How Michigan Can Fix The Roads Without Tax Hikes

Redirect revenue growth and corporate subsidies to roads, eliminate optional grants and more

By Tom Gantert | March 19, 2019

Gov. Gretchen Whitmer has proposed increasing the state gas tax by 45 cents per gallon because, she said, there is not enough money in the current budget to fix the roads. “There are not many parts of our current tax code where you can make adjustments and raise that kind of revenue,” Whitmer said at a recent roundtable hosted by MLive news.

But fiscal policy analysts at the Mackinac Center for Public Policy disagree. They are working on a road funding solution that relies on projected growth in state revenue and shifting some priorities in the budget. The result, they say, will provide more money for road repairs than the governor’s tax increase can yield.

The Mackinac Center’s list of recommendations is a work in progress, according to fiscal analyst Michael LaFaive. It could produce an extra $2.2 billion for road repairs with no tax increase, he said, which is more than the additional $1.9 billion Whitmer wants to spend next year. LaFaive then described some of the proposals on the list.

The largest piece is redirecting to road repairs the $1.2 billion increase in state tax revenue that budget officials estimate will be collected next year thanks to a growing economy — with no tax hike required.

Other reforms and spending reductions the Mackinac Center has identified include:

+ Defund corporate welfare in Michigan. Every year, the state spends hundreds of millions on a wide array of programs that transfer taxpayer dollars to a relatively small number of corporations and developers. Just one example is $75 million appropriated each year to the 21st Century Jobs Fund, a program that gives the money to or spends it on a variety of special interests. Total savings: $244.1 million.

+ Redirect money from the Transportation Economic Development Fund to repairs of highways known as trunk line roads. This fund is another program that selectively benefits a handful of private interests. One example was $500,000 spent in 2017 on redeveloping a 535-acre industrial complex in Willow Run so it could be turned into a self-driving vehicle research hub. That money – and more – could have been spent on fixing the state’s highways. Total savings: $43.3 million.

+ Eliminate state arts grants. Among the recent grants was one for a garden poetry reading at a specialty farm in Ann Arbor. Total savings: $9.0 million.

+ Eliminate taxpayer support for the University of Michigan’s Ann Arbor campus. U-M would be a going concern without state taxpayer dollars. It also had a $10.8 billion dollar endowment as of 2017, the eighth-largest in the country, according to U.S. News & World Report. Total savings: $320.8 million.

+ Reduce funding for a government preschool program called the Great Start Readiness Program. Initially meant for children of low-income families, Great Start has been expanded to subsidize preschool for households with higher incomes. Spending on it has more than doubled since 2011, after adjusting for inflation. Reverting the line item to the 2011 level and redirecting the program to its original purpose would save $131.7 million. Total savings: $131.7 million.

+ End so-called enhancement grant spending, which is often added during midnight budget negotiations. An example is that in the last two budgets, $2 million was granted to the Grand Rapids Civic Theatre. The money was appropriated without public discussion, using a process that identifies the beneficiary only indirectly. Total savings: $115.5 million.

+ End extra school district retirement payments. School districts are responsible for paying the cost of state pensions earned by their employees. To relieve districts of some of that burden, the Snyder administration shifted part of its cost to the state. Some of this responsibility and expense can be passed back to school districts. Total savings: $100 million.

+ Eliminate state funding for AgBioResearch, a program at Michigan State University. The appropriation for it finances research that often benefits the agribusiness industry, which should pay its own way, and some of the spending is of questionable value. For example, MSU announced that its researchers had discovered the “evolutionary origins of the cultivated strawberry.” Total savings: $34.6 million.

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.

Fuel Tax Funds Will Be Diverted

Not all revenue raised by the new tax will be prioritized to roads

By James M. Hohman | March 18, 2019

Editor's note: This article originally appeared in The Detroit News on March 9, 2019.

Gov. Gretchen Whitmer called for a $2.1 billion increase in state spending, supported mainly from a tax hike on fuel. A large fuel tax increase should come as no surprise from a candidate who ran on fixing the roads. But the extra revenue isn’t entirely going to be prioritized to roads.

The governor’s budget proposes a 45-cent per gallon fuel tax to be phased in over time. State officials expect this to raise $1.26 billion in fiscal year 2020. Only $764 million of this, however, will go toward fixing the roads.

It’s similar to Proposal 1 of 2015, a road funding plan supported by advocates who constantly warned voters that Michigan’s infrastructure was dangerous and desperately in need of repair. They paraded around the state a school bus damaged by a fallen slab of concrete, for example. That proposal called for $2 billion in tax increases, but only $1.2 billion was to be used for roads. Voters rejected it 80-20, a historic ballot defeat.

Lawmakers passed a tax hike anyway, after Proposal 1’s defeat, and shifted funds previously used for roads out of the transportation budget. Lawmakers had found $400 million of general fund money to pay for roads before the tax hike, but after increasing fuel and vehicle registration taxes, they redirected that $400 million away from the roads and spent it on other state projects.

The 2015 road deal also dedicated some of the state’s income tax to the roads, including $325 million for the upcoming year and $600 million more annually after that. Whitmer’s proposal would eliminate those earmarks, and spend that money on other priorities. If she left that earmark alone, she wouldn’t need to propose such a large fuel tax hike.

It seems like the roads are used as an excuse to raise taxes and generate revenue for other spending priorities.

The governor complained about using income tax revenue for roads, calling it a “shell game.” But one could argue she is playing the same game to get what she wants out of the budget.

There is a good reason to pay for roads with fuel taxes. Fuel taxes put the responsibility for paying for the roads onto the people who use the roads. And under Whitmer’s plan, the money from the fuel tax would be spent on roads. It's other revenue for roads that would be reduced, requiring higher taxes and resulting ultimately in fewer dollars available to fix the roads.

When the governor’s gas tax hike is fully implemented, budget officials expect it to raise $2.5 billion. Roads spending will be less than that due to the end of the earmark. This is disconcerting because the administration and others have stressed that roads need $2.5 billion more per year in perpetuity to bring them back into good shape.

But there’s a reason to be cautious about that $2.5 billion figure. Long-term road quality measures only cover state trunkline miles — the “I,” “US” and “M” classified roads — that make up 8 percent of the roads but carry the majority of all traffic. Most local roads don’t get a quality assessment on a regular basis, so we know even less about what is needed to fix them.

The state trunkline roads achieved quality targets set by the state in 2008, but have steadily declined since. Their quality is not the worst it has ever been. They are right around where they were in 2002. Prior to their recent decline in condition, the state was able to improve the quality of these important roads with much less funding.

Fixing roads today apparently costs significantly more than it used to. Some of this is due to the rising cost of the materials needed to fix roads, but that doesn’t explain all of it. Between the 2015 tax hikes and Whitmer’s proposal, roads would end up with two-and-a-half times more funding than what the state spent when the roads were at their peak in terms of quality. Maybe policymakers should figure out why they’re getting significantly less bang for their road funding buck before asking taxpayers to pony up even more, again.

Taxpayers should believe state officials when they say that they need more money to keep the roads from deteriorating. But they should also know that the proposed tax increase isn’t just about funding roads — it’s also being used as a means to fund other priorities, and these come at the cost of dedicating money for infrastructure.