Almost all federal transportation expenditures are made from monies deposited in the Highway Trust Fund from taxes on highway users. In 1993, the fund had receipts of $19.6 billion and expenditures of $18.6 billion. Some $5.3 billion of the receipts were from truck operators.32 However, beginning in 1990 the federal government ended the decades-old practice of depositing all fuel taxes into the fund and began using some funds for general deficit reduction.33 While gas and diesel taxes were increased by 5 cents at that time to a total of 14.1 cents per gallon for gasoline and 21.1 cents for diesel, 2.5 cents per gallon was committed to deficit reduction thereby diverting some $2.5 billion of Highway Trust Fund receipts per year. In 1993 an additional 4.3 cents per gallon of federal fuel tax was added to both gasoline and diesel sales with the entire amount diverted to deficit reduction. The 1990 deficit reduction increase of 2.5 cents is scheduled to begin reentering the Highway Trust Fund on October 1, 1995, but many observers believe the federal government will continue to use these funds for deficit reduction.
Two reforms would allow Michigan to increase its road investment without any state tax increase. They are the recommitment of highway user taxes to the Highway Trust Fund, and the release of trust fund spending from the constraints of the federal Budget Reconciliation Act of 1990. For instance, if we received back the full 6.8 cents per gallon in gasoline and diesel taxes currently being collected by the federal government for deficit reduction purposes, this would raise an additional $52.6 million per penny, or $357.7 million. This would completely eliminate our state system investment shortfall.
In addition, the federal government has purposely underspent from the trust fund in order to help reduce the apparent size of the federal deficit. As a result, a trust fund balance of $22.1 billion existed at the end of 1993, although half of the balance is in the mass transit account. If these funds, collected from highway users with the promise that they would be spent on transportation infrastructure investment, would in fact be spent, Michigan would get back approximately 3%, or $663 million of one-time monies. This would go a long way toward meeting Michigan's needs without raising state or local taxes.
Over the years, increasing levels of federal spending have been directed at mass transit. In 1993, $1.9 billion in Highway Trust Fund money was spent on mass transit with no contribution to the fund by mass transit users. Recent federal proposals call for eliminating all restrictions on how Highway Trust Fund monies could be spent. Total spending would be reduced by $2.5 billion per year and all remaining spending would be given to states as part of block grants that could to a large degree be spent on whatever purpose the state desired.34
While block grants with minimum restrictions and wide flexibility make sense for general fund spending, such-freedom does not make sense when the money is raised from one class of users with a promise that the funds would be spent on the stated purpose. In this case money has been raised from highway user taxes that is supposed to go for highway spending. However, under the proposal, states and local governments would be free to spend large portions of the money on private rail freight, mass transit and other purposes. If such spending flexibility on other modes is to be allowed, these other transportation modes should also be asked to contribute to the fund. Currently, there is no contribution from mass transit and very little contribution from rail freight. Any reduction in highway spending from federal sources could lead to later needs for increased state spending on highways.
Finally, the amount of Michigan gas tax that may be needed in the future is directly related to Michigan's status as a net "donor state" for highway spending from the Highway Trust Fund. Apportionments and allocations to each state are based on a formula that results in Michigan getting back the least of almost any state in the country compared to what is raised from federal taxes collected in Michigan. In 1992 the federal government collected $698 million in gas taxes and expended just $382 million in Michigan.35 A staggering $317 million of the federal fuel taxes raised in Michigan were committed to deficit reduction, given to other states, held in the trust fund to build balances that mask the size of the deficit, or were awaiting programming and release for future projects.
Whatever the reasons, Michigan got back just 45.3% of the total collected from it in 1992. By comparison, California got back 81.3% of its contribution in 1992.36 If Michigan had a similar rate of recovery we would have received $185.7 million more in federal aid, enough to offset 4.1 cents per gallon of state gas tax. If we had Indiana's recovery rate we would have been able to offset 2.9 cents per gallon of state gas tax, and at Ohio's rate we would have been .5 cents per gallon better off.
Looking only at the share of money we pay into the Highway Trust Fund compared to apportionments and allocations from the fund to each state (a better measure than expenditures because of fewer timing issues), we appear to do considerably better but the return ratio is somewhat misleading. In 1993, Michigan received back 100.0% of what was paid into the fund (see Table 5). Although this seems quite good, the average return for all states was 127.0% according to the FHWA's 1993 Highway Statistics Table IV-16, and we ranked 45th in the country in 1993 for the percent of funds returned to us.37 Massachusetts, probably because of the $5 billion plus Central Artery Project in Boston, got back 362% of its contributions in 1993 and the District of Columbia got back 484%. On a cumulative basis going back to 1957, we received back 90% of the taxes we deposited in the trust fund, compared to a 114% average return rate for other states.
The above figures indicate that Michigan's poor performance in 1992 relative to other states on a total user taxes-to-expenditure basis may be worse than most years due to timing of the expenditures. However, one cannot help wonder why we send this highway user tax money to Washington in order to get back just half on a total collections-to-expenditure basis. We are to a large degree funding other states' highway needs, and contributing a larger portion than most states to deficit reduction.