How to 'fix the damn roads'? Report: No easy answer

Jonathan Oosting
The Detroit News
Water fills a pothole on the I-94 service drive near John R in Detroit Sunday.

Lansing — There’s no simple way to “fix the damn roads,” according to a new report analyzing potential solutions as Michigan Gov. Gretchen Whitmer prepares next week to unveil her long-awaited plan.

The 39-page Citizens Research Council report outlines three likely policy approaches to what is sure to be a politically charged debate: State government can raise taxes, divert existing revenues or get out the credit card and borrow funds.

“Each choice presents its own set of advantages and obstacles,” authors said.

Experts estimate the state will need upwards of $2.2 billion in new money each year to prevent state and local roads from continuing to deteriorate, but “the unfortunate truth is that finding additional dollars to fund the state’s roads is not an easy problem to solve,” the non-partisan council wrote. 

Point in case: The Citizens Research Council recommends Michigan “disentangle” gasoline purchases from the state’s six percent sales tax, which is used to fund K-12 schools and local governments, not roads.

Replacing the sales tax with an equivalent motor fuel tax could raise nearly $900 million a year for roads without increasing at-pump taxes for Michigan motorists, who already pay the sixth highest rate in the nation. But it would also create a $900 million funding hole for schools and cities.

“We’re not at all proposing that schools or local governments get less money. It’s just that we have a crazy system of earmarking and dedicating revenues that complicates things and makes it harder to do the things we have to do,” said Eric Lupher, president of the Citizens Research Council

House Speaker Lee Chatfield, R-Levering, has called Michigan roads “embarrassing” and indicated he would be willing to replace the sales tax on gasoline while trying to hold schools harmless. But tax-averse Republicans may not like potential options for doing so.

Michigan voters rejected a 2015 ballot proposal that would have raised the state’s sales tax by one percentage point as part of a larger plan to boost road funding without hurting schools.

“We have to learn from history and look at either higher property taxes or a higher income tax,” Lupher suggested. “Coming up with almost a billion dollars isn’t easy, so it would probably be some combination of new revenues to fill that hole.”

Even if the state were to replace the sales tax on fuel with a gas tax, the resulting revenue would account for less than half the $2.2 billion needed each year to keep most major roads in at least fair condition, according to 2016 estimates from the 21st Century Infrastructure Commission created by former Gov. Rick Snyder.

“So $900 million is a good start, but it’s nowhere near the funding if we want to have roads that we can drive on and not be taking our car to the shop every third week,” Lupher said. 

The council also recommended lawmakers revisit the 1951 law that dictates road funding distribution to county and municipal governments. The law “ignores” road capacity and costs and does not direct funding to the roads in the poorest conditions, according to the report.

“If funding does not reflect the realities on the ground, increases will have less of an effect on road condition, while some road agencies will be over-funded,” authors said.

Whitmer used her Feb. 12 State of the State address to urge action on the state’s crumbling roads, warning lawmakers they will continue to get worse “if we don’t act boldly and swiftly.”

The East Lansing Democrat is expected to reveal details of her road funding plan during her March 5 budget presentation, which will set the stage for negotiations with the Republican-led Legislature.

Roughly one in four state-operated roads was graded in poor condition last year by the Michigan Transportation Asset Management Council. Roughly half of those roads are expected to be in poor condition by 2025.

The projected declines in road quality come despite a 2015 law Snyder signed that raised gas taxes and registration fees by $600 million a year and will also dedicate $600 million a year in general fund revenue once fully implemented in fiscal year 2021. 

“It just wasn’t enough to begin with,” Lupher said of the 2015 law, noting roads have continued to deteriorate as its been phase in. “Even if they had come up with the $1.2 billion from the get go, that was the amount that was targeted to fix the state roads, not counties and cities too.”

While the GOP generally opposes tax increases, Senate Majority Leader Mike Shirkey this month opened the door to a potential debate, noting “there’s no way we’re going to fix this problem that’s been 50 years in the making without coming up with new revenue for infrastructure.”

But the Clarklake Republican made clear he first wants to identify a spending target and then examine how the state can “re-prioritize current spending to see how much of that we can make up. And then third — and only third — do we talk about additional revenue."

Finding major savings in the state's $11 billion general fund budget could be a challenge for lawmakers considering commitments that must be paid, are required for state services or used as a match for federal funding.

Roughly $5.25 billion of the general funding budget is fully discretionary, according to the non-partisan Senate Fiscal Agency. And the 2015 road funding law, once fully implemented in 2021, will account for roughly 10 percent of that amount, the Citizens Research Council noted.

Michigan has traditionally relied on gas taxes to fund road repairs, but  the tax is not as powerful as it once was because of increased vehicle fuel efficiency. The state would have to raise gas taxes another 47.8 cents to generate $2.2 billion a year, an approach Republican leaders already oppose. 

New vehicles averaged 13.1 mpg in 1975, compared with 25.2 mpg in 2017. When factoring in inflation, gas tax revenues dropped nearly 50 percent over that period, according to the report. 

Michigan moved to a 19-cent gas tax in 1997, but collections per 10,000 miles driven had declined 12 percent by 2016, when lawmakers raised gas taxes to 26.3 cents per gallon.

The 2015 road funding law will allow fuel taxes to rise with inflation, beginning in 2022, but researchers said that “over the long term, the fuel tax rate would have to be raised faster than inflation to maintain funding levels."

Registration fees, which increased under the 2015 law, have proven a more stable source of road funding revenue for the state.

As a candidate, Whitmer said she would urge the Legislature to increase “user fees” to fix the roads but also said she could seek voter approval for bonding to increase state spending by up to $2 billion a year.

Borrowing could help the state rebuild major roads or complete other large-scale construction projects, and it could act as an economic stimulus, according to the Citizens Research Council. But it could also “hamstring the state long term.”

That’s because bonds must be repaid with interest over time. The state issued $1 billion bonds between 2001 and 2003 as part of a major road funding package — and it’s still paying off the debt. In recent years, the Michigan Department of Transportation has spent about $160 million annually on debt service payments.

“If used improperly, debt service payments can limit the ability to maintain road conditions, and Michigan roads will revert back to current conditions,” the report said.

Whitmer has argued that poor quality roads can endanger lives and force motorists to pay a “hidden tax” in the form of car repairs. And she’s warned lawmakers that incremental funding shifts won’t fix the roads, they’ll only “slow our decline.”

Fixing the “damn” roads was a major talking point for Whitmer during her 2018 campaign, and “we’re all waiting to hear … how we’re going to pay for this,” Lupher said.