How Michigan Can Pay for its Roads Without a Tax Increase

Over $1.5 billion in savings

By Jarrett Skorup and James M. Hohman | May 16, 2015

Editor's Note: A version of this article first ran in the Detroit News.

On May 5 voters rejected Proposal 1, the Legislature’s most recent effort to fix Michigan’s roads. This result should not be regarded, however, as an endorsement of the present state of the roads, and lawmakers should quickly explore new approaches.

A new road funding plan should include redirecting current or future state revenue to help pay for roads, and ideas to that extent are outlined below. (The figures are based on the House’s proposed state budget.) Most of this money comes from reducing expenditures on programs that offer little or no benefit to the typical Michigan taxpayer. Altogether, these ideas amount to over $1.5 billion in annual savings.

Current road funding: $159.5 million

The general fund budget already dedicates extra cash for roads. Legislators spent $284 million of this money on roads last year, and preliminary budgets recommend another $159.5 million this year. This spending can be continued.

Michigan Economic Development Corporation (MEDC): $230 million

The effectiveness of the state’s corporate welfare arm is questionable (at best) and past programs are projected to cost the state over $9 billion sometime in the future. Just cutting the MEDC’s current operating budget would save almost $160 million. But past tax incentive deals could be renegotiated, which would free up even more money.

At the very least, the Legislature should eliminate the most ineffective MEDC programs. The $50 million film incentive is roundly criticized by independent economists and has had lackluster results. The 21st Century Jobs Fund ($75 million) – former Gov. Granholm’s “blown away” program – has never made good on its promises.

Indian Gaming Compact: $43.6 million

This is revenue from casinos that currently supports the MEDC. It should be redirected to a better economic development strategy: good roads. This may again require renegotiating compacts or having the MEDC reprioritize its spending.

Bus Transit: $167.4 million

Some of the taxes paid by people who drive their own vehicles subsidize people who take the bus. Considering this and local tax revenues for transit, bus fares cover only 13 to 18 percent of operating expenses.

Amtrak: $24.6 million

Last year, the state kicked in $98 per roundtrip passenger to subsidize multiple Amtrak routes. Revenue per mile for Amtrak is very low, and passengers are typically wealthier than the taxpayers supporting them. Amtrak should raise its rates and stand on its own.

Freezing education spending: $255 million

Spending on K-12 districts is the bulk of this, but universities and community colleges are also set to receive more money in 2016. As enrollment continues to decline, districts would still have more state support per student if the Legislature freezes the School Aid Budget.

It is true that SAF money may not be used for road repair, but the proposed budgets for 2015-16 dedicate $159 million from the general fund for school aid. This amount could be redirected to roads. Further, more than $1.2 billion of the general fund supports public universities. Legislators could use SAF money for higher education and shift some of this general fund money to roads.

University appropriations: $637 million

While individuals can boost their job prospects and income potential by earning a college degree, there is little evidence that state spending on colleges leads to more graduates or better economic results. With this in mind, legislators could reduce the more than $1.5 billion spent on university appropriations and make the funding process fairer.

For example, the Legislature could equalize appropriations for public universities. Per-pupil support for Michigan’s 15 public universities ranges from $2,747 to $11,561 depending on the institution. Equalizing state funding at the median per-pupil subsidy — $4,121 annually — would save $637 million.

One-time appropriations

The Legislature should review budget line items that have received multiple “one-time” payments. This includes money to farmers markets, the Senior Olympics, “agricultural incubators” and “regional prosperity grants.” If they are really one-time expenditures, then they should be stopped the following year – but many of these keep getting extended. These don’t amount to much in the big scheme of things, but every pothole filled helps.

Rainy day fund

This is a one-time source of money, not an ongoing one, but if fixing the roads is truly a matter of life-or-death as some maintain, some of this $616 million fund could be reapportioned to help pay for road improvements.

Another option is the 2014 plan passed by the state House. It proposed gradually raising the state gas tax while gradually exempting fuel purchases from the sales tax. This would prioritize future revenue increases to roads, and eventually shift around $1 billion of future tax revenue. Combining this plan with some of the options above would provide much-needed money for road funding.

The complexity of Proposal 1 makes it difficult to diagnose the reasons for its failure. But the roads need to be fixed – and the Legislature should find a solution.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

Pure Michigan Scare Tactics

MEDC deploys 'Washington Monument syndrome'

By Jarrett Skorup | May 15, 2015

The House Republicans recently released a proposal that would dedicate an extra $1 billion annually to roads by 2019. A chunk of the extra money comes from redirecting money from the Michigan Economic Development Corporation to the state’s transportation infrastructure.

The MEDC is the state’s corporate welfare arm, which hands out select subsidies to corporations and oversees the film incentive program and the Pure Michigan advertising campaign.

Specifically, the House GOP plan would redirect $185 million of spending on “economic development” programs to road construction and maintenance. The MEDC does not want its funding cut and responded with what is known as the “Washington Monument syndrome.” As noted by MIRS:

Steve Arwood, chief executive officer of the Michigan Economic Development Corporation (MEDC), said the plan "severely limits the state's ability to have an economic development strategy moving forward."

"Furthermore, it threatens to eliminate the entire Pure Michigan tourism effort – an industry which supports 214,333 jobs in our state," he continued.

Here is a description of the Washington Monument syndrome, via Wikipedia:

The Washington Monument syndrome, also known as the Mount Rushmore syndrome, or the firemen first principle, is a term used to describe the phenomenon of government agencies in the United States cutting the most visible or appreciated service provided by the government when faced with budget cuts. It has been used in reference to cuts in popular services such as national parks and libraries or to valued public employees such as teachers and firefighters. This is done to put pressure on the public and lawmakers to rescind budget cuts.

Sure enough, after the press release from the MEDC, the media reports soon followed. An MLive headline said, “Pure Michigan campaign could disappear under House Republican road plan.”

The Pure Michigan advertising campaign is not nearly as valuable as the MEDC says, but it is undoubtedly more popular among the general public than the other programs the entity oversees. There are many, many MEDC programs that do a very poor job of creating jobs and those are the ones that should see a loss of funding first.

Gideon D’Assandro, spokesman for House Speaker Kevin Cotter, had a good response to the agency’s Washington Monument response: "If the MEDC needs help identifying the right priorities in their own budget, we are more than happy to help walk them through it and show them how."

Tourism marketing through Pure Michigan cost only $21.7 million out of the total “economic development” budget of over $600 million in 2014. There is plenty of room to cut before this program would need to be affected.