State transportation agencies, such as the Michigan Department of Transportation, are understandably concerned about the coming decline in fuel tax revenues, and legislators will share that concern once the magnitude of the problem becomes apparent. Taxpayers, especially Michiganders who are paying more than they used to in fuel taxes, may not be receptive of a new system for securing and increasing government revenue. In some states where MBUF pilot programs have been carried out, some grassroots groups have attacked the idea as “yet another tax increase.”[21]
MDOT and others concerned about the future of Michigan’s roads should not make revenue shortfalls the primary rationale for the transition from taxing gallons of fuel purchased to charging per mile driven. Instead, the focus should be on maintaining a steady source of revenue for roads into the future. With recent increases in road funding over the last several years, the state is getting close to point where it can put roads together faster than they fall apart. This achievement, however, is threatened by the prospects of future declines in fuel tax revenue.
In the 2015 FAST Act, Congress asked the Transportation Research Board of the National Academy of Sciences to convene an expert committee to study the future of the Interstate Highway System. The committee’s 596-page report was released in December 2018.[22] Among its main findings were the following:
In its recommendations, the TRB committee suggested a repeat of the original 90% federally funded program that built the Interstate system, which would require raising and spending an average of $57 billion per year for the next 20 years (totaling about $1.1 trillion). This would require a substantial increase in federal gasoline and diesel taxes, which is highly unlikely to be politically popular. The committee’s report also discussed the possibility of financing this huge set of projects with toll revenues, which would require amending the 1956 federal law to permit the use of tolls on the 90% of the Interstate system where tolling is generally not allowed, since those Interstates were constructed using federal funds instead of state toll revenues (such as the Indiana Toll Road and the Ohio Turnpike).
A 2019 Reason Foundation policy study responded to the TRB committee’s report, recommending the toll-financed approach to rebuilding and selective widening of the Interstates.[23] It also proposed that each state that decided to take this approach could use it to begin the transition from per-gallon taxes to per-mile charges.
As fuel tax revenues decline in the future, Michigan and other states should begin to phase this tax out and replace it with per-mile charges to fund these projects. The limited-access system (Interstates and freeways) would be the easiest place to begin this transition, because (1) electronic tolling, such as the 16-state E-ZPass system, is widely used and widely accepted, and (2) per-mile charges on these specific corridors would provide a bondable revenue stream to pay for the reconstruction and modernization of these aging highways.
Michigan’s state trunkline road system — roads designated with an “I,” “US” or “M” — make up 8% of the route miles in Michigan, but they carry 53% of all passenger traffic and 70% of all truck traffic.[24] Interstate highways and freeways in Michigan are limited access, where vehicles can conveniently travel at higher speeds given the lack of intersections and potential interruptions. Some US and M roads are also limited access, and the remaining roads are at-grade, open-access surface streets. Michigan does not have tolls except for several toll bridges, such as the Ambassador and Mackinac bridges.
However, tolling is currently being studied for rebuilding Michigan’s Interstates.[25] MDOT is examining the feasibility of using toll-revenue financing to rebuild and modernize its Interstates. When the study is completed in 2022, MDOT should have an inventory of the condition and performance of each of its Interstate highways, an estimate of the likely traffic and revenue that would result from them being tolled, and the costs and benefits of having an updated Interstate system as a result. Individual Interstates could be rebuilt one by one, and as each corridor or segment was completed, per-mile charging could begin.[*]
Consistent with the premise that a state MBUF will replace Michigan’s current fuel taxes, those who use the rebuilt and newly tolled interstates would receive a rebate on the fuel taxes they would still pay at the pump, based on how much they drove on the rebuilt corridors. This should eliminate concerns about “double taxation” that are raised by highway user groups, especially the trucking industry. And by demonstrating that the first roads converted to MBUFs will not be subject to fuel taxes, this approach will yield public confidence that future conversions of other roads will also replace the paying of fuel taxes.
Fuel tax rebates could be calculated using the same data used to charge the per-mile rate to drivers, perhaps using a system similar to E-ZPass. The number of miles driven on the rebuilt Interstate for which the MBUF was charged could be divided by the average fuel economy for the vehicle make and model. That would calculate the estimated number of gallons purchased to drive on an MBUF-charged roads. Multiplying that number by the fuel tax rate would result in the rebate amount due to each driver who paid a MBUF. The total rebate for the year could be sent to the motorist at once per year or on a more frequent basis, such as quarterly. Something much like this is already available to trucking companies using the Massachusetts Turnpike and the New York Thruway, both of which are tolled. A trucking service company called Bestpass handles processing rebates of the highway usage taxes as part of its management of companies’ toll accounts.[26]
Graphic 6 uses data from the Federal Highway Administration to identify how much of Michigan’s vehicle miles of travel is provided by limited-access highways (such as Interstates and freeways), state highways and arterials, and local roadways. As the table shows, 32% of all VMT in Michigan occurs on limited-access highways; thus, converting those roads to per-mile charges would shift 32% of all Michigan travel from the state fuel tax to per-mile charges.
Graphic 6: Michigan Vehicle Miles of Travel by Type of Roadway, 2019
Roadway Type | VMT (millions) | Percent of Total |
Limited-Access Highways | ||
Interstates, rural | 5,784 | |
Interstates, urban | 17,727 | |
Other freeways & expressways, urban | 6,485 | |
Other freeways & expressways, rural | 2,827 | |
Subtotal, Limited-Access Highways | 32,823 | 32.1% |
State Highways & Arterials | ||
Other principal arterials, rural | 4,357 | |
Other principal arterials, urban | 17,630 | |
Minor arterials, rural | 6,920 | |
Minor arterials, urban | 15,945 | |
Major collectors, rural | 8,307 | |
Subtotal, State Highways & Arterials | 53,159 | 52.0% |
Local Roads | ||
Minor collectors, rural | 866 | |
Local roads, rural | 2,222 | |
Major collectors, urban | 5,205 | |
Minor collectors, urban | 102 | |
Local roads, urban | 7,797 | |
Subtotal, Local Roads | 16,192 | 15.8% |
Total Michigan VMT | 102,174 | 100.0% |
Source: Federal Highway Administration, Highway Statistics, Table VM-2.
[*] Revenue bonds would have been issued in advance, to pay for reconstruction and any needed lane additions, such as possibly dedicated truck lanes on those interstates with the highest projected truck traffic.
[21] For example, see Carl DeMaio, “New Tax on Your Mileage,” email blast to California taxpayers, May 22, 2019.
[22] “Renewing the National Commitment to the Interstate Highway System” (Transportation Research Board, December 2018), https://perma.cc/PJY6-TLRD.
[23] Robert W. Poole, Jr., “The Case for Toll-Financed Interstate Replacement” (Reason Foundation, March 2019), https://perma.cc/94TS-2CTM.
[24] “Fast Facts 2021” (Michigan Department of Transportation, February 2021), https://perma.cc/V3CX-SPS6.
[25] Chanel Stitt, “Whitmer Gives Michigan Department of Transportation Green Light to Study Toll Roads” (Detroit Free Press, July 9, 2020), https://perma.cc/RH9R-CBCF.
[26] For more information, see “Toll Management for Fleets” (BestPass, Inc., 2022), https://perma.cc/5T4Y-CQ9A.