FMP-RoadFunding2026.txt
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Guy Gordon (00:01.23)
Hello once again and welcome to the Facts Matter podcast brought to you by the Citizens Research Council of Michigan, unabashedly unbiased and passionately dedicated to the idea that good policy starts with facts, not politics. Today, the 2025 road funding package that passed the legislature is in our focus. This was really highlighted and trumpeted as a really turning the corner on the bumpy road legacy that has dogged Michigan for

decades promising to pump as much as two billion dollars in new money into road construction with a particular focus on counties, villages, cities and townships. The question is will all of those revenues actually arrive or will the uncertainty surround them really derail a lot of the projects that need advanced planning? Joining us of course is our infrastructure specialist research associate Eric Paul Dennis.

out of the Citizens Research Council. Eric, this is a very interesting analysis.

Eric (01:02.909)
Thank you, Guy. My pleasure to be here. Thank you for doing this again.

Guy Gordon (01:05.88)
There is so much to unpack here, much of it good as you have pointed out and in previous discussions and podcasts, we have said that this is actually on many levels quite encouraging, but there are a lot of disappointments and also some clouds of concern. So let’s start with that. As you look at this and as it is presented now, only 30 % of the revenues that we’re talking about here, the new revenues are guaranteed.

Eric (01:33.631)
Roughly, and I think there will be additional. So the revenue that’s guaranteed, one thing that this package did that I think is a good thing is it repealed the sales tax on motor fuels and replaced that with a roughly equivalent increase in the motor fuel excise tax. So that will send by fiscal 27 just over a

billion dollars of new dedicated funding to our roads program. It’s a little bit more complicated because this package also repealed a $600 million earmark that was coming from the personal income tax. But so this nets out to in this fiscal year, fiscal 26, just a little bit over a hundred million dollars in new revenue over what would have been the expected baseline.

Guy Gordon (02:16.343)
Right?

Eric (02:31.935)
But so that is pretty much guaranteed and it will be delivered on a normal monthly schedule as road agencies have always come to expect it.

Guy Gordon (02:40.354)
And I guess one of the good parts of this, and we’ve laughed about this, this is kind of, if we put a headline on this, this would be the good, the bad and the ugly, or maybe the good, the very uncertain and what could be ugly. But it’s a more honest, for someone that’s filling up their car today, it’s a more honest way to fund our roads. They now know that every dime of tax that they pay at the pump is going to road construction. It’s not being siphoned off somewhere else.

Eric (03:10.345)
Yeah, I think so. And I don’t have a personal philosophical opinion on if a sales tax should be applied to motor fuels. I don’t know if it’s good or bad, but it is unusual. Only four other states do this. And so it’s become, I think, a real sticking point in our policy discussions. People say, we have this high gas tax. And then other people say, yes, but not all of that goes to roads. A lot of that goes to schools. And then we kind of get stuck there, can’t move forward. We’re now past that point.

Guy Gordon (03:22.039)
Right.

Eric (03:39.921)
nearly all of the money, the tax revenue that is paid at the pump will go to the roads program.

Guy Gordon (03:46.338)
Okay, so in addition to our traditional funding source, the gas tax, if you will, there is now a new excise tax that will fund roads, but there’s also some additional sources of funding that were put into place to kind of backfill some of the funding that was expiring or that was being done away with. And that is where we may see some problems, correct?

Eric (04:14.033)
Yeah, so we have in addition to the new revenue that will be provided by the increased fuel tax, the package provides revenue from a new marijuana wholesale tax. So that tax is now being challenged in court and we really just don’t have any idea if or when that will be available at all. The rest of it is coming from an earmarked

in the corporate income tax, which is not being challenged, but that earmark will only become available once $1.25 billion of other uses take priority. So only after the corporate income tax revenue reaches $1.25 billion will this road funding pot start to be filled.

Guy Gordon (05:09.198)
Okay, and for those that are listening on SoundCloud, we’re going to apologize in advance, but we’ve got some visuals here for those of you that are going to be watching this on YouTube. Can you share with us what historically that corporate income tax, that benchmark has been? Because as recently as 2020, it was significantly lower.

Guy Gordon (05:32.686)
And we’ll see if we can pull that up. There we go.

Eric (05:37.599)
Yeah, so this, and the way that the corporate income tax is constructed now, it was completely redone in 2011. So under current law, this is what the revenue from that tax has been since it has been in place in the way that it is written now. And so going back to 2012, we had less than $500 million of revenue.

Again, we need 1.25 billion to even begin feeding this new road fund. And that didn’t start happening until 2021. In the last couple of years, so to meet this full earmark for fiscal 26, we’ll need at least 1.4 billion in CIT revenue. And we may have that. were quite a bit above that in fiscal 24. But if we kind of come back to a baseline,

trend, we may not have that full earmark even for fiscal 26. And so the earmark is ramped up from 26 to 30. It starts out at $688 million, ramps up to just over a billion dollars. So by 2030, we’re going to need about 2.3 billion, which we’ve only met in 2023. So it’s really unclear if we’re going to have that full earmark. And if we hit a recession or something like that, we may not

Guy Gordon (06:38.658)
Mm-hmm.

Guy Gordon (06:50.881)
Okay.

Eric (07:08.179)
have any of it, which isn’t the only problem, because I think it’s likely that we’ll get some of this, maybe all of it, but the Treasury probably can’t deposit that into this new roads fund until they are sure that they will be able to, which may not happen until books close in the following fiscal year. And we really shouldn’t overlook, even if more road funding is going out to road agencies,

Guy Gordon (07:30.392)
Okay.

Eric (07:37.661)
this level of uncertainty really causes a problem for them. Just yesterday, I received a call from a county road commissioner who saw a story on our new report. He was looking for the full report and he told me that their county road commission delayed a budgeting meeting for a month while their staff worked through this new roads funding package. And then just yesterday, their staff told them everything that we’ve came up with.

Guy Gordon (07:46.829)
Mm-hmm.

Eric (08:07.689)
throw it out, we’re actually going to assume no revenue from the neighborhood roads fund for fiscal 26. And so that was a month that this large county’s road commission staff was working on this budgeting problem that became just wasted effort. So these are the kind of inefficiencies and wasted efforts that is imposed by the uncertainty of this legislative approach that I don’t think the legislature really considered.

Guy Gordon (08:17.4)
Wow.

Guy Gordon (08:33.752)
Well, and we should point out that also the wholesale marijuana tax that as you point out is being challenged. If they are successful in getting an injunction, that will delay distribution of the funds, if not collection. And even if it is collected, it could still delay distribution because probably the smart play for the state would be to put it in escrow in case they fail.

Eric (08:56.643)
I believe so, yes. would be, an injunction may or may not happen. If the injunction happens, there will be no revenue to distribute. If the injunction does not happen, will be sent to the treasury, but I don’t know if the treasury would be comfortable or not actually distributing that to the Rhodes Fund until legal challenges are exhausted one way or another, because it may have to go back.

Guy Gordon (09:17.26)
Right.

Guy Gordon (09:24.556)
And then as you pointed out, just this air of uncertainty can certainly throw sand in the gears for these road commissions that really need a three to five year horizon of certainty in order to move forward with long range planning and execution.

Eric (09:42.259)
Yeah, at least the longer you can plan in advance, the more rational your plans are. large road agencies typically try to have at least 10, 20 year asset management plans, but specific projects start being planned or programmed three, four, five years in advance. So at least that far in advance, it’s really, really important to have a pretty good idea of how much funding you’re going to be working with.

Guy Gordon (10:08.931)
Mm-hmm.

Eric (10:12.177)
Otherwise you could be planning projects that you have to scrap or maybe you’ll have more money than you know what to do with. And you have to figure out how to spend it without really thinking about it. So this neighborhood road fund really throws a lot of those planning processes into disarray.

Guy Gordon (10:27.852)
And I want to, there’s probably a bigger picture look here at all the different funds now and the degree of complexity because the criteria to access those funds have changed. I want to get to that in a moment. But first let’s do for a moment, press pause on the uncertainty piece and talk about the good news, which is if everything goes according to the legislature’s plan, we could see an additional about 2.2 billion, is that correct, in road funding?

Say in 2027 when all of these things are fully.

Eric (11:03.429)
Yeah, so I’ll share my screen again.

Guy Gordon (11:08.833)
Okay.

Eric (11:16.959)
Yeah, so this is…

actually inflation adjusted to real 20, $25. So this is

Guy Gordon (11:26.508)
and not the cp i we should point out this is inflation adjusted for road building right which is this is really significant because i mean this is a a much more honest look than we might otherwise get because road building inflation has been hotter than the cp i

Eric (11:31.945)
Wreck.

Eric (11:41.919)
Yeah, and it typically is. So, you know, kind of a general rule of thumb for the CPI is to assume 3 % year over year. A general rule of thumb for road construction costs is to assume 4 % year over year. But Michigan has done something pretty cool in 2020. Well, it was updated for 2022.

The Michigan Department of Transportation funded a study by Western Michigan University that looked at all of MDOT’s bid sheets over the previous year. So for, I think it’s 2013 through 2022, I have a very good estimate of how much road highway construction costs for MDOT have inflated very specifically. So for example, in 2021,

You know, we had that very high post pandemic inflation period the CPI for that year I think inflated about 8 % road construction costs inflated about 18 % So I use both of those figures in this inflation adjustment. So since we had the

Guy Gordon (12:54.414)
which makes this even more encouraging when you look at what we can do with these inflation adjusted dollars, a 96 % increase over 2015.

Eric (13:04.255)
Yeah, so in real terms, as of 2027, if all of this money were to become available, we would literally be able to be putting down about twice as much pavement as we were in 2015.

Guy Gordon (13:16.706)
That’s really a staggering amount and you can see why there was so much initial enthusiasm and encouragement over this legislative package.

Eric (13:26.751)
Yeah, it’s, I mean, the 2015 package did a lot of good things. This, if we were to look at our budget in nominal terms, the state revenue sharing, we’ve been going up and up and up, but the inflation adjusted terms don’t always do that. The post pandemic inflation has been challenging. So we actually seem to have hit a peak in 2021, but even as of 2025,

We weren’t in a bad place. We were still quite above our low point before the 2015 package.

Guy Gordon (14:02.702)
So in this graph, and again, apologies to those of you that are listening, but what it shows is that the amount for MDOT will remain pretty much stable as it’s been since 2019. And the amount to counties will be very similar. But it’s the amount to cities and villages, which inflation adjusted goes up. So the way this is distributed, so much more going to cities and villages, Eric.

How potent will that be for some of those that have felt left out?

Eric (14:36.965)
It should be very impactful. So the 2025 package really does emphasize local road agencies, including counties and cities and villages. The caveat to that is that emphasis on local road agencies comes through that neighborhood road fund, which is funded by those revenue sources that currently remain very contingent. Another issue, so…

Apologies to people listening to just the audio. We’re now looking at a chart that shows the relative change in inflation adjusted revenue from state revenue sharing from 2007. After the 2025 transportation funding package, there are four or five years where local road agencies hit this bump. This is mostly coming from

those grant funding programs that $205 million per year that will go to local, there’s three local grant funds that will be administered by MDOT. But so this chart kind of gloms all those together with the distribution funds, but so only the local agencies that receive those grants will actually benefit. And they’ll obviously benefit much more than this 80 % from

Guy Gordon (15:43.938)
Mm-hmm.

Eric (16:02.655)
2007, while the other local agencies will benefit less. So the legislature has really kind of literally passed the buck to MDOT to determine how to distribute a lot of this funding. so agencies that receive grants will be getting much more help than agencies that don’t.

Guy Gordon (16:21.598)
And based on the anecdotal reference that you just gave us from a township official, they’re already feeling this uncertainty in their planning for 2026.

Eric (16:33.063)
Yeah, which I think was entirely overlooked. Like I said, this road commissioner relayed to me that they had their staff working on this for a month and that work was just thrown out yesterday when they realized that they can’t depend on any of the neighborhood roads fund revenue for fiscal 26.

Guy Gordon (16:51.854)
One of the things that I want to kind of zoom out here, setting aside that this could be hugely impactful, and we’re all happy about that, that there is some uncertainty with the wholesale marijuana tax and also maybe the corporate income tax. This additional pot of money that’s coming in the form of grants, are there some questions about whether that’s an efficient way to fund our roads?

Eric (17:21.145)
Yeah, I’m conflicted about that. I think that, and I’m just intuiting here from what I can read from the legislation and from the conversations that I’ve witnessed in committee meetings and things like that. But my guess as to why these grants were so overemphasized is that the legislature understands that

the way that we are currently distributing money amongst the local road agencies doesn’t even come close to matching objective needs. And so they’re basically giving MDOT a bunch of money to distribute and hoping that MDOT will be able to backfill those agencies that are hurting the most. So the legislature doesn’t have to think about it. Now MDOT has to think about it.

Guy Gordon (17:55.79)
Mm-hmm.

Guy Gordon (18:09.261)
Right.

Eric (18:13.129)
But MDOT’s not really working with full information either. There’s never been a comprehensive study on who is struggling the most. So it’s gonna come down a lot to kind of just relationships and the quality of grant applications. I will say that one of these grant programs is the, so there is a local bridge funding grant program that has been in place for

Guy Gordon (18:19.662)
Exactly.

Eric (18:41.991)
I think a couple of decades now, and it’s been getting 10 or $20 million a year from the Michigan Transportation Fund. That will for the next five years be getting $100 million a year from the Neighborhood Roads Fund, assuming that money becomes available. And that particular grant funding program, I think might be the most rational piece of our entire roads funding program. actually goes through this committee process and there is a…

a way that points are awarded to each grant application that considers the condition of the bridge that is under consideration for reconstruction and repair, the finances of the local agency, and the importance of the bridge to state transportation priorities. And so that piece, think, actually works pretty good. So I don’t really have a problem with more money being sent to that fund, but it would be really great.

Guy Gordon (19:20.6)
Right.

Eric (19:38.171)
if we could rationalize our entire system rather than depending on this somewhat external process.

Guy Gordon (19:39.405)
Okay.

Guy Gordon (19:44.728)
So applause for the legislature for looking at the funding piece, seeing the historic underinvestment and trying to remedy that with a pretty novel approach to this. The problem is they’ve only handled funding. They haven’t handled the fact that this is still in large measure an ineffective and inefficient way to fund our roads, correct? We’re throwing more money into a system that needs significant reform.

Eric (20:07.933)
Right.

Eric (20:12.733)
Yeah, I have tried to get to the bottom of like which local agencies are most underfunded. I’m sure there are some now that are fairly reasonably well funded, but there are so many components that go into that and most of that data hasn’t been collected and I don’t have the resources to do that. But it would take probably about a 5 million two year study funded by the state to really figure that stuff out.

Guy Gordon (20:42.008)
Mm-hmm.

Eric (20:42.36)
And the legislature funds those kinds of studies all the time. In this recent package, they funded $7 million to investigate a road user tax.

Guy Gordon (20:50.478)
But with a more efficient and more effective system, you could save that money in a year.

Eric (20:55.281)
I think so. think we could be getting maybe 20%, just roughly more efficacy of any funding that we spend just by thinking about how we’re spending that funding, not only in terms of distribution, but accountability.

Guy Gordon (21:12.97)
Also, and we’re running a little bit over time here, apologies, but we now have the Michigan Transportation Fund. We have the Neighborhood Roads Fund. By creating separate funds and separate criteria for accessing those funds, I mean, I know there are matching requirements in some cases with the MTF. Just by adding more complexity to this, are we hurting ourselves and the system for funding?

Eric (21:43.015)
Yeah, mean it’s road agencies from MDOT all the way down to the smallest village are already, it’s really hard to figure out what they’re supposed to do with any funding that they get.

Guy Gordon (21:56.664)
whether they have to come up with matching dollars for a particular project, depending on what the source of those revenues will be and how much of a source they’re going to get from the MTF for that project and how much maybe neighborhood roads fund dollars.

Eric (22:01.107)
that in

Eric (22:10.111)
That’s a brand new complication that’s just been stacked on top of dozens of other complications that have been written into various legislatures over the decades, reflecting shifting priorities. And so this act 51 now is over a hundred pages long. It’s really kind of impossible to specifically figure out.

Guy Gordon (22:32.182)
Let’s handle two things that are often flies in the ointment with any kind of major tax or funding package. And that is, are the assumptions made, in this case by the House fiscal or Senate fiscal agencies, are they good assumptions? Will these different revenue generating schemes generate the amount of revenue that is assumed?

Eric (22:54.929)
In the case of the fuel tax increase, it’s going to be pretty close. our fuel tax complements of the 2015 road funding package is now indexed to CPI inflation, not highway construction cost inflation, which means we don’t quite keep up with costs. But that is pretty predictable. So we can rely on that, give or take a few percentage points.

Guy Gordon (23:24.248)
So again, good job on the part of the parties involved here and the stakeholders that they did a good job. This funding model is not based on rosy assumptions. And also, I’ve heard some chirping on social media from people saying, look, this marijuana wholesale tax is just going to drive people into the black market. It’s going to be like California. We will see a precipitous drop in tax revenues in general from marijuana as a result.

Has that been factored into these assumptions at all?

Eric (23:57.663)
It has. Yeah, I was, when I first started evaluating this package, I was fairly skeptical of, the initial estimation, the annualized estimated revenue from that tax was 420 million, which just seems like a very odd coincidence. It’s since been re-revised to 417 million on an annualized basis.

Guy Gordon (24:15.139)
Mm-hmm.

Eric (24:25.023)
But I found a footnote in one of the Senate Fiscal Agency documents that said when they came up with that $417 million number, they actually did assume, I believe it was a 14 % reduction in retail sales. So they acknowledged that the additional tax, the additional cost will tamp down overall sales. That was factored into their estimates, which gave me enough confidence to

Guy Gordon (24:50.158)
Okay.

Eric (24:53.191)
adopt their estimates rather than trying to figure it on my

Guy Gordon (24:56.15)
All right. It sounds like you dotted a lot of I’s and crossed a lot of T’s with this, Eric. And as a result, we’ve got an analysis that really will hold up under scrutiny, I think. So as is the kind of the final takeaways here, one, the marijuana wholesale tax, approximately $400 million. I don’t know how much that means in terms of road miles paved. But it’s

Eric (25:07.615)
I’m try.

Guy Gordon (25:23.306)
it could be a significant amount of money that will be delayed or put into jeopardy.

Eric (25:28.937)
Yeah, I can’t speak to how that court claim is gonna go, but at the very least, the state asked for it to be dismissed and it hasn’t been dismissed. It looks like it’s gonna go through the legal process. So it could be, if it goes through appeals and stuff like that, even if it’s ultimately upheld, it could be years before any of that money comes down to the road agencies.

Guy Gordon (25:51.846)
And we should hope that the economy keeps on humming and that those corporate income tax revenues stay at the level that they have been at because of depression there. The dollars that don’t make it are going to come out of that neighborhood roads fund. Any final thoughts here other than the fact that hopefully somebody will come up with the idea that we need to look have a soup to nuts review of how we do this in order to eliminate efficiencies, make it more needs based, make it make more sense.

Eric (26:22.171)
No, I think that’s the crux of our argument. The legislature had theoretically been talking about road funding all year, but really not much was done formally about it, formally considered in legislation until the final days and some of it asked after the final days of the previous fiscal year. And so there’s really not much of an excuse for this to have been done in such a rushed manner as it was. They’ve

impose more complications, more inefficiencies to our system when really I wish they would just think harder about how we’re spending this funding rather than focusing on how much funding there is.

Guy Gordon (26:59.246)
Yeah.

Guy Gordon (27:05.4)
Well, and we know that the funding is still being routed through the county road commissions. We love our county road commissions. They do a great job, but there are still townships that are feeling uneasy about whether or not they won’t get shorted in that process, having to go hat in hand to the county.

Eric (27:22.643)
Yeah, some townships, especially our largest incorporated townships are in a weird place. We have townships with more than 50, 60, 80 million people. If they were cities, they’d be among the largest 20 cities in Michigan. I’m sorry, 80,000. Thank you. But we have several townships that if they were cities would be in the top 25 cities in Michigan. And yet they are completely left out of this

Guy Gordon (27:37.41)
You said 80 million. I’m sure that was a mistake. Thank you.

Guy Gordon (27:48.163)
Right.

Eric (27:52.255)
this funding process where is on the other hand, have villages that have four or five, people that are getting directly funded. And this is just a historical anomaly going back to when act 51 was passed 75 years ago, townships weren’t a thing. Even a village of 300 people might be kind of important, but we’re in a different world now. We need to think about this differently and figure out, you know, what transportation funding should look like in 2025 and moving forward.

Guy Gordon (28:22.296)
They were a thing, but they were populated more with corn and cows.

Eric (28:25.161)
They were mostly squares on a map. Now they look like a city, quack like a city, and I think it’s time, at least in road funding, to recognize that they should be treated as such.

Guy Gordon (28:36.438)
Eric Paul Dennis, as usual, very comprehensive, very thoughtful, and hopefully we can smooth out the bumps in the funding process so that we can smooth out the bumps on the roads. Thank you so much for your time and for being on Facts Matter. And we want to remind you it is the season of giving. We missed giving Tuesday, but no fact tank can run on fumes. And if you have it in your heart to support this kind of fact-based analysis on the policies,

Eric (28:51.177)
Thank you, guys.

Guy Gordon (29:06.402)
that impact you, your family, your business, we sure would appreciate a contribution at CRCMish.org. That’s CRCMish.org. Again, thank you for your time. Until next time on Facts Matter, I’m Guy Gordon. Take care.