Rather than relying on state gas taxes to fix Michigan’s crumbling roads, local officials should be granted several taxing options to pay for road repairs in their community, according to a new report by the Citizens Research Council of Michigan.
The CRC asserts that road funding generated at the local level – an income tax, sales taxes or vehicle registration fees – would provide a fairer and more efficient method of fixing roads than the state gas tax. Administered in Lansing, the fuel tax shares revenues with communities statewide. The centralized, pay-at-the-pump system — a form of government revenue sharing — has created distance between the Michigan Department of Transportation (MDOT) and the taxpayers.
“This practice violates a core ethos of good government: The misery of raising taxes should accompany the pleasure of spending the revenues,” the report said. “Budget makers and service providers are most prudent with public funds when they also are the policymakers that have to ask for voter approval to levy the taxes.”
Gas tax hike appears to be ‘dead’
Republican legislators have battled for months with Democratic Gov. Gretchen Whitmer over her proposed 45-cent gas tax hike, but the only GOP alternative calls for shifting government pension money to road repairs. The Whitmer plan has been declared “dead” in the state Capitol even as experts say the state needs an additional $2.5 billion annually in road dollars.
Over decades, the gas tax has created a “culture of dependency” among local leaders who rely on allocations from the state to maintain their county, city and township roads, CRC researchers concluded. The money sent by Lansing is never enough to complete major projects and the formula used to disperse the funds is widely considered unfair by state lawmakers, especially those in southeast Michigan.
Nearly 700 communities in Michigan levy millages to supplement their road budgets, but the report warned that municipalities already rely far too much on property taxes – for police and fire protection, schools, parks and recreation, and other basic services.
Many states allow supplemental sales taxes or vehicle registration fees at the local level. Local gas taxes are levied in some states and local income taxes are also fairly common. In Michigan, local income taxes are permitted in just 24 cities. Changes in state law would be required to create local road taxes or fees and a voter-approved state constitutional amendment would be needed for local sales taxes.
Shifting away from higher state gas taxes would certainly downplay the pump tax as a user fee based on who uses and abuses the roads the most. Still, a dispersed form of road funding is the goal sought by the CRC.
Of course, a road tax by any other name is still a tax, and likely to face opposition. Yet, existing local millages that generate road dollars enjoy public support. In the Michigan primary elections last month, 17 county and local road funding millage requests appeared on ballots. Of those, only two did not pass. Numerous rural counties in Michigan, where conservative Republican voters dominate, levy a county property tax for roads. Within many of those counties 10 or 20 or more municipalities – cities, townships and villages – levy another layer of road taxes for local projects and maintenance. Most of these levies are for 1 to 3 mills, which cost a taxpayer with a $100,000 house roughly $50 to $150 a year.
Local officials know best?
The basic premise is that local officials know best where an infusion of road dollars is needed. In addition, a menu of taxing options could create a tailored version of revenue raising. For example, resort communities could establish a tax on hotels and other rental properties, plus a tax on rental cars, to rely on vacationers to help fund fixes for the seasonal wear and tear on local roads and bridges.
Specially designed taxes might also be devised to deal with routes favored by heavy semi trucks and school buses that damage certain roadways each spring.
As for the current state funding system that was created nearly 70 years ago, before the massive Detroit suburbs emerged, it is clearly out of date.
In 2019, Michigan has more than 122,000 miles of roadways and less than 13 percent of those routes are state highways. The 9,600 miles of state highways and freeways are the most-traveled roads, but the 82,000 miles of county roads and 30,000 miles of local streets also play an important role for the economy and the workers of each region in Michigan.
The funding formula devised by the Legislature in 1951 grants 39.1 percent of gas tax money to MDOT, 39.1 percent to the 83 counties (including their townships), and 21.8 percent to cities and villages. Decades later, the obvious unfairness of this approach is that lonely two-lane roads in northern Michigan receive the same per-mile attention as busy six- or eight-lane highways in southeast Michigan.
At the same time, GOP legislators from rural areas claim that a major spike in the gas tax would mostly help the Detroit area and its collapsing road network. New reporting by Crain’s Detroit Business shows that is not true.
In fact, the idea that Michigan would be labeled as a high-tax state for roads by answering the call for an additional $2.5 billion a year is based on a widespread adherence to apples-and-oranges comparisons to other states.
The CRC points out that interstate comparisons of tax rates are complicated because the Michigan tax that funds state and local roads is compared to road taxes in other states that primarily fund state roads. Local road taxes levied in other states are rarely included in the comparisons.
“Alternative taxes,” said CRC president Eric Lupher, “could provide property tax relief, lessen the need for state taxes to yield revenues sufficient for both the state and local road systems, and provide resources to mend the local road systems that are heavily traveled as part of our everyday lives.”
Photo/Macomb Daily/ The city of Sterling Heights for many years has supplemented its road dollars through a local voter-approved millage, with ballot proposals that specify which high-priority repair projects would be funded by the property tax levy.