Michigan road funding: Fuel taxes part of problem - and proposed solution
Tuesday, February 19, 2013
LANSING, MI -- Gas tax revenues are heading down hill, and so are Michigan roads.
A lot has changed since 1995, when lawmakers last raised the state's per-gallon gasoline tax to 19 cents: Hybrid and electric vehicles hit showrooms, more efficient vehicles hit the roads and rising oil prices led some motorists to curb their commutes.
As a result, annual state gas tax collections have been falling since 2004, according to the Michigan Department of Transportation, which projects that without additional investment, the majority of state-maintained roads will fall into a state of poor condition in the next 10 years.
"Really, our job then becomes a challenge of 'How do we help Rome self-destruct?'" MDOT Director Kirk Steudle said Thursday. "Because that's where we're going. We are going down, and with the revenue we have, we have to figure out how we do it safely. What do we decommission? What do we not fix?"
MDOT relies on federal highway funds, state gas taxes and registration fees to fill out its budget. Steudle said the department has been able to survive the drop in gas tax revenue, along with an increase in the price of asphalt and concrete, through a combination of internal efficiencies, stimulus funds and one-time appropriations.
But those days are numbered.
"Right now we're trying to keep everything at 90 percent good, that's our goal," Steudle said. "We're trying to optimize, optimize, optimize. But when you finally realize there is no way, you have to adjust your goal."
MORE THAN JUST MICHIGAN
Michigan is not the only state facing a potential pothole in road funding. Gov. Rick Snyder is among a growing number of politicians, including several of his Republican peers, seeking to find a way to make up for shrinking fuel tax revenues.
Republican Gov. Bob McDonnell last month proposed a new road funding model for Virginia: Eliminating the gas tax altogether in favor of a sales tax increase and annual fee on cars that run on alternative fuel. Michigan Republican Senate Majority Leader Randy Richardville has discussed similar ideas.
McDonnell's proposal is controversial, in part, because it would move his state further away from a user-fee model, where those who drive the most pay the most for road maintenance. But supporters say his plan recognizes the writing on the wall: Gas tax revenue will continue to decline as more fuel-efficient, hybrid and electric vehicles hit the road.
The federal government, which levies a 18.4-cent tax on each gallon of gasoline and a 24.4-cent tax on diesel, is dealing with the same problem. For the past several years, Washington has supplemented the Highway Trust Fund with general fund dollars, sending back to most states more than they are collecting at the pump.
Here in Michigan, Snyder wants to raise an additional $1.2 billion a year in road funding by increasing fuel taxes and vehicle registration fees. His proposal addresses the prospect of a gradual decline in gas consumption by building in a mechanism for annual rate fluctuation.
Snyder's plan would raise the state's 19-cent tax on gasoline and 15-cent tax on diesel to the wholesale equivalent of 33-cents per gallon for two years. But beginning in 2016, according to governor's budget proposal, "the per gallon rate will be adjusted according to a new dynamic formula that will modernize the collection of motor fuel taxes and better respond to market conditions."
The model might not work forever, according to supporter Lance T. Binoniemi of the Michigan Infrastructure and Transportation Association, but it will get construction crews to work quickly.
"We definitely have a short-term funding problem that we need to address immediately," Biomeni told MLive last week after testifying before a joint session of the Senate and House transportation committees. "The best way you can do that is through user fees, which is a gas tax or registration fee, but we also need to study long-term solutions. There needs to be additional long-term solutions."
APPROACHING A MILES-DRIVEN SOLUTION
The national discussion on long-term road funding has taken an interesting turn in recent years and is now heading toward a miles-driven solution. The federal government has flirted with the idea, and at least two states -- Iowa and Oregon -- have tested a miles-driven tax system with volunteers.
Supporters say a miles-driven tax would be the most fair and equitable way to pay for road maintenance: Those who drive the most, pay the most, regardless of how fuel-efficient their vehicle is. It is, they say, as close as you can get to a direct user fee without charging a toll on all roads.
But the prospect of a miles-driven tax raises big questions about trust, technology and privacy. Should the government rely on drivers to report their mileage? Can the government require all vehicles to be outfitted with GPS or another, less obtrusive, form of tracking technology?
"There are a lot of questions and concerns by the public," said Binoniemi. "They don't want the government tracking how far and when they're driving. So there's an education process that needs to occur. They have done some of these studies in other states, and there is technology to avoid some of that 'Big Brother' stuff. There's ways around that, and the government doesn't necessarily have to track exactly where you're driving."
Steudle, citing privacy issues and the potential cost of unproven technology, said the state "backed off that discussion" early on as it considered ways to raise revenue for road maintenance. "We said, you know what, let's let some other folks figure that out."
And when they do, Michigan and other states might not be too far behind.
"Long term, the gas tax is not going to work," said Steudle. "But right now, I think about two percent of vehicles on the roads are hybrids or electrics. There's still a lot of vehicles using regular petroleum. It's going to continue to work, but not for a long time. It's an interim solution."