In our third edition of The Transportation Facts, we look at how our transportation network is funded. Throughout the entire country, roads and bridges are primarily funded through three traditional user fees; gas taxes, vehicle registration fees and toll roads. No toll roads exist in Michigan, however, we do assess taxes on gasoline and diesel, and we charge registration fees for passenger and commercial vehicles. It is important to note that revenues generated from motor fuel taxes and registration fees are constitutionally dedicated to our transportation system, meaning the state cannot redirect those dollars elsewhere.
Over the past six years, the legislature has allocated general fund dollars to transportation funding. Before 2013, no general fund dollars were put into transportation. The 2015 road funding package (that in total will raise about $1.2 billion annually for roads and bridges) raised revenues through user fees and general fund allocations. By 2021, $600 million will be put into the transportation budget from the general fund. Unlike user fees that are constitutionally dedicated to transportation, future legislatures could redirect the $600 million currently intended for roads to other priorities in the state budget.
One area in which Michigan is somewhat unique is that we charge sales tax on motor fuel. We are one of only seven states to charge sales tax on our motor fuel and the ONLY state that doesn’t use any of the revenue generated for roads and bridges. This, we would argue, is our biggest public policy issue regarding the road funding debate. The total taxes assessed at the pump are artificially inflated because of the sales tax on gas, and the public believes that what they pay at the pump goes into fixing our roads and bridges.
Michigan’s gas tax is distributed to different areas according to statute. When the cost of collection is considered, our tax on gasoline is 25.9 cents. Of that, 23.7 cents go to roads and bridges, and 2.2 cents go to transit. When gasoline is $2.12 at the pump, the 6% sales taxes equals 10.5 cents. Of that, 10 cents goes to schools, local governments and other areas, and .5 cents goes to transit.
Ultimately, user fees are the best way to fund our transportation network. The constitutionally guaranteed revenue in a long-term sustainable road funding policy will give contractors the ability to invest for the future and have confidence that those investments will be paid off over time. When inconsistencies in funding from year to year become normal, companies are not encouraged to invest properly for fear that adequate funding may never occur on a long-term, sustainable basis.