A Funding Approach for Those who Believe The Benefits Outweigh The Costs

Ultimately, citizens and legislators will have to decide whether additional investment in highways is needed, and whether the benefits of such investment exceed the costs. A good transportation system is clearly beneficial to both manufacturers and automobile users, but at what cost? For manufacturers a well functioning system can allow more reliable and faster deliveries that allow the removal of inventories from the system and improved customer service. A congestion free transportation system is critical to just-in-time logistics systems, and to shippers and receivers using services such as UPS and Federal Express. The freight system can also benefit from reduced damage to goods and lower repair costs if roads are better maintained. For auto users, the key issues are the level of congestion and the quality of life implications of congestion. Better roads can reduce the costs associated with accidents, and lead to fewer fatalities. Poorly maintained roads increase the wear and tear on autos and increase repair costs by significant amounts.

In this study we have estimated total system priority revenue needs at $485.2 million after cost reductions. State needs make up $293.2 million of the total, while local needs total $192.0 million. By dedicating the proposed cost savings to investment in roads, a total of $656.8 million in additional investment would be generated if the additional revenue is raised.

The rationale for these additional revenues is that first, there are a number of identified priority needs, such as those related to I-94, a Grand Rapids beltway, a better north-south route on the east side of the state, and various bridge projects to name a few. those in favor of a funding increase would also have to conclude that we have been underfunding roads for a number of years, and that revenues have not really kept up with cost increases and increases in traffic. While revenues increased some 48.9% faster than unit inflation between 1982 and 1992, and traffic was up 37%, one could argue that additional "units" of investment are required per mile due to new design requirements related to safety, the environment, and project design life, and that this has used up all of the revenue growth.

Those supporting additional revenue would argue that the results of this underfunding can be seen in the large increase in the percentage of roads rated poor, in the increase in repair costs for auto owners, and in the large percentage of roads considered "congested," compared to other states. Supporters of an increase in funding would also argue that Michigan's low spending relative to other states (46th per capita and 47th as a percentage of personal income) is indicative of the need.

Those opposed to an increase would cite the large increase in existing revenues after unit inflation costs, and the need to reduce costs even beyond those that have been outlined in this analysis. They also might suggest that a better return on investment can be obtained by spending in the private sector, and that any increase in funding should come about as a result of reprioritizing existing state spending and shifting resources to transportation. Those opposed to an increase would also argue that an increase in transportation taxes would offset the progress that has been made in improving Michigan's business climate relative to other states.

Possible increases in tax revenues for transportation come with several caveats. Legislation should be enacted to implement the identified cost savings, and to implement the other recommendations identified in the cost savings section. Secondly, any tax increase should include political commitments to pursue reductions or elimination of federal mandates that are driving up environmental labor costs. Third, any tax increase legislation should identify offsetting tax cuts in other areas of government that at least equal the proposed tax increase. One way to effectively accomplish this would be to dedicate the sales tax on gasoline and diesel to transportation. Fourth, any increase should be dedicated to highway use, and not made available to mass transit. Finally, any tax increase should pursue the goal of increasing the percentage of local road needs obtained from local sources.

Following are proposed revenue raising approaches for those who believe the benefits of a transportation tax increase outweigh the economic costs.