In February, the Citizens Research Council laid out five points we believe need to be covered for a sustainable solution to Michigan’s pitted thoroughfares. We look at how the plans on the table address them.
What we found:
- Governor Whitmer and the Republican majority in the House of Representatives have both proposed increases in road funding through their respective budget recommendations.
- Governor Whitmer’s plan would increase road funding by $1.9 billion a year when fully phased in without requiring budget cuts, but would not exempt fuels from the sales tax.
- The House Republican plan would increase road funding by about $900 million annually once fully phased in, exempt fuels from the sales tax, and cut administrative budgets and information technology spending across all departments in Fiscal Year 2020.
As debate over road funding continues in Lansing, the Citizens Research Council takes a look at the options now on the table – from the Governor’s much-discussed 45-cent-per-gallon gas tax to the House Republicans’ plan (as currently revealed) to find money via budget reallocations. And we see how they stack up with our report in February 2019, where we suggested structural reforms to better allocate transportation spending, and to make fuel taxation more transparent to the public. These reforms were:
- Disentangle the sales tax and motor fuels to ensure tax transparency and maintain a user fee approach;
- Avoid creating fiscal problems elsewhere in the budget;
- Judicious use of borrowing;
- Distribute new road funding to ensure resources go to the roads most in need;
- Raise funds sufficient to deal with the problem – partial measures or kicking the can down the road will not solve the problem.
We found that the various plans on the table would accomplish some of these reforms, but not all of them.
“The central role that the state government historically has played in road funding, Michigan’s overly complex financial system, and years of neglect make the search for policy solutions more difficult than it should be,” said Eric Lupher, President of the Citizens Research Council. “Our suggested reforms seek to address these shortcomings.”
Briefly, we found that the Governor’s plan, which includes a 45-cent per-gallon gas tax, raises the most money to address the problem, although even the $1.9 billion increase in road funding is short of the Governor’s stated target. However, it doesn’t take motor fuels out of the sales tax base, which is admittedly a difficult thing to do – with the School Aid Fund and revenue sharing with local governments receiving hundreds of millions from the $840 million paid at the pump, holding these entities harmless will require far more in state funding.
The House Republicans’ plan would gradually draw down fuel purchases from the sales tax base, and replace it with a new fuel tax. Making the aforementioned entities whole, under this plan, would require reallocation of funds from higher education and the General Fund, and replace constitutional revenue sharing with a statutory payment, which would put it at risk in future appropriation wrangling.
Both plans avoid the short-sighted approach of relying on borrowing to increase road investment. Yet at the same time, both raise a question of long-term sustainability; as fuel efficiency increases over time, the yield from the per-gallon fuel tax will struggle to keep up with funding demands.
Solving Michigan’s road-funding problem is a true dilemma, with no easy answer. The legislative and executive branches are working their way toward their own solutions, but both plans have some disadvantages vis-a-vis our recommendations.
“We encourage policymakers to continue their pursuit of policy changes that will address the state’s road funding needs. While Lansing continues to wrangle with these issues, several states have increased their motor fuel taxes and another construction season will soon pass,” Lupher added.
The paper is available here