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May 30, 2019

Road funding is a local (government) problem. And it’s worse than you think.

  • A new study estimates that Michigan’s county road system requires $2 billion more per year to reach 90 percent “good/fair” condition on federal aid-eligible roads, and 60 percent “good/fair” on all other county roads.
  • The amount of additional yearly investment on city and village roads is largely unknown, as current condition reporting requirements only cover some of these roads.
  • Michigan’s system of local government finance limits the revenue options available; without new revenue options, cities, villages, and county road agencies are largely dependent on state funding to increase road investment.

The road-funding debate has centered on the $2.5 billion annual investment that Governor Whitmer has cited as the amount needed to fix Michigan roads. But that figure was put into question by a recent County Road Association report, which estimates that the county road system requires an additional $2 billion per year to get 90 percent of the system’s roads and bridges to “good/fair” ratings by 2029.

The comprehensive dataset is not public, and the methods used to estimate costs differ from those the Department of Transportation uses. But the estimate serves as a starting point to think beyond the state road system when looking at road funding.

With $1.5 billion of funding that the Michigan Department of Transportation (MDOT) has estimated exclusively for state road needs, the county figure would put overall annual investment needs at $3.5 billion. That excludes investment required to improve local roads managed by city and villages. Why is there so much variance here?

What’s the scope of the problem? We’re not sure

The lack of data on local road conditions is the central issue making it difficult to fully estimate what it would take to fix the roads. Michigan has not conducted a system-wide analysis of road conditions since 1984, and the only data local (county, city, and village) governments are required to collect is on federal aid-eligible roads. While this accounts for 88,000 lane-miles, non-federal aid-eligible roads account for about 165,000 lane-miles according to the Transportation Asset Management Council (TAMC).

Roads not eligible for federal aid are more local; these are the roads in residential areas and smaller rural roads. There is no universal analysis on their condition, but in 2017 the TAMC reported that 49 percent actually surveyed were in “bad” condition, compared to 40 percent of federal aid-eligible roads with the same rating.

Roads under MDOT’s jurisdiction are eligible for federal aid and evaluated much more frequently, making it easier to assess their current condition and the investment required to improve them. The Michigan Department of Transportation estimates that state roads would need $1.5 billion to bring state-operated roads to an average of 90 percent in good or fair condition. That figure has somewhat dominated the conversation;  $1.5 billion of the new revenue raised from the Governor’s proposed 45-cent fuel tax increase would go toward roads managed by MDOT. Without a unified estimate of local road conditions, there has not been as much focus on what it would take to fix local roads.

The County Road Association’s recent report was the first comprehensive look at the county system in decades. The report finds that getting 90 percent of federal aid-eligible roads and 60 percent of all other county roads to “good/fair” condition would require an additional $2 billion per year. Counties are already receiving a majority ($360 million) of their boost from the 2015 package; remaining increases will only bring an additional $95 million to county roads.

But there is still no unifying examination of city and village conditions and what it would take to get 90 percent of these roads to “good/fair” rating (if that is even the appropriate benchmark).

Why are locals looking to the state for money?

Road funding in Michigan works differently than in many other states. Counties, cities and villages receive 60.9 percent of constitutionally dedicated state road funding to use on roads under their jurisdiction. This equates to $2.1 billion from the $5 billion transportation budget. Prior to the 2015 road funding package, the state generated more than  half ($1.3 of $2.5 billion) of the total spent on local roads, while the remainder came from local and federal sources.

Compared to other states, that is a significant portion of revenue coming from the state to be spent by local governments. State-shared revenues play a very large role in funding local government services beyond just roads, including schools and courts. Local governments in Michigan have fewer own-source revenue generation options than their peers in other states. While all local governments are able to levy property taxes, only cities are able to levy  income taxes. Other states allow several other types of local taxes; 37 allow a local-option sales tax, 11 allow local-option fuel taxes, and 33 allow local-option registration fees.

As a result, Michigan cities, villages, and counties have to fund roads using the property tax, which is also the primary source for general operating revenues. This can put funding roads in conflict with other local government services with limited options. Also of note, the lack of  local-option fuel and/or registration taxes means that local governments cannot employ a “user fee” to increase road investment.

What this means for the road-funding debate

The County Road Association report puts the current $2.5 billion estimate for road funding into question. The Governor’s proposal would increase MDOT revenues by $1.5 billion. Local governments combined would receive $571 million a year. While no other organization has confirmed the County Road Association estimates, the report highlights the lack of focus that has been put on local roads in the current funding discussion.

Because local governments have limited ability to raise revenues, and the road conditions can be as bad or worse than the state-maintained system, the proposal is likely insufficient for addressing local roads. In particular, the proposal directs money at high-use roads — which could leave more local roads behind. Unless local governments are given more options to raise revenues, the road funding discussion should focus on more than just what MDOT needs.

Research Associate

About The Author

Jordon Newton

Research Associate

Jordon joined the Citizens Research Council in 2017 as a recent graduate of the Master of Public Policy program at Michigan State University. Jordon also earned a Bachelor of Science in Economics from Gonzaga University. Jordon’s focus is on state affairs and the state budget.

Road funding is a local (government) problem. And it’s worse than you think.

  • A new study estimates that Michigan’s county road system requires $2 billion more per year to reach 90 percent “good/fair” condition on federal aid-eligible roads, and 60 percent “good/fair” on all other county roads.
  • The amount of additional yearly investment on city and village roads is largely unknown, as current condition reporting requirements only cover some of these roads.
  • Michigan’s system of local government finance limits the revenue options available; without new revenue options, cities, villages, and county road agencies are largely dependent on state funding to increase road investment.

The road-funding debate has centered on the $2.5 billion annual investment that Governor Whitmer has cited as the amount needed to fix Michigan roads. But that figure was put into question by a recent County Road Association report, which estimates that the county road system requires an additional $2 billion per year to get 90 percent of the system’s roads and bridges to “good/fair” ratings by 2029.

The comprehensive dataset is not public, and the methods used to estimate costs differ from those the Department of Transportation uses. But the estimate serves as a starting point to think beyond the state road system when looking at road funding.

With $1.5 billion of funding that the Michigan Department of Transportation (MDOT) has estimated exclusively for state road needs, the county figure would put overall annual investment needs at $3.5 billion. That excludes investment required to improve local roads managed by city and villages. Why is there so much variance here?

What’s the scope of the problem? We’re not sure

The lack of data on local road conditions is the central issue making it difficult to fully estimate what it would take to fix the roads. Michigan has not conducted a system-wide analysis of road conditions since 1984, and the only data local (county, city, and village) governments are required to collect is on federal aid-eligible roads. While this accounts for 88,000 lane-miles, non-federal aid-eligible roads account for about 165,000 lane-miles according to the Transportation Asset Management Council (TAMC).

Roads not eligible for federal aid are more local; these are the roads in residential areas and smaller rural roads. There is no universal analysis on their condition, but in 2017 the TAMC reported that 49 percent actually surveyed were in “bad” condition, compared to 40 percent of federal aid-eligible roads with the same rating.

Roads under MDOT’s jurisdiction are eligible for federal aid and evaluated much more frequently, making it easier to assess their current condition and the investment required to improve them. The Michigan Department of Transportation estimates that state roads would need $1.5 billion to bring state-operated roads to an average of 90 percent in good or fair condition. That figure has somewhat dominated the conversation;  $1.5 billion of the new revenue raised from the Governor’s proposed 45-cent fuel tax increase would go toward roads managed by MDOT. Without a unified estimate of local road conditions, there has not been as much focus on what it would take to fix local roads.

The County Road Association’s recent report was the first comprehensive look at the county system in decades. The report finds that getting 90 percent of federal aid-eligible roads and 60 percent of all other county roads to “good/fair” condition would require an additional $2 billion per year. Counties are already receiving a majority ($360 million) of their boost from the 2015 package; remaining increases will only bring an additional $95 million to county roads.

But there is still no unifying examination of city and village conditions and what it would take to get 90 percent of these roads to “good/fair” rating (if that is even the appropriate benchmark).

Why are locals looking to the state for money?

Road funding in Michigan works differently than in many other states. Counties, cities and villages receive 60.9 percent of constitutionally dedicated state road funding to use on roads under their jurisdiction. This equates to $2.1 billion from the $5 billion transportation budget. Prior to the 2015 road funding package, the state generated more than  half ($1.3 of $2.5 billion) of the total spent on local roads, while the remainder came from local and federal sources.

Compared to other states, that is a significant portion of revenue coming from the state to be spent by local governments. State-shared revenues play a very large role in funding local government services beyond just roads, including schools and courts. Local governments in Michigan have fewer own-source revenue generation options than their peers in other states. While all local governments are able to levy property taxes, only cities are able to levy  income taxes. Other states allow several other types of local taxes; 37 allow a local-option sales tax, 11 allow local-option fuel taxes, and 33 allow local-option registration fees.

As a result, Michigan cities, villages, and counties have to fund roads using the property tax, which is also the primary source for general operating revenues. This can put funding roads in conflict with other local government services with limited options. Also of note, the lack of  local-option fuel and/or registration taxes means that local governments cannot employ a “user fee” to increase road investment.

What this means for the road-funding debate

The County Road Association report puts the current $2.5 billion estimate for road funding into question. The Governor’s proposal would increase MDOT revenues by $1.5 billion. Local governments combined would receive $571 million a year. While no other organization has confirmed the County Road Association estimates, the report highlights the lack of focus that has been put on local roads in the current funding discussion.

Because local governments have limited ability to raise revenues, and the road conditions can be as bad or worse than the state-maintained system, the proposal is likely insufficient for addressing local roads. In particular, the proposal directs money at high-use roads — which could leave more local roads behind. Unless local governments are given more options to raise revenues, the road funding discussion should focus on more than just what MDOT needs.

Research Associate

About The Author

Jordon Newton

Research Associate

Jordon joined the Citizens Research Council in 2017 as a recent graduate of the Master of Public Policy program at Michigan State University. Jordon also earned a Bachelor of Science in Economics from Gonzaga University. Jordon’s focus is on state affairs and the state budget.

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