Local needs should be funded with a statewide gas tax of 1.4¢ per gallon which locals could access by raising local matching dollars on a 2:1 basis.
An annual priority need of $281.8 million was estimated for the locally-administered system. Cost savings of $89.8 million per year are feasible, leaving a net revenue need of $192.0 million per year.
It may be necessary for historical precedent and political reasons to raise some statewide gas taxes which would be passed on to local units of government if a revenue increase is desired. A strong case can be made for requiring local governments to raise a greater share of local road needs from local funds. Such an approach would allow those areas of the state with major local needs to obtain necessary local funding, while allowing other areas of the state which have not experienced fast growth to avoid extra taxation. This approach also makes sense given the Headlee limitations on the amount of money the state can raise, given recent decreases in local property taxes brought about by Proposal A that free up local tax base, and given the relatively low level of local financing in Michigan compared to that in other neighboring states. Nationally, states provide just 29% of local needs, but in Michigan we are providing 58.1 %.
The best way for the county and city needs to be funded is to provide for a local option maximum $25 increase in auto registration fees, and for local governments to raise funds for road purposes through property taxes and other sources such as developer fees. A registration fee could raise $142.3 million if applied to all autos in the state. A local gasoline tax would be very disruptive, would result in extensive driving to avoid counties with the higher taxes, and should not be allowed as an option. Local registration fees were allowed for five years in Michigan between 1987 and 1993, but local efforts to pass ballots allowing such fees failed at that time. For instance, in Oakland County a $25 registration fee proposal failed by a 4:1 margin in 1989. There has been more success lately in using property taxes to fund roads, with 20 counties now having such millages and two having been approved in the last 12 months. With increasing need becoming evident in some counties with fast growth, it is quite possible that local voters will support local road taxes if they can be convinced the funds will be used wisely.
Increased local funding of highways would result in more local visibility and interest in controlling the costs of local highway agencies, and would lead to better choices on what to spend money on. Currently, local voters are being asked to approve millage or other funding for a variety of local non-highway projects at the very time that local officials are outlining their needs for additional funding of highway needs. For instance, Lansing officials recently announced a $20 million shortfall in funds for highway needs, suggested more money was needed from the state for these needs, and then discussed whether to accept substantial financial risks related to a proposed bus station and private retail development. Likewise, in Oakland and Macomb counties, county road commission officials are engaged in a campaign about the need for additional road and bridge money from the state at the same time that other county officials are discussing a local 1/4 to 1/3 millage for SMART. If local voters were forced to choose between road needs, SMART, or both projects, it is likely that better decisions would be made based on voters' priorities.
While local option funding is the best alternative for increased local road funding needs, historical precedent requires that the state raise some of the funds for local needs. Table 7 summarizes a local funding approach. For those that believe a tax increase is justified, the best approach is to split the identified local needs at a 1:2 ratio between state and local revenue sources, reducing the percentage of local needs funded by the state. Under such a system, an additional statewide gasoline tax of 1.4 cents per gallon would be levied, raising $64.0 million per year. This money would be deposited in a local match fund and allocated to local governments using present formulas (see Table 7). Any monies not matched by local governments at a 2:1 ratio from new dedicated local transportation revenue sources within two years would revert to the state trunkline fund. Local monies could be raised at the county level by the registration fee or other dedicated taxes, and at the city/village level by millages. A total of $128.0 million in dedicated new local revenues would be necessary.