The Michigan Budget: Back on the Roads Again
State Budget Note 2015-01, September 2015
The Michigan Legislature wrapped up work on the state’s $54.5 billion budget for Fiscal Year (FY)2016 back in June, but the budget was enacted without accomplishing a key goal that continues to elude both the Governor and Legislature: finding a permanent funding solution to address the state’s deteriorating road infrastructure.
In May, voters resoundingly rejected Proposal 1, which would have triggered increases in both motor fuel and sales tax rates in order to generate an estimated $1.2 billion annually in additional road revenue along with $800 million for schools and local governments. With Proposal 1’s failure, budget writers were forced to rely again on additional support from the state’s general fund to help supplement the state’s dedicated transportation revenues. As a result, the enacted budget contains a $400 million general fund/general purpose (GF/GP) appropriation for this purpose, but that increased funding falls significantly short of the annual revenue boost that road officials indicate is needed – a figure that likely now exceeds $1.2 billion and one that grows each year as road conditions further deteriorate.
The failure of the ballot measure has left lawmakers scrambling to come up with an alternative plan. So far, post-budget deliberations have produced competing plans which differ significantly in how they address a key policy question: Should new road revenue be generated from increased taxes, redirected from existing revenues currently used in other areas of the state budget, or through some combination of these options?
Any eventual solution to this policy challenge will have major implications on the future condition of the state’s roadways, but the plan will have equally significant implications on the state’s budget situation. A solution that relies on shifting existing GF/GP revenue to road work will require reductions to other areas of the state budget, but to what degree and how soon? The good news for policymakers is that state revenue growth is expected to be healthy for the near future according to the most recent forecasts. This growth provides a cushion that can help address road needs. However, the state faces a number of significant spending pressures as well that will require increased GF/GP support over the next several fiscal years. These budget pressures will, to some degree, negate this cushion by drawing upon at least some of this revenue growth, leaving fewer resources left over for other priorities.
In this analysis, CRC examines the long-term state budget outlook given both current revenue projections and known spending pressures and reviews the implications for the state budget of road funding plans that call for both more and less reliance on GF/GP resources to supplement traditional road dollars.