So in some ways we’re not doing bad with road funding, but we’re not doing, it seems we’re not doing as well as we could with how that money is being distributed, allocated and invested.

system conditions don’t seem to be reflective of the money that we’re spending.

Claire Hendrickson (02:58.55)

Eric, you had a fun riff on Governor Whitmer’s marquee campaign pledge to fix the dam roads and at 2022 post for citizens research council, you said fix the dam road funding formula. So can you talk about what you think is broken with our current funding system and what an alternative might look like?

Yeah, so our road funding formula, which is laid out by a law called Act 51, which was passed in 1951. So it’s now 74, 74 years old. That law was intended to be a 15 year, basically a construction law to build out a network of high speed roads across Michigan. So it was supposed to be

I it was a 15 year, $2.4 billion highway program. So was supposed to have a sunset. In today’s dollars, that would be about $30 billion. If you use normal inflation, it would actually be a little bit more to buy that much now, because road construction costs have gone up much more than the basic inflation rate. But when we got to the end of that period and we’ve built out a system,

similar to what the legislature was envisioning in 1951, rather than allow the law to sunset and transition to a funding formula that would be more appropriate to maintain a road, maintain a road network ongoing across years. They just continued to re-up and amend this law. There’s now been, I think, over 300 amendments to the law. Originally, it was about eight pages long. Now it’s about 100.

Well, if you were to print it out, think it would be well over a hundred pages long. It’s very, very complicated. It’s so difficult in fact, to audit at this point. The last time it was audited by our office of the auditor general, they found that, so the Michigan Department of Transportation is responsible for sending the funds to local agencies. And over two years that they found that there was $17 million that were just failed to be distributed to.

Eric Paul Dennis (05:08.012)

local agencies, cities like Kalamazoo and Flint. And so this law, I don’t think is working very well for us anymore. And as we investigate ways to get new revenue, I think it would be as important, perhaps more important to investigate ways that we are spending this money. And this would be a big task for legislature. We’ve actually

The legislature has never actually really had to put a lot of thought into a statewide road program. Act 51 was written by mostly by a lobbying group called the automotive safety foundation, which was headed by General Motors, as well as some oil industry interests acting on a plan that was also developed by lobbyists, which the legislature then kind of adopted. So Michigan’s legislature has never actually had to think very hard about this, but

That’s gotten us into the position where we are now, where we have, you know, every year we talk about needing to fund the roads. We should also be talking about needing to think about how we’re funding the roads and where that money should be going.

Let’s turn to some of the plans that are on the table now. Bob, we have a plan from Governor Whitmer and a plan from Speaker Matt Hall. And it seems like the biggest area of overlap between these two proposals is ensuring that 100 % of the taxes that Michigan drivers pay at the pump is going to fund roads. So that would mean shifting the 6 % sales tax on motor fuel that drivers are paying now.

Can you talk about where that revenue is currently going and the fiscal implications for shifting it to road?

Bob Schneider (06:43.098)

Yeah, sure. And it’s always been the challenge because this same concept has been thought about many times in the past. And the challenge to doing it is exactly that. 70 to 75 % of the sales tax roughly ends up in the school aid fund. So it goes to K-12 schools. Both the speaker and the governor have both said out loud our full intention is to make sure we hold harmless the school aid fund.

from that cut. So when you generate maybe a billion dollars from this shift, now you already start with $700 million. It has to come from somewhere else to hold the school aid fund harmless. The other components are local governments, 15 % of our, about 10 % of our full sales tax.

roughly goes to local governments through constitutional revenue sharing cities, villages, and townships around the state shared on a per capita basis. That would be a hit. That would probably be, you know, a hundred, $150 million, probably closer to a hundred million dollars. And then we have a public transit fund, a comprehensive transportation fund that gets an allocation from the sales tax on fuel and auto related products.

And that would take a hit. So now you’re probably adding at least another 150 million. If you want to hold those groups harmless, that’s another 150 million to do that. There was a time not that long ago, a couple of years ago, we probably had that much of a revenue reserve where we could have not had to cut other things, but we had the money on hand to hold those entities harmless. We don’t now. We have a small budget surplus, but the governor just proposed a budget that used it.

So you would need to do a lot of budget cutting just for that part. And then there’s the rest of the plan that to differing degrees would rely on cuts to other parts of the budget as well. Speaker Hall’s plan would be really heavy on that. And even I think Governor Whitmer’s plan would rely on more budget cutting beyond just that school aid, know, hold harmless.

Claire Hendrickson (08:57.272)

So as lawmakers are currently talking about a road funding deal, I think it’s helpful to return to the last time a governor signed a road funding plan into law. That was 2015 when then Governor Rick Snyder signed a road funding package. Eric, can you talk about how that plan changed the gas tax and any subsequent challenges the law created when it comes to how lawmakers indexed the gas tax to inflation?

The fuel tax increase was effective January 1st, 2017. Before January 1st, 2017, on gasoline were 19 cents a gallon, diesel fuel were 15 cents a gallon. As of January 1st, 2017, the taxes on the fuel taxes on gasoline and diesel were raised to 26.3 cents per gallon. So that gave us an immediate significant increase. And another thing that they did at the time,

which I think was very smart was the indexed future increases in the fuel tax rate to inflation. However, issue with that, well, there’s two issues with that. One of those issues is that the inflation adjustment didn’t kick in until January 1st, 2022. So we in that interim period between 2017 and 2022 related to the pandemic, we actually saw very high inflation.

which the law kept the gas tax percentage inflation increases at 5%. So in 2021, we actually saw more than 5 % inflation in the consumer price index. The second issue is that indexing our gas tax increases to inflation by the consumer price index doesn’t match the cost increases seen by road agencies because the cost of construction, this is

Specifically, I looked at the cost of highway construction, but this is actually true for pretty much all construction activities. In most years, that tends to increase higher than the CPI rate. So by having a gap in years where we didn’t adjust our gas taxes based on inflationary.

Eric Paul Dennis (11:08.654)

pressures, as well as adjusting it to a lesser inflation rate than is actually imposed on road agencies. We’re probably a little bit behind now where we expect it to be in revenue generation from that fuel tax than what we would have expected in 2015, which is one of the reasons I think it is pertinent now to reevaluate our top level road funding revenue dollars and perhaps to increase that.

Bob, I kind of want to talk about Michigan’s reliance on gas tax revenue more generally. Something that’s come up over and over again in conversations with road funding experts is that the gas tax might not be a reliable source of revenue in the future as cars become more fuel efficient. Can you talk about how big of a problem that might be for road funding and how soon Michigan lawmakers might have to grapple with it?

We’ve been grappling with it really. It was much worse when before we had the inflation adjustment, which helps, but there’s been a long run trend towards fewer. We talked about it in 2015 when we analyzed the discussion then. Vehicle miles traveled. Well, vehicle miles traveled shrinking a little bit too, but as you said, gas and fuel efficiency going up. So now if I’m traveling the same or even a little bit fewer miles and my car is getting

more miles to a gallon, I buy less gallons of gas, and then I have a tax base that’s shrinking over time. The inflation adjustment helps, but it doesn’t mitigate that problem. And it’s one we’ve been seeing and we will continue to see. And people talk about electric vehicles and that that means even fewer gallons of gas. And Eric and I have had discussions. kind of, if any, I think the electric vehicles may actually be helping instead of hurting because I think we’re actually getting a better

a better return in terms of tax revenue from electric vehicles than we are the internal combustion engine vehicles. The high prices of EVs, the surcharge that in 2015 was put in place on electric vehicles means unless you are driving 25, 30,000 miles a year with your vehicle, electric or gas, you’re paying more as an electric vehicle than you are as an internal combustion engine vehicle.

Bob Schneider (13:23.744)

And you keep paying it. Since it’s not based on the number of gallons you purchase, we won’t see that same tax-based shrinkage. Eric, I don’t know if you want to go any other specific thoughts on that, but I know, I think we’re kind of on the same page there.

Yeah, I agree. think the current situation is that right now, this year, electric vehicle owners are probably contributing more revenue to the Michigan Transportation Fund than drivers who own an equivalent internal combustion vehicle. But it is still a concern because as we go into the future, internal combustion vehicles are likely to get increasingly efficient. And if we, it’s hard to know exactly what will happen.

the way the formula works out if electric vehicles continue to contribute more than their fair share or not. So I don’t think this is an emergency, but it’s definitely something to consider.

I’m really glad that you all talked about EVs because every time I write about roads, I get a bunch of reader emails claiming that EVs aren’t paying their fair share. So I’m glad you talked about how EVs are contributing to road funding. But something I also hear from readers is about Michigan’s truck weight limits. So Eric, can you talk about whether trucks are currently paying their fair share to Michigan roads?

They are not, and that’s a national phenomenon. The Federal Highway Administration has done a couple of road user cost allocation studies where they look at the costs imposed onto roads by various vehicle classes from passenger vehicles, classes one to three, through commercial vehicles, classes four and above. Generally most classes of trucks, this isn’t universally true, it depends on a lot of things, and actually it’s very complicated.

Eric Paul Dennis (15:06.312)

generally trucks underpay. In Michigan we have this additional issue of we allow trucks to weigh a little bit more than twice as much as the national standard. The national standard is 80,000 pounds. We can have trucks up to I believe 160. And it’s not as bad as that might sound because when you distribute that weight over more axles the per axle load is less but it gets

to be a lot more complicated than that. There’s a professor at Michigan State University, former professor of mine named Karim Chati, who’s done some work on this, looking into how much damage our overweight trucks might be doing to Michigan’s roads. So he has some information there, but a lot of his conclusion was basically we don’t have the data that would tell us exactly how much more damage these trucks are doing. So one thing I would advocate for is

road user cost allocation study in Michigan that would better understand where trucks are traveling in Michigan, how much they, what their load is. This would help us not only understand the costs imposed by those trucks, but who those costs are imposed to in terms of local road agencies. Truck traffic is the most determining factor that relates to pavement damage. And our current road allocation formula through act 51.

doesn’t consider that at all. So if you’re a local agency subject to a much above average amount of truck traffic, you are probably really struggling to to maintain your roads with your allocation of state revenue sharing.

feel like we’ve covered a lot of ground, how we got here, what’s on the table now. Let’s turn to what you both are going to be keeping an eye on as lawmakers craft a road funding solution. What do you think is going to be the sticking point in the negotiations and anything that you’re curious to see come out of this current debate in Lansing?

Bob Schneider (17:02.19)

So for me, the challenge is going to be that both the governor and the speaker have proposed plans that will raise new money and allocate additional money to roads. But to differing degrees, they also impose the second question is how do I pay? can raise money for roads two ways, raise taxes, raise the motor fuel tax, raise marijuana tax, raise the corporate income tax, whatever taxes you point to.

move money from, from, that’s already here from something that it’s going to now to roads. The speaker’s plan relies almost exclusively on let’s, let’s better allocate our existing money. If roads are the priority, let’s move it from somewhere else. So under the speaker in the clearest place that’s probably going to come from is our discretionary general fund revenues. The, the speaker’s plan would, would require about,

at least $2 billion, if not more, probably close to $2 $2.5 billion of shifted revenue from here to roads somewhere, wherever that is. We haven’t, you know, so there’s how much need for roads, but then where does it come from if you’re going to rely on shifting? And that is probably 15 % of the general fund, plus or minus a percent or two. And even the governor’s plan at a minimum would

rely on about $500 million in probably general fund resources, maybe up to a billion, 5 % plus or minus, a percent maybe. That’s hard money to move. It’s not impossible. But you need to make real cuts and eliminate. 75 % of those discretionary revenues are universities, health and human services, mostly Medicaid, and our prison system.

Everything else is just 25%. Those are real. You have to eliminate stuff. I mean, it’s not, you can’t take those across the board cuts. And those will be difficult decisions to make. So you’ve, got to settle on an amount, how much comes from tax revenue, new tax revenue, and then to the extent that we’re going to shift a whole lot of our existing revenue, where does that come from? All of those will be challenging questions to come to an agreement on.

Claire Hendrickson (19:18.978)

Thanks for that Bob, I think that’s a good roundup. Eric, what about you? What are you keeping an eye on in this current round of the debate in Lansing over Rhodes?

I have very little insight as far as the political negotiations and what might be politically feasible. But one thing that I think is missing from both approaches is this concept of looking at performance. Like I mentioned, found that from 2012 to 2021, Michigan ranks 30th in road funding nationally. I also found that we rank 40th in system condition.

nationally. So it would seem that we are underperforming. There’s various reasons this might be, but this doesn’t become part of the conversation, which is kind of interesting because this is a part of the, this is part of the conversation in most policy arenas. For example, governor Whitmer’s recent state of the state address, she talked about increasing funding for both roads and schools. When she talked about schools, she explicitly acknowledged that

Michigan is underperforming. She said the reality is we invest more per pupil than most states, but achieve bottom 10 results. But when we talk about road funding, there’s this assumption that there is no such thing as performance and a dollar thrown into the system is going to be just as good no matter where you throw it. And so I would like to see some acknowledgement that we might be able to make better decisions as

terms of distribution, allocation, or how we choose investments that could make better use of whatever road funding we have.

Claire Hendrickson (20:55.608)

That feels like a good place to wrap up this conversation. Thank you both for your insight and your expertise. I know I learned a lot from this discussion and I hope our listeners did too. Again, I’m Clara Hendrickson with the Detroit Free Press. I’ve been chatting with Bob Schneider and Eric Paul Dennis of the Citizens Research Council. Thanks so much for listening. Please like and follow the Research Council on Facebook, Blue Sky, Instagram, Twitter, or wherever you get your podcasts.

Find them online at crcmish.org and at crcmish. This is Facts Matter, a podcast presentation of the Citizens Research Council.