Maintaining Michigan's system of highways and roads is crucial to the state's economic progress, a fact with which few people in the state would disagree. That doesn't mean, however, that the Legislature should simply raise taxes every time anyone identifies an infrastructure need.
Michigan motorists might be surprised to learn that taxes at the pump already sop up about 40 cents of the price they pay for a gallon of gasoline: 15 cents in state fuel tax, plus 6 cents in state sales tax, plus 18.4 cents in federal fuel tax.
The federal government is no friend of Michigan when it comes to funding for the roads. Washington in recent years has partially abandoned the user fee principle by allocating fuel tax revenues to purposes other than transportation, such as deficit reduction. If Michigan received back the 6.8 cents in gasoline and diesel taxes that it sends each year to Washington to be spent on things other than transportation, our state would have an additional $350 million-enough to pay for at least half of the repairs our state, county, and city roads require.
Furthermore, of the funds dispersed from the federal Highway Trust Fund for actual highway purposes, Michigan gets back the smallest percentage of what it pays in of almost any state in the nation. In 1992, for instance, Washington collected $698 million in fuel taxes within Michigan, and returned a mere $382 million. Our representatives should press for a better return, but we may not be able to wait for a favorable response.
Between 1982 and 1992, Michigan Transportation revenues (derived primarily from motor fuel taxes and vehicle registration fees) rose by 46.9 percent after inflation-substantially exceeding traffic growth rates. The number of miles driven on the state's roads increased by 37 percent, and the number of registered vehicles went up by 13.7 percent. This higher traffic volume boosted revenues, but it also produced a need for capital projects and maintenance. The percentage of roads rated poor rose 36 percent. Because fixing poor roads is three to five times more expensive than fixing those rated fair, it makes economic sense to invest in halting the deterioration of roads before they become poor.
A Mackinac Center for Public Policy report in late April concluded that Michigan's road improvement needs are urgent and substantial, but that policy makers must reinvent the way roads are financed and maintained to get more bang for the taxpayer's buck. Also, Lansing must not jeopardize Michigan's recent progress in making its business climate more competitive: any increases in motor fuel taxes or registration fees to raise necessary funds for the roads should be offset by tax and spending reductions elsewhere in Michigan government. Furthermore, here are a few cost-saving measures the report recommends to the Governor and Legislature:
Stop diverting state fuel tax revenues to non-highway uses. The fuel taxes that motorists pay should not be siphoned off to subsidize mass transit or light rail schemes.
Reduce duplication and excessive administrative costs within both the Michigan Department of Transportation and county road commissions.
Speed up efforts to privatize transportation functions. Contracting out to private firms through a competitive bidding process is saving millions now, but much more could be done.
Enact tort reforms that will reduce the state's costs in fighting off frivolous lawsuits involving highway accidents.
Sell the state's railroad track network. No good reason exists for the state to own and maintain more than 730 miles of railroad track, all acquired within the last 20 years.
Assuming no change in Washington's funding formula and implementation of all the savings called for in the Mackinac report, Michigan will still need $400-$500 million per year over the next decade to fund state and local road improvements. That could be funded with a 5.8 cent hike in the gasoline tax and a 6 cent hike in the diesel tax. The big question is, can Lansing muster the political courage to give roads the priority they deserve and cut other taxes and spending accordingly?
Fixing Michigan's roads without doing harm to the state's economy will require a mix of policies: getting a better return on what we send to Washington, implementing money-saving reforms, and cutting other taxes to offset the impact of any necessary fuel tax increase. That's a far more creative approach than the bureaucratic prescription of simply adding to the tax burden for business-as-usual.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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