On Nov. 10, 2015 Gov. Rick Snyder signed into law a comprehensive package of new Michigan road-funding bills. While it is good to finally see the Legislature taking action on this important issue and while the comprehensive package may eventually increase road funding to acceptable levels, this transportation infrastructure funding package may eventually increase road funding to acceptable levels, this transportation infrastructure funding package does not adequately address the current needs of Michigan’s transportation infrastructure.
Road funding has been on the Legislature’s “to do” list since 1997. Last May, Michigan voters spoke loudly and clearly on Proposal 1, a very complex, long-term proposition, by resoundingly voting the Proposal down. The clear message from Michigan voters to the Legislature at that time was to find another solution to Michigan’s road funding dilemma.
The solution developed by the Legislature was a series of seven bills that finally cleared the House of Representatives and the State Senate in early November, 2015, clearing the way for the Governor’s signature. This funding package will potentially generate $1.2 billion in additional road funding. However, this increase in road funding will not be fully seen until 2021, six years from now. Of that $1.2 billion in additional funding, $600 million is planned to be derived from increases in the gas tax and vehicle registration fees beginning Jan. 1, 2017. The current gas tax of 19 cents per gallon will rise to 26.3 cents per gallon.
The diesel tax of 15 cents per gallon will also rise to 26.3 cents per gallon, bringing the trucking industry in line with the fuel taxes paid by the general public. Beginning Jan. 1, 2022, the fuel tax rates will be indexed to inflation. Tax rates on gas and diesel fuel will be adjusted each year based upon the rate of inflation as reflected by the Consumer Price Index (CPI) of 5 percent, whichever is less. This indexing will ensure the purchasing power of the fuel tax revenues does not decline each year due to the impact of inflation, which is what happened after the last gas tax increase in 1997. Frankly, if the gas and diesel fuel tax had been indexed to inflation at that time, the recent fuel tax increase would probably not have been necessary.
Vehicle-registration fees will also increase by 20 percent beginning Jan. 1, 2017. Additionally, there will be an increased registration fee for hybrid and all-electric vehicles; however these vehicles currently represent a very small segment of the automotive population of Michigan roads.
Note that none of these changes become effective before Jan. 1, 2017. Local road maintenance activities cannot expect to see the increased funding until the summer of 2017.
The remaining $600 million is planned to come from the State’s General Fund. The Legislature’s hope is Michigan’s economy will continue to grow and allow the $600 million to be taken from the General Fund with no adverse impact on the funding of existing programs in the General Fund. However, historically, Michigan’s economy has been cyclical; if that condition were to occur, then the Legislature would, in all probability, have to decide whether to cut road funding from the General Fund or other important State services, such as schools, local governments, prisons, State Police, health services, etc. Essentially, the troubling part of the $600 million coming from the General Fund to support roads is that unless Michigan’s economy develops in a non-traditional manner over the next decade, the Legislature will have to decide annually through a political process, how to allocate the General Fund resources to critical state services, which now includes roads and bridges. The annual competition for General Fund money for roads and bridges can only serve to further politicize the process of maintaining Michigan’s roads and bridges.
The series of seven bills, which were signed into law, which were signed into law Nov. 10, also have provisions for slight income tax and homestead property tax reductions. However, these reductions will reduce the amount of money going into the General Fund. This means that future legislators will have to grapple with taking a growing amount of roads and bridges out of a potentially shrinking General Fund.
Under the “Legislate now and pay later” approach, Michigan’s residents will have to wait at least five years for full implementation of a funding package that only meets 2012 funding needs. The phased-in approach starting in 2017 allows approximately $6 billion in badly needed road funding to slip away. When completely implemented in 2022 and assuming that (1) the Legislature fully funds the General Fund portion of the new road revenue package and (2) that the economy continues to increase in a non-cyclical manner, the Genesee County Road Commission could expect the receive slightly more than $27 million in new funding. What is less clear is how much new road funding the Genesee County Road Commission would receive annually prior to 2022. – John H. Daly III, Manager Director, Genesee County Road Commission