Opinion: Lawmakers can shift existing revenues to fix roads

James M. Hohman
Water filled potholes along 10 mile, west of Southfield Road in Southfield, Michigan on February 4, 2019.

Michigan House Republicans want to use money from the sales tax on fuel to increase road funding. Doing this would bolster transportation funding and keep user fee principles intact without reaching further into taxpayers’ pockets.

Most of the sales tax goes to schools. Lawmakers would have a tough time changing that since the state Constitution says this money must go to public schools, community colleges and state universities. And it also dedicates another portion of this tax revenue to local governments.

But legislators can still implement a road funding plan without amending the state Constitution. They get to decide what is taxed, though they can’t tax prescription drugs and groceries, which the constitution exempts from sales taxes. Lawmakers can eliminate the sales tax on fuel and replace it with a dollar-for-dollar, per-gallon fuel tax. There would be no change in tax burden over the short term, though the state’s fiscal priorities would change.

Taxpayers would take notice as prices change. If fuel prices rise, the sales tax increases with it, while a per-gallon tax would stay the same. So, changing the sales tax to a per-gallon tax saves taxpayers money if the cost of fuel increases. And the change from the sales tax to a per-gallon tax would cost taxpayers if fuel prices decline.

And while the state hasn’t yet tied fuel taxes to inflation, it will start doing so, beginning in 2022, as part of current law. Presumably, this will still happen if lawmakers substitute the sales tax for the per-gallon fuel tax.

Since most fuel is purchased for vehicles that travel on the roads, fuel taxes tie the costs of the infrastructure to those who use it. That is how other infrastructure is financed. Cell towers, underground cables, electricity transmission lines and most other infrastructure gets paid for by charges on their direct users, and fees change without the kind of political controversy that surrounds road funding.

Fuel taxes diverge from a direct user fee in a few ways. Consider that fuel-efficient vehicles pay less in fuel taxes but use just as much of the road. Current fuel dollars pay for yesterday’s borrowing. Transit takes a slice. Local governments use property tax revenue to maintain their roads. State distributions to locals are based on political compromises, albeit compromises influenced by use.

The House Republican proposal strengthens the user fee model without reaching further into taxpayer pockets. It would require lawmakers to reprioritize the state’s existing resources. And depending on how it’s administered, the proposal might not even mean less money for schools — it could, instead, mean less of an increase.

As the state budget has grown, the state has used that growth to transfer more money to schools. State funding of schools increased $2.3 billion, rising from $10.8 billion in 2011 to $13.1 billion in 2019, over a time when the number of students in Michigan public schools declined 6.3%. And restricted funds for schools are projected to increase by another $1.5 billion over the next four years, which is just half of what the sales tax on fuel raises for schools.

Lawmakers can always reduce expenses elsewhere if they want to further increase school funding. The state still funds the Pure Michigan campaign, after all, and tourist industries ought to pay for their own advertising. Pork winds up in budgets year after year. And Michigan spends a lot of tax money on things that ought to be less of a priority than quality roads. We’ve highlighted dozens of ideas that can free up billions in state resources.

Finally, lawmakers ought to be a cautious about large increases in road funding implemented quickly. Road funding is already at record inflation-adjusted highs, and markets take time to adjust to large influxes of cash.

If roads are going to be a budget priority for even more funding, they need to be a priority weighed against other spending. The House proposal would do that while maintaining user fee principles.

James Hohman is the director of fiscal policy for the Mackinac Center for Public Policy, an educational and research organization based in Midland, Mich.