Total Revenue Impacts

How much have total revenues, and inflation adjusted total revenues in the Michigan Transportation Fund, gone up in recent years? Table 2 shows how Michigan Transportation Fund revenues have grown since 1982. Between 1982 and 1992, total nominal revenue increased from $697.8 million to $1,196 million, a 71.4% increase. Gasoline tax revenue increased 46.1% to $631.0 million, diesel revenue increased 125.6% to $54.6 million, and overall passenger and commercial registration fees increased 107.2% to $441.8 million.11 The gasoline revenue increases came because of increased travel and the 4 cents per gallon increase in taxes, despite an increasing number of more fuel efficient cars. While total nominal revenue grew considerably during the overall period, growth slowed between 1987 and 1992. During that period total revenue grew just 19.2%, or 3.8% per year.

Revenues also increased substantially in real terms. Though the Consumer Price Index increased 50% during this time period, a far better measure of highway construction and resurfacing price changes is found in the Federal Highway Administration's Composite Index.12 This index measures changes in unit prices for excavation, resurfacing and structures work, but not light maintenance. The index increased just 18.7% between 1982 and 1992. The Federal Highway Administration maintenance and operations index does measure costs for items such as snowplowing, mowing, and other light maintenance (this index was terminated in 1992), and had a 38% increase over this time period.13 A good estimate of unit inflation costs would be a weighted average inflation rate based on the relative share of dollars spent on construction resurfacing vs. light maintenance. This weighted average unit inflation rate would have been 24.5% between 1982 and 1992. Using this weighted average index, real revenue from the Michigan Transportation Fund grew 46.9%, or considerably faster than the growth in traffic levels. This contradicts the general perception that transportation revenues have not kept pace with inflation due to increasing fuel economy and fast growing costs.

What are these numbers telling us? First, though it is true that gasoline tax revenues have not grown at a strong rate, especially in recent years, it is clear that the switch to value based registration fees more than made up for this and allowed total revenues to grow at a very fast rate. On the inflation side it is also clear that at least unit costs have not gone up as fast as some have suggested. However, the unit cost indexes do not reflect the increasing inputs per mile of road that have been required due to environmental standards, safety standards, and other design changes which have added to costs. For instance, if we use 12 inches of concrete instead of 11 inches, costs will go up but the index will only look at changes in the cost of concrete per cubic yard. Though it is impossible to quantify these impacts, it is likely that costs have gone up more than the 24.5% indicated by the weighted average index inflation, and that real revenues have not grown by the full 46.9%. Nor have real or nominal revenues grown as fast since 1987. Using just the FHWA composite index inflation, real revenues grew 14.1% between 1987 and 1992, during a time period when total travel miles grew 10.9%.

In summary, between 1982 and 1992, nominal revenue grew 74.1%, unit road costs grew 24.5%, and real revenue grew by approximately 35-40% even after adjusting for more units of input being required per mile. Overall, real revenue grew at least at about the same rate as increases in travel miles between 1982 and 1992. Between 1987 and 1992, nominal revenues grew 19.2% and unit inflation was just 5. 1 %. Again, even after assuming more input units being required, it appears that revenues kept pace with increases in both costs and travel demand. Though it may well be true that there was insufficient revenue in 1982, and that a tax increase is necessary for this reason, it cannot be argued that revenues fell behind the growth in traffic levels or unit costs during this time period.