The Mielke Way: The Right Thing to Do – Fix the Roads
Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University
The daily news is filled with the stories of Michigan’s potholes and the overall terrible conditions of our roads. Various municipalities have hotlines or web sites to report the worst. Road crews have announced lane closures as they struggle to keep the holes filled. Motorists report not just tire blowouts but other serious damage to their vehicles. Business groups continue to warn that without a good road and highway infrastructure the Michigan economy will be hurt. Didn’t our legislature supposedly fix the infrastructure problem with the road funding deal enacted in 2015? And even better by allocating additional funds in the state budget last year and again last week? Did the legislature really fix the road problem or did they kick the can down the road? How long will Michigan motorists be paying the high cost of deteriorating roads? What is the “Right Thing to do?” Let’s look at the issues:
- In November, 2015 the state legislature and the Governor passed a $1.2 billion road funding plan, which relied upon $600 million in tax increases from gas and diesel fuel and vehicle registration fees that went into effect January 1, 2017. The other half of $600 million will come from the state’s general fund that traditionally supports social services, prisons, business development and higher education.
- Although the state began collecting the higher taxes and fees in 2017, spending for the roads will not be fully funded until 2021. This year’s budget includes $600 million more for roads and bridges thanks to the 2015 law. Next year there will be $750 million more.
- State and local agencies were due to receive $2.5 billion for roads and bridges this fiscal year. A recent budget bill added $175 million more with state and counties receiving 39% each and cities and villages getting 22%. It is a 7% boost in funding. There is confusion however, as some news sources say the additional $175 million is for the 2018-2019 budget, next year’s budget. The total state funding represents $154 per capita. Pennsylvania’s spending per capita on roads is $530.
- Repair shops have been averaging thousands of customers per month and working on 30-50 cars a day. The average cost per metro Detroit motorist for maintenance linked to poor road conditions is $865. The national average is $377.
- Tire warranties are on the rise and with that a 35% increase in warranty replacements on tires compared to last year. According to an insurance company that sells these warranties, Michigan leads the nation by a wide margin for these insurance claims. In fact, Michigan has an over 100% loss ratio.
- Luckily, for Michigan motorists who buy the warranties, the premiums are pooled with losses from other states, resulting in lower premiums in Michigan relative to the losses. Insurance companies are expected to eliminate pooled premiums next year.
- Act 51 is a statewide funding formula for local roads that was conceived when Harry Truman was president. It essentially bars local communities from imposing special taxes on fuel, vehicle registrations, driver’s licenses, real estate transfers and even a dedicated sales tax, which would require a constitutional amendment to change. 37 other states allow some kind of locally assessed vehicle tax and 11 states allow cities to impose local fuel taxes.
- On the federal level, the last time the gas tax was raised was in 1993 and many Republican legislators are opposed to any tax increases. The current tax is 18.4 cents for gasoline and 24.4 cents for diesel fuel.
- Even the American Trucking Association is calling for an increase in fuel levies in steps by 20 cents a gallon now and add another 5 cents a gallon each year for the next 4 years to raise $$340 billion over 10 years for infrastructure spending.
- To sidestep the word tax, the ATA is proposing the increase be labeled a user fee. Others have advocated charging an excise tax similar to what is charged on cigarettes and alcohol.
There is no question that the problem with Michigan’s infrastructure took decades of neglect to create. The question is whether or not it will take decades, if ever to improve the situation. Are this year’s crumbling roads and tire tearing potholes a wake-up call to our legislators? Or are they content with the 2015 law that will not provide full funding until 2021? Is the additional $175 million, which will be added to next year’s budget a real fix or another bandaid? Should there be a state constitutional amendment passed to allow local assessment of taxes and fees dedicated to road improvements? Why is Michigan’s road funding per capita only 30% of what Pennsylvania spends? Aren’t the states similar in size, population and weather conditions? What are our state spending priorities for economic development if infrastructure continues to deteriorate? What is the “Right Thing to do?” I find it interesting that the state legislature and the Governor approved the forgiveness of $630 million in overdue traffic fines—supposedly in the name of quasi economic development. That is, the 350,000 people who had their debts forgiven could now get driver’s licenses and suddenly get jobs. Yet, that amount dwarfs the $175 million additional emergency funds allocated for roads in next year’s budget. I understand that some of the debt is over 10 years old, but have you heard anything about the change in the collection system to ensure that the debt will not rise again to be forgiven later? As a number of studies have shown, our state’s economic development depends on infrastructure and that means roads. The 2015 law, reluctantly passed and opposed by the Democrats started imposing the tax in 2017, yet the first spending increase occurred this year with full funding delayed until 2021. What did they do with the taxes collected in 2017 while the roads continued to deteriorate? It is time for the legislature and the Governor to realign some of their priorities. At a minimum the $175 million and more should be dedicated to this year, not next year and the full $1.2 billion for the roads should be budgeted for 2018-2019, not waiting until 2021. Reducing the average cost of $865 per metro Detroit motorist for maintenance linked to road conditions to the $377 national average saves almost $500 a year, better than the state income tax reduction some lawmakers are proposing. Repealing Act 51 would allow local communities to raise their revenues for roads, with the consent of the voters. With K-12 student performance in the lowest 10% in the country, the number of college educated people in the lowest third and the overall condition of our infrastructure literally scraping the bottom, one has to wonder about our state priorities and how we spend our taxes. We definitely seem to be at least a “Day Late and a Dollar Short.”