Michigan received $959.8 million in federal highway funding in 2005, with $805.3 million going to the state trunkline system and approximately $154.5 million going to the local road system. An additional $119.7 million of federal money went into mass transit and other non-highway programs in the state. The source of these federal funds is the Federal Highway Trust Fund, funded exclusively by user taxes on highway automobile and truck users.
In 2005, the fund revenues equaled $39.5 billion, with $32.1 billion dedicated to the highway account and $7.4 billion dedicated to the mass transit account. Approximately 66 percent of revenues came from gasoline fuel taxes, 22 percent from diesel taxes, 8 percent from the truck and trailer sales tax, 3 percent from the heavy vehicle use tax and 1 percent from the truck tire tax. Truck users contribute $12.1 billion of the total dollars going into the Highway Trust Fund, excluding any truck gasoline taxes.
The federal fuel taxes going into the fund come from gasoline and diesel taxes. Federal gasoline taxes are currently 18.4 cents per gallon and were last increased in 1993. The federal diesel tax is 24.4 cents per gallon. Revenues from the federal user taxes have been relatively flat due to increased conservation resulting from higher prices. Conservation lowers the number of gallons consumed, thereby lowering the revenue from the tax since the tax is a fixed number of cents per gallon regardless of the price of the fuel.
Michigan has historically received back approximately 92 percent of the federal fuel tax dollars collected in the state given our dubious distinction of being one of several “donor states.” Donor states get back in highway/mass transit spending apportionments less money than they send in for fuel taxes, so that other states can get back more than they send in. Table 2 shows the percentage of return of several neighboring and other states. Such a funding balance is probably necessary to provide for a truly “national” highway/mass transit system given that some states have wide expanses with very little population to fund their roads. However, many of the states that we subsidize are very populated ones, such as Pennsylvania, New York and Massachusetts.
Source: FHWA, Federal Highway Statistics Table, FE 221, 2005.
While Michigan was able to increase the percent of dollars that are supposed to come back to the state to 92 percent in the last federal highway bill (SAFETEA-LU of 2005), we are still significantly shortchanged compared to other states. Since 1956 we have ranked 46th out of the 50 states in the percent of fuel taxes returned to the state. In 2005 we had improved somewhat to a 101 percent return rate due to the work of our recent congressional delegations, but we still ranked just 38th while the national average return was 114 percent. There is one caveat with these numbers – and that is that the FHWA Highway Statistics source shows us getting back a higher percentage than MDOT says we actually get back. MDOT has generally said that we currently get back just 92 percent of our dollars. The difference may be due to the fact that the table looks just at highway dollars while MDOT’s figure includes the mass transit account where we do not do as well. Also, the above cited numbers are based on monies apportioned to the state. However, due to obligation ceilings and other limits on us actually ever receiving some of the earmarked money, our actual return may be less than what is shown by FHWA.
The chances of increasing our return of federal dollars are somewhat limited. This is primarily due to two points. First, other states fight very hard in Congress to maintain their advantage, and the donor states like Michigan are outvoted in total and under-represented on key committees. Secondly, the amount of money available to be disbursed is going down. Michigan was able to improve its return in recent years because the Congress voted to spend down the sizeable balances of funds that had been building up in the Trust Fund. This allowed the “donee” states to keep receiving more than what they were putting in each year, while using a good portion of the surplus to help make the donor states whole in the last few years. Unfortunately, this policy will result in the Trust Fund going into deficit in the 2009 fiscal year, with balances dropping from $10.7 billion in 2006 to ($0.6 billion) in 2009. At that point or even sooner, absent a federal fuel tax increase or some other source of new funds, expenditures will be limited to the revenues actually being taken in and states will get back less than they were promised in the recent SAFETEA-LU highway funding bill.
Michigan had hoped to receive an increase in federal funding of approximately $300 million per year under the SAFETEA-LU federal highway bill passed in 2005. However, federal aid has been very flat the last three years and is forecast to decline further in 2007-2009. For instance, in FY 2004 the Obligation Authority which limits the amount of appropriated monies actually available to a state, was $928.2 million for Michigan, but it declined to $919.1 million in FY 2006. Unfortunately, a significant portion of the federal money has also been tied up in “earmarks” for specific Congressional projects, limiting the ability of state officials to use the money for the best and most necessary projects.