Mileage fees, higher gas tax among options to fund Michigan’s crumbling roads

Potholes

Potholes along West Michigan Avenue in downtown Kalamazoo, Michigan on Monday, March 6, 2023. (Joel Bissell | MLive.com)Joel Bissell | MLive.com

In order to maintain its road system in the coming years, Michigan will need to come up with another almost $4 billion in infrastructure funding annually, according to a recent report from the Michigan Infrastructure and Transportation Association.

The estimated cost to maintain the road system is about $9 billion per year, according to an assessment by Public Sector Consultants, which MITA approached to help come up with solutions to the state’s long-term funding gap. That estimate includes about $7.16 billion to cover state roads and about $1.88 billion for local roads, per the report.

Public Sector Consultants estimates that Michigan is underfunding its road system by $3.9 billion annually, before even accounting for inflation. That’s a 77% increase compared to a 2016 report by the 21st Century Infrastructure Commission, which found a $2.2 million annual deficit.

“That’s some pretty significant change in just over eight years,” said Maggie Pallone, vice president of Public Sector Consultants, earlier this month while presenting on the report at the MSU Institute for Public Policy and Social Research public forum in downtown Lansing.

Michigan’s goal is to have 90% of its roads in good or fair condition. That last happened in 2008.

As of 2021, approximately 67% of the state’s roads were in fair or good condition. That rate was lower for local roads (55%).

About 33% of roads were designated “poor” condition, which was the lowest rate in at least a decade. However, the forecast estimates 48% of roads would be in poor condition by 2033 without increased investment.

Last month, the MITA published a report detailing estimates from the consulting group on the cost of maintaining Michigan’s road network and potential options for raising additional income.

The report included five options for increasing infrastructure revenue. Below is a summary of each:

Increase the gas tax

As it stands, Michigan has a motor fuel tax of about $0.27 per gallon. It increased from $0.26 per gallon on Jan. 1, 2022 to account for inflation, which increased the total fuel tax revenue by about $347.2 million.

The first option the report gave was to increase the state’s gas tax. The consultants suggested an increase of $0.74 per gallon, while the Michigan Department of Transportation estimated an increase of about $0.39 per gallon.

On average, state motor fuel tax accounts for about 40% of revenue for the Michigan Transportation Fund. The federal government also charges a fuel tax of $0.18 per gallon on gasoline and $0.24 per gallon on diesel.

In March 2019, Gov. Gretchen Whitmer proposed increasing the gas tax by $0.45 per gallon by Oct. 1, 2020. The idea wasn’t popular and failed in the state legislature.

“I’ve been around long enough to know that we’ve put some numbers in front of voters and they have not been super enthused about pushing the gas tax to that number,” Pallone said.

Then in April 2022, Senate democrats blocked a procedural vote on legislation that intended to suspend the state’s gas tax for six months in the face of rising gas prices. MITA had also urged Gov. Whitmer to veto the attempt to pause the state’s gas tax if it got to her.

A few months later, Whitmer deemed raising the gas tax an “outdated mode” of infrastructure funding in a world slowly moving toward electric vehicles.

A twist on the gas tax

Typically, gas tax is calculated on a per gallon basis.

PSC’s second option would be to tax fuel on a per dollar basis, rather than per gallon. Doing so would increase revenue during times of higher gas prices, but would also decrease revenue during price downturns.

There are 12 states that tie at least a portion of their motor fuel tax to the price of gasoline. The downside, however, is the volatility of gas prices, which would make it harder to predict revenue from the tax.

The consultants noted that this option alone would not be able to address the funding gap, but could be combined with an increase in fuel tax.

Increase sales tax by 3%

Michigan is one of six states with a sales tax on gasoline, but revenue from sales tax is not allocated to road transportation infrastructure. Those funds are earmarked for things like the general fund, schools, transit infrastructure improvements, airport funds, and revenue sharing with local governments on a per capita basis.

PSC’s third option would involve increasing the sales tax on gas by 2% or 3%, and dedicating the increase to improving roads. Doing so would increase revenue by between $2 billion and $3.9 billion.

In order to implement this type of change, state leaders would need to change the Michigan Constitution with a two-thirds majority support in both the House and Senate, along with voter approval in the next statewide election.

In 2015, voters shot down a proposal that would have eliminated the sales tax on gasoline. It would have also raised the fuel tax to nearly $0.42 and increased the general sales tax to compensate for the lost revenue associated with cutting the sales tax on gas.

Allow communities to pursue local sales tax to fix local roads

Individual communities are not allowed to impose a sales tax in their own community, though PSC said changing that would be another revenue option.

A constitutional amendment could allow local governments an additional revenue stream for local roads by granting communities the opportunity to impose their own sales tax.

Thirty-eight other states allow local governments this taxing power, though Michigan isn’t one of them.

An alternative to local sales taxes would be for communities to raise millages dedicated to their own road funding gaps.

Assess a per mile fee for vehicles

PSC’s fifth option was to establish a fee that drivers would pay per each mile a vehicle travels on Michigan roads. The group suggested $0.03 to $0.05 per mile to make up for the funding gap.

Also known as vehicle miles traveled (VMT), these taxes aim to cover wear and tear on roads, as well as air pollution and traffic congestion by charging drivers for their mileage.

How would this work? Some options include using GPS tracking, or an annual odometer reading that is completed during annual vehicle registration, or a prepaid mileage system where a driver would purchase a card that permits a certain number of miles of driving.

This option has an added benefit compared to gas-related revenue streams because it wouldn’t be affected by an increase in electric vehicles in the future.

One of the biggest challenges to this system is public acceptance of such a change. Two specific concerns noted by PSC were privacy and equity.

By late 2022, Pallone said 16 states had started looking at putting a VMT pilot program in place with the help of federal funding.

Bonus option: tolls

While PSC didn’t include a summary of the sixth option in its report, Pallone noted that another option is looking at the feasibility of tolls on Michigan roadways.

“That’s the sixth option that people are obviously talking about right now,” she said.

Michigan recently had a study done to analyze the potential of creating a new, electronic tolling system that would encompass about 1,156 of Michigan roads.

The system would cost drivers around $0.06 per mile and stretch along 14 roadways including I-96 from Muskegon to Lansing; I-75 near Flint toward Saginaw; and I-94 near the Michigan/Indiana border by New Buffalo to metro-Detroit.

Consultants on the Michigan Tolling Study presented their findings at a Senate Transportation Committee hearing earlier this year. The study’s timeline included construction beginning this year and lasting until 2027, with tolling on roads being phased in from 2028 to 2032.

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