In a nutshell

• Because of Michigan’s harsh winter and historical under-funding, roads across the state are crumbling before our eyes.
• Next week Governor Snyder will sign a bill to send an additional $175 million in one-time funds to state and local roads, supplementing $2.3 billion in ongoing funds this year.
• The antiquated and inefficient formula used for sharing road funds with state and local road agencies guarantees that much of this funding will not go to those roads experiencing the most traffic or those in the worst condition.

 
Early next week Governor Rick Snyder will sign into law a bill sending an additional $175 million in state funds to state and local road agencies to deal with the “pothole crisis” that motorists are currently experiencing. While Michigan’s potholed roads offer ample proof that the money is badly needed, there is little guarantee that it will be distributed in the most efficient manner. Because of Michigan’s antiquated highway revenue sharing formula, those roads most in need will not receive the requisite aid.

The additional $175 million comes as a one-time allocation from the state’s General Fund. It supplements an estimated $2.3 billion in state motor fuel and vehicle registrations taxes in ongoing resources constitutionally earmarked this year to state and local roads. Both the additional one-time $175 million and the ongoing funding are distributed through the less-than-efficient revenue sharing formula.
Dividing the highway funding pie

Public Act 51 of 1951 (PA 51) is Michigan’s primary highway revenue sharing program for state and local road agencies. State-raised motor fuel and registration taxes, deposited in the Michigan Transportation Fund and after a number of “off-the-top” allocations, are divvied up among levels of government based on fixed percentages: 39 percent to the state highway department, 39 percent to county road commissions, and 22 percent to municipalities (cities and villages). Of the $175 million, state roads will receive $68 million, county projects $68 million, and cities and villages $38 million.

After the funding distribution among levels of government, PA 51 further divides the local shares to individual units of government; 83 counties and 533 cities and villages. These internal formulas are based on a number of factors. For counties, 56 percent is distributed based on the share of vehicle registration taxes collected in a county, 24 percent on county road mileage, and 11 percent in equal shares, and 9 percent per capita. For cities and villages, funds are shared among units 60 percent based on population and 40 percent on local road millage.
Without getting too far into the weeds of the various PA 51 formulas, the chief problem is that the formulas do not reflect the relative needs of different areas across the state. Nor do the distribution formulas reflect actual road utilization. This means a two-lane road is funded the same as a four- or six-lane road and that roads with the greatest utilization or those with the greatest need (i.e., in the worst shape) do not receive priority.
Proxy measures of utilization (mileage, population, vehicle registrations) are best employed when the overall system is being properly maintained. However, they are insufficient metrics to use when the system, or at least large swaths of it, is in “crisis” mode. In such cases, highway “need” should be the key determinant for distributing limited resources. This is especially true when additional funding (i.e., $175 million) is made available to address a perceived “crisis,” such as the current one.
Given the current PA 51 funding distribution system, it is nearly impossible to address the funding needs of heavily traveled roads or roads in greater need of repair without significantly increasing the allocation of revenues to those roads with less traffic or that have relatively lesser needs. Under this system, an increase in funding, regardless if it is one-time or ongoing in nature, will result in the same percentage increase for each road agency. This is inefficient.
Why not change the formulas?
The proverbial “third rail” of Michigan highway funding discussions has always been the method for distributing state funds among state and local road agencies. While talk of raising transportation taxes is always unpopular and generally considered a “last resort” option, just bringing up PA 51 formula changes is guaranteed political suicide across the spectrum.
Why? In simple terms, because changing the formulas creates winners and losers among road agencies across the state: this includes the Michigan Department of Transportation, and individual counties, cities and villages that differ in demographic and road characteristics. Absent additional funding to share among the recipients to lessen the effects of formula changes, every dollar gained by one entity is a dollar lost by another one.
Need proof of how toxic changing PA 51 is? Even when the potential exists for additional resources to distribute to road agencies, changing the revenue sharing formula has not been addressed. Consider the last two times that the transportation taxes were increased.
Most recently, in late 2015, policymakers agreed to a plan to eventually provide an additional $1.2 billion in state funding for roads. Throughout the public debate there was virtually no discussion about improving the PA 51 formula. Instead, the focus of the debate was on the trade-offs related to only raising taxes to generate the additional funding versus redirecting existing state resources to come up with the $1.2 billion. Early debate on a plan included an ill-fated statewide ballot question in spring 2015 that would rely exclusively on increasing taxes to raise state funds for roads.
Going back to the previous transportation funding discussions in 1997, despite a clear call for reforms to highway jurisdictional control, funding allocations, priority determinations, such proposals nearly derailed a modest 4-cent per gallon gasoline tax that was eventually agreed to. As a result, any substantive PA 51 changes were left on the cutting room floor.
The impact on Michigan motorists
Road conditions will continue to worsen because those roads with the greatest needs will not be prioritized. This is evident in the condition projections for state trunkline highways, the most heavily traveled in Michigan. According to the Michigan Department of Transportation, this system will go from approximately 67 percent in “good” condition currently to 46 percent in 2025. And these projections take into account the additional funding directed to the trunkline system provided through the 2015 $1.2 billion road package.
Until highway need and use factors receive greater importance in the PA 51 formulas, significant portions of the nearly $2.3 billion of state-raised revenues annually will be distributed less efficiently than would be optimal.  And whenever any one-time funding is pushed through the existing PA 51 system to address a “crisis,” the roads in the worst shape and in need of the most attention will not be prioritized . This is the case with the $175 million being made available in the supplemental appropriation.