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February 26, 2019

‘Fix the damn roads’ was easy. How to pay? Not easy.

We all agree Michigan’s roads are terrible. We’re starting to agree that more revenue will be needed to fix them. How and where to find it will be complicated.

FOR IMMEDIATE RELEASE, February 26, 2019

Contact: Nancy Derringer, nderringer@crcmichstaging.wpengine.com, 734-548-0033; or Eric Lupher, elupher@crcmichstaging.wpengine.com, 734-542-8001

What we found:

  • In 2015, Michigan enacted a funding package that will eventually generate $1.2 billion annually for state and local road projects. Even after it is fully implemented, the state will continue to be plagued with poor road conditions.
  • Resources to address our current road needs can come from three main sources: increase dedicated taxes, diverting existing state revenues, and/or borrowing. Each choice presents its own set of advantages and obstacles.
  • Michigan taxpayers will be well served if reforms manage to disentangle motor fuels from the Sales Tax; prudently use all available resources for this funding priority; use bonding authority judiciously; and address how revenues are distributed and employed.

Few Michigan campaign promises have caught on with the public as much as the pungent, catchy “Fix the damn roads.” It helped propel Governor Gretchen Whitmer to a commanding victory over her challenger in last fall’s election.

Now comes the hard part: The bill.

A new Citizens Research Council report, “Evaluating Michigan’s Options to Increase Road Funding,’’ finds that the amount needed to improve the state’s major thoroughfares to even “fair” condition – at least $2.2 billion per year – is so high that few taxes could yield that much money at reasonable rates. We look at the various sources and methods available to state policymakers to cobble together something close to what we need to improve this vital infrastructure.

Longtime residents know our pitted roadways are not a problem that developed overnight, or even in the last thaw. We are seeing the result of years of deferred maintenance, compounded by a failing tax structure and the calamity of the Great Recession. And as every homeowner knows, deferred maintenance becomes more expensive when the repairs finally become urgent. So the blame belongs to no single party, governor or other state-level official.

However, now that our roads have fallen into such disrepair, we find that our economy, our image nationwide and even our safety is imperiled and will continue to decline without action, and soon. While a 2015 road funding package should raise around $1.2 billion via increases in road taxes and income tax diversions, those revenues were never going to be enough and have yet to fully materialize.

The state has, broadly speaking, three avenues to raise the necessary money – increase existing taxes and dedicate the increased revenue to road repair; divert those state funds going to other programs and services; or borrow outright. All three have pros and cons, and none are an easy solution.

“As generations of policymakers have learned, there are no easy options for funding our road maintenance needs,” said Eric Lupher, president of the Research Council. “Raising new money will require substantial tax increases. Diverting existing funds for road maintenance is likely to create issues for another state service. And bonding is not a panacea.”

The state’s budget contains far less room for discretionary spending than many may believe. Education, Medicaid, local governments, environmental cleanup – other concerns equally important to the health of the state all require substantial budget allotments, and most have dedicated funding streams that cannot be easily diverted to pavement and pothole repair.

What’s more, changing the structure of some obvious sources of revenue will require plugging holes in other parts of the budget. For example: While Michigan’s gas tax is competitive with other states, application of the sales tax to motor fuels makes the overall tax on fuels relatively high. Sales tax revenues do not fund roads, but removing fuel from the base of the sales tax would hurt schools and local governments. This will require cooperation and savvy politicking to balance competing interests.

“In addition to identifying revenue sources, our policymakers need to consider reforms that will result in more efficient utilization of the funds collected,” added Lupher. “Send tax dollars to the roads with the highest levels of need, to roads carrying the greatest volumes of traffic, and/or change the formulae to distribute funds in ways that recognize the inherent differences of maintaining a two-lane and four-lane road.”

Gov. Whitmer will make her first budget proposal March 5, when she is expected to begin the discussion of how to pay for road fixes. Our research can illuminate the road ahead, which, like most in Michigan, is likely to be bumpy.

The full report can be downloaded here.

‘Fix the damn roads’ was easy. How to pay? Not easy.

We all agree Michigan’s roads are terrible. We’re starting to agree that more revenue will be needed to fix them. How and where to find it will be complicated.

FOR IMMEDIATE RELEASE, February 26, 2019

Contact: Nancy Derringer, nderringer@crcmichstaging.wpengine.com, 734-548-0033; or Eric Lupher, elupher@crcmichstaging.wpengine.com, 734-542-8001

What we found:

  • In 2015, Michigan enacted a funding package that will eventually generate $1.2 billion annually for state and local road projects. Even after it is fully implemented, the state will continue to be plagued with poor road conditions.
  • Resources to address our current road needs can come from three main sources: increase dedicated taxes, diverting existing state revenues, and/or borrowing. Each choice presents its own set of advantages and obstacles.
  • Michigan taxpayers will be well served if reforms manage to disentangle motor fuels from the Sales Tax; prudently use all available resources for this funding priority; use bonding authority judiciously; and address how revenues are distributed and employed.

Few Michigan campaign promises have caught on with the public as much as the pungent, catchy “Fix the damn roads.” It helped propel Governor Gretchen Whitmer to a commanding victory over her challenger in last fall’s election.

Now comes the hard part: The bill.

A new Citizens Research Council report, “Evaluating Michigan’s Options to Increase Road Funding,’’ finds that the amount needed to improve the state’s major thoroughfares to even “fair” condition – at least $2.2 billion per year – is so high that few taxes could yield that much money at reasonable rates. We look at the various sources and methods available to state policymakers to cobble together something close to what we need to improve this vital infrastructure.

Longtime residents know our pitted roadways are not a problem that developed overnight, or even in the last thaw. We are seeing the result of years of deferred maintenance, compounded by a failing tax structure and the calamity of the Great Recession. And as every homeowner knows, deferred maintenance becomes more expensive when the repairs finally become urgent. So the blame belongs to no single party, governor or other state-level official.

However, now that our roads have fallen into such disrepair, we find that our economy, our image nationwide and even our safety is imperiled and will continue to decline without action, and soon. While a 2015 road funding package should raise around $1.2 billion via increases in road taxes and income tax diversions, those revenues were never going to be enough and have yet to fully materialize.

The state has, broadly speaking, three avenues to raise the necessary money – increase existing taxes and dedicate the increased revenue to road repair; divert those state funds going to other programs and services; or borrow outright. All three have pros and cons, and none are an easy solution.

“As generations of policymakers have learned, there are no easy options for funding our road maintenance needs,” said Eric Lupher, president of the Research Council. “Raising new money will require substantial tax increases. Diverting existing funds for road maintenance is likely to create issues for another state service. And bonding is not a panacea.”

The state’s budget contains far less room for discretionary spending than many may believe. Education, Medicaid, local governments, environmental cleanup – other concerns equally important to the health of the state all require substantial budget allotments, and most have dedicated funding streams that cannot be easily diverted to pavement and pothole repair.

What’s more, changing the structure of some obvious sources of revenue will require plugging holes in other parts of the budget. For example: While Michigan’s gas tax is competitive with other states, application of the sales tax to motor fuels makes the overall tax on fuels relatively high. Sales tax revenues do not fund roads, but removing fuel from the base of the sales tax would hurt schools and local governments. This will require cooperation and savvy politicking to balance competing interests.

“In addition to identifying revenue sources, our policymakers need to consider reforms that will result in more efficient utilization of the funds collected,” added Lupher. “Send tax dollars to the roads with the highest levels of need, to roads carrying the greatest volumes of traffic, and/or change the formulae to distribute funds in ways that recognize the inherent differences of maintaining a two-lane and four-lane road.”

Gov. Whitmer will make her first budget proposal March 5, when she is expected to begin the discussion of how to pay for road fixes. Our research can illuminate the road ahead, which, like most in Michigan, is likely to be bumpy.

The full report can be downloaded here.

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