Lansing road work | Susan J. Demas
In her first State of the State address last week, Gov. Gretchen Whitmer painted a vivid picture of school buses driving on unsafe roads and chunks of concrete “slamm[ing] through windshields.
“It endangers our lives. And robs us of our time and our hard-earned money. It hurts our businesses’ bottom lines. It jeopardizes our edge in mobility. And limits our economic potential. Because no one will invest in a state that doesn’t invest in itself,” she said. “And let’s be clear: Incremental fund shifts, like we’ve seen in recent years — don’t fix the problem. They only slow our decline.”
It was all part of Whitmer’s push to “fix the damn roads.” The Democrat hasn’t announced her roads plan yet, but she’s expected to do so when she releases her first budget next month.
At this point, many Michiganders know that they pay among the highest gas taxes in the country and drive on some of the worst roads. Michigan’s roads cost the average driver $700 per year, according to a 2015 survey from the Washington, D.C.-based transportation research group TRIP.
To make matters worse, drivers are paying higher gas taxes and vehicle registration fees than ever, thanks to the 2015 road-funding plan signed by GOP former Gov. Rick Snyder.
So why aren’t the roads getting better? That’s what everyone wants to know.
It starts with the fact that Michigan has a complex funding model for roads. About one-third of the revenue collected by the state’s gas tax gets diverted to pay for other priorities in the state. There’s also been relatively flat growth in revenue.
The Michigan Department of Transportation (MDOT) breaks down the cost of gasoline and how it goes toward road funding this way: If a gallon of gas costs $3.89, the state collects 39.7 cents of that in taxes. Of that, 17.2 cents of that is earmarked for road funding, 20 cents is sent to schools and local governments and 2.5 cents goes to mass transit.
In other words, what you’re paying at the pump doesn’t just go to fixing potholes.
Michigan also spends far less on its roads than most other neighboring states.
Data from the Livonia-based nonpartisan think tank Citizens Research Council show that Michigan only spends $171 per capita on roads, while Wisconsin spends $327 per capita.
There’s also a lack of clear consensus on just how much money is needed. But most estimates highlight that Michigan needs to be spending around $2.5 billion annually to truly address the situation.
Those who hate raising taxes frequently suggest cutting spending or shifting funds. But just like with using the gas tax for infrastructure, there are structural issues that complicate the picture. Although Michigan’s annual budget is roughly $55 billion annually, only $10 billion is in the state’s discretionary account, the General Fund. Most other funds are earmarked from the federal government or for education spending.
So shifting $2.5 billion in the General Fund for roads would be more than 20 percent of its spending, which also goes to prisons, police, parks and many other priorities.
To put this in perspective, lawmakers in December managed to shift more than $100 million in the budget for road repairs. And that wasn’t easy to come up with.
Kurt Weiss, is spokesman for the Michigan Department of Technology, Management and Budget (DTMB) and has served in several administrations. The problem of funding road repairs isn’t a new one and he’s blunt in his assessment.
“We don’t have the money in our budget. Additional revenue is needed,” he told the Advance.
However, Michigan has a divided government, which makes raising taxes particularly tricky.
Next month, Whitmer is widely expected to propose increasing revenue for roads, something that state Senate Majority Leader Mike Shirkey (R-Clarklake) told reporters last week he could consider.
However, in order to get buy-in from residents — and enough members of the GOP-controlled Legislature — Whitmer will probably have to clear up some confusion about how Michigan pays for roads and why we keep coming up short.
Any debate over roads can’t take place without looking at what’s been done in the recent past to try and fix the problem.
Michigan’s terrible roads have been on people’s minds long before Whitmer made it her signature issue on the 2018 campaign trail.
Polls have showed roads have routinely been one of voters’ top concerns. A 2016 Detroit News headline was, “Poll: Drivers hate their roads,” reporting on a Gallup survey showing only Rhode Island drivers despised their roads more.
Snyder and the GOP-led Legislature did make moves to fix Michigan’s infrastructure. In the 2014 Lame Duck session just after Snyder’s re-election, the Legislature passed a roads deal after considerable negotiations involving Whitmer, who was then-Senate minority leader, former House Speaker Jase Bolger (R-Marshall) and others.
But there was a catch.
Hiking the sales tax requires a vote of the people, since it amends the Constitution. Snyder led the campaign for Proposal 1, which was on the May 2015 ballot.
The tax hike went down in flames, 80 percent to 20 percent. The Detroit Free Press described Prop 1 as “likely one of the most complicated and confusing questions ever placed on a Michigan ballot” — and that wasn’t in an editorial, either.
So Snyder and the GOP-led Legislature went back to the drawing board. In November 2015, he signed a scaled-back roads plan that will bring in $1.2 billion more annually for roads — but that doesn’t fully kick in until 2021.
The gradual ramp up in funding is one reason why drivers may not be seeing much improvement. The other reason is that due to Michigan’s constitutionally mandated policy of diverting some revenue generated by gas taxes. So about $690 million will be dedicated to roads, according to the Senate Fiscal Agency.
The plan was complicated. The gas tax increased from 19 cents per gallon to 26.3 cents. The diesel tax also got a big boost, from 15 cents per gallon to the same 26.3 cents.
Hiking vehicle registration fees was another part of the plan, but there are many tiers in Michigan. The annual cost increase for someone who used to pay $100 a year was $20 more, according to reports at the time. To offset costs for some drivers, the homestead property tax was beefed up.
On top of that, the package included some fine print that could loom large. It would start rolling back the state’s income tax by 2021 if there’s sufficient growth in the state. That, of course, means less revenue coming into the state for roads and other priorities.
In last year’s Lame Duck session, lawmakers made another move with a supplemental that shifted more than $100 million in the budget for roads.
Then-Lt. Gov. Brian Calley cast the tie-breaking Michigan Senate vote for the 2015 plan. He’s now president of the Small Business Association of Michigan.
Not surprisingly, Calley defended the GOP package and said that simply asking citizens for more money to fix roads will likely backfire. Calley urged Whitmer to point to the improvements that have been made and provide a deeper narrative around the need to do more.
“I don’t think taxpayers are going to be very receptive to just, ‘We need more money.’ I think you need to make the case that you’ve made additional investments over the last few years,” Calley said.
He points to progress, with MDOT taking on 143 road construction projects around the state in 2018.
The problem hasn’t been inaction by political leaders in recent years. It’s just that their road-funding solutions haven’t been enough, according to budget experts.
Their analysis is clear: Michigan lacks the existing money to truly address the problem of roads that crumble even further with every freeze and thaw.
A new report by the nonpartisan Senate Fiscal Agency shows that by fiscal year 2021, Michigan’s roads will need around $3 billion more than the roughly $1.2 billion going towards repairs.
“Let’s be honest: we don’t need studies to tell us this,” Whitmer said during her State of the State speech. “The evidence is impossible to ignore.”
MDOT’s new chief, Paul Ajegba, this month told a legislative committee that roads his department oversees — those with an “I,” “M” or “U.S.” — would need an additional $1.5 billion annually. That’s even when the Snyder roads plan is fully implemented in 2021, which included a gas tax hike and will bring about $690 million annually for road construction.
Officials say that it’s unclear how much municipalities will need to update local roads that they have jurisdiction over. And those are the roads most people travel on more than interstates and even state highways. Ajegba added that the department is still working with local governments to determine how much money local roads need.
The most viable solution, according to experts, is to bring in more money.
“The magnitude of the problem — we don’t have the revenue to fix it,” said Weiss, the DTMB spokesman.
Right now, Whitmer and Republican lawmakers haven’t even begun to negotiate the terms of a roads plan.
Possible solutions that have been tossed around or tried in the past are increasing the state’s gas tax, business taxes, vehicle registration fees or sales tax. The latter requires a constitutional amendment, which is what failed miserably in 2015.
On the campaign trail, Whitmer expressed openness to increasing taxes and fees, as well as asking voters to approve bonding for roads.
Experts remain skeptical that a long-term solution is on the horizon. However, there is mounting pressure on lawmakers to address the situation, particularly as the state goes through its typical freeze-thaw scenario as winter ends and new potholes emerge.
“There’s political will,” said CRC President Eric Lupher. “I think they’ll do something. Will it be enough? I’ll believe it when I see it.”
How much is enough?
Calley and others acknowledge that it was widely known that the $1.2 billion approved in 2015 wouldn’t likely be enough to truly address the problems with Michigan’s ailing roads.
“I don’t think people looked at that [vote] and checked the box and thought it was done,” Calley said.
However, state Sen. Tom Barrett (R-Potterville) said earlier this month at a legislative hearing that he felt misled by MDOT officials after his 2015 “yes” vote on the roads tax hike, back when he was a state representative. He said he was immediately told that it wasn’t enough.
“If we rely on our industry leaders to give us that [information] and then we pass policy meeting that need that was expressed to us and then we’re immediately told it wasn’t sufficient — it wears away that trust between the departments, the industry and then us in the Legislature,” Barrett said during a Senate Advice and Consent hearing for Ajegba, Whitmer’s pick to head MDOT.
Some of Barrett’s Democratic counterparts, however, echo Whitmer’s mantra that there’s a huge opportunity cost to not investing in roads. And they argue that it’s the Legislature that ultimately has the power to make that happen.
“Every year we don’t invest, the cost [to fix roads] actually goes up,” said state Sen. Curtis Hertel (D-East Lansing). “So if we’re looking for who had to solve the problem, as legislators, we probably should be looking in the mirror.”
Tripling the gas tax
The gas tax has already shot up roughly 40 percent since Snyder signed the 2015 law, going from 19 cents per gallon to 26.3 cents.
Low gas prices have masked some of the pain at the pump, which is one reason why a new bipartisan group of former lawmakers, including GOP former Senate Majority Leader Ken Sikkema and former Gov. Jennifer Granholm Budget Director Bob Emerson, believe that the time is ripe to hike gas taxes again to fix the roads.
The Consensus Policy Group (CPG) proposal unveiled last month is in line with the recommendations of the 21st Century Infrastructure Commission issued during Snyder’s term. And business groups have long believed that “user fees” like the gas tax and vehicle registration fees are the best way to pay for roads.
The plan would increase the tax from 26.3 per gallon to 73.3 cents by 2028. That’s a 47-cent increase and would almost triple the gas tax in less than a decade.
But there’s an even bigger impact on drivers when you consider increases that went into effect in 2017 under Snyder’s package.
If the CPG’s plan is enacted, that means gas taxes will skyrocket from 19 cents per gallon to 73.3 cents per gallon. That means that in a little more than a decade, gas taxes will have quadrupled in the state.
Michigan already has the sixth-highest gas tax in the nation, according to the Washington, D.C.-based Tax Foundation. The increase favored by the CPG would send us hurdling past No. 1 Pennsylvania, which currently has a 58.7-cent tax.
And remember, due to Michigan’s complex road-funding formula, not all revenue from the gas tax will even go to repairing roads.
CPG members also acknowledge that people are driving less and vehicles are getting better gas mileage, which hurts the long-term viability of relying on the gas tax for infrastructure repairs. However, the group still believes it’s the most sound solution.
“If this isn’t it, what is it?” Sikkema said when announcing the plan. “There’s a problem that has to be solved and if this isn’t the solution, I would welcome other alternatives. And I would say … the ‘do nothing’ approach is not acceptable.”
Raising user fees also is favored by the Michigan Infrastructure and Transportation Association (MITA), the state’s trade group for the road construction industry.
“We’ve always at the association have always supported user fees as a way to pay for our transportation network,” said MITA lobbyist Lance Binoniemi. “You use the road more, you pay more. We think that’s the fairest way to fund our roads and bridges and probably the most accurate way to capture how much people are affecting the road quality.”
Whitmer has yet to show her hand on what her road-funding solution is.
But as everyone waits for what will probably be the most talked-about part of her fiscal year 2020 budget proposal next month, it’s worth looking at what she’s said already.
Whitmer noted in her State of the State address that bad roads hurt “our businesses’ bottom lines.” In the past, Democrats have called for raising corporate income taxes in the state and putting more fees on commercial trucks as one method of funding roads.
They point to Snyder’s roughly $2 billion business tax cut as evidence that corporations can afford to share in the burden of fixing infrastructure. That idea has been a non-starter with business groups and their GOP allies. But that doesn’t mean the governor will exclude business tax hikes from her proposal.
During the 2014 roads debate — when Whitmer was Senate minority leader — she expressed concern about solutions that primarily impact individuals “after three years of a continuous shift of taxes from the business community onto people.”
So as governor, Whitmer could ask businesses to pay their share. After all, her plan is just the opening offer.
During the 2018 campaign, Whitmer proposed that the state assume new debt by bonding for roads. That’s similar to taking on a mortgage and paying it off over many years. However, the state is still paying off about $1.4 billion in debts from previous borrowing for road construction, according to the nonpartisan House Fiscal Agency.
Budget experts with the state say taking out the credit card to fix roads shouldn’t be seen as a viable option at this point.
“From a general budget point of view, bonding is never your first option,” said Weiss of the DTMB. “You’re paying interest down the road. From a budget standpoint, creating a lot of future debt is not a great strategy.”
Meanwhile, Republicans generally are not sold on the idea of further raising taxes and fees to repair roads.
House Speaker Lee Chatfield (R-Levering) wants to untangle the state’s policy of diverting gas taxes to “make sure every dollar paid at the pump goes to fix our roads before we simply throw money into a broken system.”
Last week, Shirkey, the GOP Senate majority leader, cracked open the door to new revenue for roads in a meeting with reporters. But he said that it’s essential for Whitmer and GOP leaders to agree on how much upfront.
“Once we agree on the total needed, a comprehensive plan would likely have to include new revenue as a component,” Shirkey spokeswoman Amber McCann said.
It’s a small step toward solving a big problem. But it may be a start.
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