Executive Summary

The Michigan transportation infrastructure system is crucial to the state's economic progress and a strong case can be made that the expensive task of maintaining it should be given a new level of priority in Lansing. This blueprint for identifying Michigan's infrastructure needs rests upon several crucial findings:

1) substantial repairs and improvements are necessary;
2) policy makers must fundamentally reinvent the planning, funding, construction and maintenance procedures in Michigan; and
3) increases in motor fuel taxes should be offset by tax and spending reductions in other areas of state government.

Between 1982 and 1992, Michigan Transportation Fund revenues rose by 46.9 percent in real terms. In that same time period, the number of miles driven on the state's roads increased by 37% and the number of registered vehicles went up by 13.7%. The increased traffic helped boost revenues but also produced an increasing need for capital projects and maintenance. The percentage of state system roads rated "poor" increased 36% between 1982 and 1993. That's important to understand because fixing "poor" roads is three to five times more expensive than fixing "fair" condition roads. It makes economic sense in the long run to invest in halting the deterioration of roads before they become "poor."

Michigan's gasoline tax has remained at 15 cents per gallon since 1984, while the diesel fuel tax has stood at an effective 9 cents per gallon since 1980 when a 6-cent discount for commercial users took effect. Revenues from these taxes are committed to the Michigan Transportation Fund and, at $737.7 million in Fiscal Year 1995, comprise 56.2% of the Fund total (another 38.2% of Fund revenues comes from registration and weight taxes). Additionally, Michigan levies a 6-cent sales tax on both fuels but the revenue from the sales tax is not used for transportation purposes. Each penny of state gasoline tax is estimated to raise approximately $45.7 million of revenue, while each penny of the diesel tax discount eliminated would raise about $5.6 million.

Heavy duty commercial trucks pay a considerable amount in fuel taxes and registration fees in Michigan, but are still not paying their full share of costs. Both the taxes and the fees they pay are below the average in other states and are below what is needed to cover the maintenance costs that their use on the roads imposes. Those who argue that Michigan should place a limit of 80,000 pounds on trucks that travel on its roads to minimize damage miss an important point: axle weight determines damage, not gross weight. By spreading their weight over 11 axles compared to just five for 80,000-pound trucks and paying nearly twice the registration fee per vehicle, the 164,000-pound trucks that ride Michigan's roads are not imposing a disproportionate burden on the state.

Michigan Department of Transportation officials have created a prioritized list of transportation projects that require an additional $410 million of funding per year for the state system, but some of the items on the list are hard to justify. One example is $25 million for high speed rail between Chicago and Detroit. This report examines MDOT's claimed needs and finds that something on the order of $375 million is more justifiable. The report estimates a need for an additional $281.8 million per year for city and county road investments, for a total identified gross need of $656.8 million per year for 10 years.

Not all of that $656.8 million, however, must necessarily come from higher fuel taxes or registration fees. In discussing possible funding alternatives, some of which are admittedly remote because of political realities in either Lansing or Washington, the report makes a number of important points:

  • The federal government has broken the user fee principle by allocating federal fuel tax revenues to purposes other than highways, such as deficit reduction and mass transit. If Michigan received back the 6.8 cents in gasoline and diesel taxes that it sends to Washington for deficit reduction alone, we would have an additional $357.7 million per year--an amount that almost completely eliminates the shortfall in investment for state run roads. In other words, Michigan sent $698 million to Washington in 1992, but slightly more than half of that never came back because it ostensibly went to deficit reduction.

  • If the federal government used the Highway Trust Fund balance it collected from highway users in fuel taxes but refused to spend, Michigan would get back another $663 million of one-time monies.

  • Of the federal taxes actually deposited in the highway account of the Highway Trust Fund, Michigan gets back the smallest percentage of what it pays in of almost any state in the union.

  • Even at the state level, not all of our highway user taxes and fees are going for highway purposes. Some $176.7 million of state funds are being diverted from highway uses to mass transit subsidies and other non-highway activities of often dubious value.

  • Reforms at the federal level could save millions of dollars. Repealing "environmental justice" rules, limiting projects requiring NEPA environmental reviews, rolling back unfunded mandates, cutting the bureaucratic requirements of the ISTEA legislation, reducing the excesses of the Coastal Zone Reauthorization Act, and repealing the Davis Bacon Act top the list.

  • Reforms at the state and local levels could save millions more. A list, explained in some detail in the report, includes further progress in reducing MDOT administrative costs, reform or elimination of separate county road commissions, increased efficiencies through privatization, changing the terms of land acquisition, changing design standards and applying value engineering concepts, repealing the state's archaic Prevailing Wage Act, discouraging frivolous and costly lawsuits against the state through reforms in tort law, selling the state's network of railroad track, and eliminating unnecessary environmental regulations.

Total state and local needs after implementing these and other viable cost saving measures are estimated at $485.2 million, more than $171 million less than the gross need of $656.8 cited above. State needs make up $293.2 million of the total, while local needs comprise the remaining $192 million. All cost savings assumed in these numbers can be implemented by the state.

In raising $485.2 million—or any portion thereof—policy makers must have two factors uppermost in mind: the Headlee Amendment to the Michigan Constitution, which is exerting a powerful restraint on further state taxation, and the need to protect the progress Michigan has made in recent years toward improving its business climate by cutting the burdens of government. In addition to the adoption of cost-saving strategies proposed in this report, the author strongly recommends that increases in motor fuel taxes or vehicle registration fees be offset dollar-for-dollar by tax and spending reductions elsewhere in government.

The report concludes with a specific funding proposal. To fund state needs, the proposal suggests obtaining $60 million from bonding as proposed by MDOT, $33.6 million from a 6-cent increase in diesel taxes, and a 4.4-cent increase in the gasoline tax (which would raise $199.6 million, for a total of $293.2 million). To fund local needs, the proposal suggests a combination of a local registration fee hike option and establishment of a matching contribution program for local governments to obtain access to a 1.4-cent per gallon gas tax dedicated for local use. Locals would have to put up two dollars for every dollar to be received from the state fund. This program would raise $64 million in state funds to be matched by $128 million in net new local money. The total gas tax increase under this proposal would be 5.8 cents.

Michigan's transportation infrastructure needs must be addressed in a timely, constructive, but aggressively cost-conscious fashion. It will not suffice to blindly pursue business as usual--simply adding up what the bureaucracy says it needs to fix the roads and raising taxes to bring in that amount of revenue. Policy makers and the citizenry at large must understand what is at stake, the imperative of innovative thinking, and the need to keep state government on the track toward making Michigan a less expensive place to live and do business.