Incentive Match Fund

One cent per gallon of the new gas tax money, or $48.5 million per year, would go into an incentive match fund. This fund would be used to provide incentive match funds to encourage several reforms or actions that would be beneficial to the overall highway system. Counties would be eligible for 64 percent of the money, with cities eligible for 36 percent, based on their respective shares of total county/city route miles in the state. The three activity areas that are to be incentivized under this proposal relate to raising additional local public revenue for local roads, raising additional local private revenue for local roads, and increasing the level of consolidation/cost saving measures at the local level. Each of the sub-funds would be further augmented by the transfer of some existing county/city formula money to the sub-funds. A state/county/city committee would be appointed to oversee spending decisions from the three sub funds. Each of these activities and their related sub-funds are described further below.

One third of the money, or $16 million, would go into a local funding incentive sub-fund. In order to further encourage raising new local monies, we would recommend the fund be further augmented with $10 million of monies currently allocated through the formula to counties and cities. A total of $26 million per year would then be available. This fund would partially match any net new funds raised by local governments with matching funds from the state. The amount of funding would depend on the number of applicants for the money with each eligible application receiving a partial match based on the amount of local funding increases. This will incentivize local sources of funding for local needs and will help address Michigan’s relatively low reliance on local fund sources when compared to neighboring states. Locally raised monies should be available for use on county-, city- or state-owned roads, depending on local needs.

In order to assist with local funding options our proposal also calls on the Legislature to reenact a sunsetted provision that allowed counties to levy a local auto registration fee. The fee, which would require a countywide vote, would be $50 per vehicle. Such a fee could generate as much as $500 million per year for local roads if all counties adopted the fee however it is likely to generate a much smaller sum. We would also spell out and clarify, to the extent necessary, other options for raising local funds for roads. One option would include specifically authorizing in Act 51 and other appropriate acts, the option of using Tax Increment Financing Authority and Downtown Development Authority District revenues to back bonds used for county/city/village roads.

A second local match incentive fund would be established for matching private source funds on local or state projects, where private funding for roads would be partially matched based on a prorated share of the available private match fund monies available each year. This fund would also include one-third of the 1 cent gasoline tax increase, or $16 million. Local governments would apply for the funds on an annual basis. The goal is to increase the role of private developers in funding Michigan local roads. While private developers often contribute to local road projects in order to get their developments off the ground, more private money should be encouraged. In several other states, such as Florida, developers are actually charged impact fees of as high as $10,000 per home in new subdivisions.[128] While this option should be considered as well, it seems less appropriate in a state fighting to secure both business and residential development. Nonetheless, Michigan should have legislation allowing for and governing the assessment of impact fees on developers.

A third fund would be established to incentivize local road agency cost savings through demonstrated efficiencies resulting from consolidations, contracting, pooled services and/or other cost saving programs. This program would be designed to follow the lead on local government consolidation and services pooling suggested by Gov. Granholm’s recent Revenue Commission, and endorsed in her 2007 budget proposals.[129] Similar recommendations on consolidation were recently made by a panel of Michigan State University researchers reporting to the House Committee on Local Government Affairs on the findings of their 15 month study.[130] Interestingly, a recent newspaper editorial made this point. The 2006 Lansing State Journal editorial questioned why “Ingham and Eaton counties have their own road commissions, and why each city in the area has its own road departments – all to maintain a road net that’s interdependent.”[131]

The above program would be aimed at promoting consolidation and/or contracting between agencies for some of the 616 county and city road agencies currently doing road work and would hopefully promote joint operations of contiguous counties and city agencies. Consolidation or operations sharing proposals, or other cost-saving proposals, could be made by local governments, with an appointed committee picking qualifying proposals and making partially matching grants based on the amount of savings documented.

The size of matching grants for the consolidation/cost saving fund would depend on the number of applicants. The fund would include one-third of the 1 cent of new gasoline tax revenue, or $16.5 million, and should be augmented with an additional $30 million of existing county/city formula funds. This would provide a total of $46.5 million per year for encouraging local consolidation and other cost cutting measures. We would suggest that at least half the money be reserved for specific consolidation proposals, with the other half available for innovative cost cutting proposals. The latter option is necessary because not all local road agencies are in a position to consolidate given their geographic area, and because consolidation may not always make the most sense. Funding would be made after projects demonstrated one year of actual savings experience. Savings would have to be documented, and locals would have to agree to potential Auditor General or MDOT audits to qualify for funding.