Funding and Financing of Road Commissions
It may come as a surprise to learn that road commissions do not have taxing authority and get almost all of their funds from the Michigan Transportation Fund (MTF). All state fuel taxes, vehicle registration fees and other transportation-related fees are deposited into the MTF and distributed according to a formula established in Public Act 51 of 1951.
In 2015 the Michigan Legislature passed a landmark 12-bill transportation package to address Michigan’s crumbling roads and bridges. The bill included fuel tax increases as well as tax parity on diesel fuel; a modest increase in vehicle registration fees; expansion of the Homestead Property Tax credit; the first charges on alternative fuel vehicles; a new Local Pavement Warranty Program that all county road agencies, cities and villages must adopt; and revenue directly appropriated by the Michigan Legislature from income tax revenues and deposited into the Michigan Transportation Fund. The crown jewel of the package was $1.2 billion in new road funding, that gradually increases from 2017 through 2021, and thereafter is indexed to inflation. While it is half what the experts said was needed to improve roads, the dollars will assist in slowing the deterioration of Michigan’s 122,000 miles of local roads and state highways, and 11,000 bridges. It will require decades to return the road system to mostly “good” rated roads.
Michigan road revenue comes primarily from fuel tax and vehicle registration fees, about $2.7 billion in nearly equal amounts. These funds are historically Constitutionally dedicated to the Michigan Transportation Fund (MTF). However, half of the new dollars ($600 million) in the 2015 package is legislatively appropriated from income tax revenue and moves directly into the MTF.
The MTF is a complex formula that addresses a complex multi-modal transportation system. It distributes funds not only to roads and bridges, but also public transit, rail transport, recreational travel and aeronautics, and provides administrative fees to multiple departments of state government. County road agencies may receive extra dollars for rural all-season roads, mitigation and congestion, forest roads, economic development and job creation roads, and above-average snowfall. The County Road Association can provide additional information on the MTF if needed.
For many years, the largest source of income to the MTF has been state gasoline tax. A combination of more fuel-efficient vehicles and motorists changing driving habits and purchasing less fuel have eroded the power of fuel taxes, making their future as a long term funding solution uncertain.
The Michigan Legislature last increased the gasoline tax in 1997 from 15 cents per gallon to 19 cents per gallon. The tax on diesel fuel was not increased. Of this four cent increase, three cents were distributed to state and local road agencies. The other penny was dedicated to bridges, with one half cent directed to MDOT to fix seriously deficient bridges on the state road system, and the other half cent directed to local road agencies under the Local Bridge Program.
Approximately 75% of federal funding is allocated to MDOT, leaving 25% to be distributed among 83 county road commissions and 553 cities and villages across the state. These funds are dispersed according to regional formulas.
Both MDOT and local road agencies are required to provide a match to federal funds. If local and state road agencies cannot provide the matching funds, the federal funds are returned to the Federal Highway Trust Fund, and available to other states.
Road Commissions across the state have done everything possible with the level of funding available, but the majority of road agencies have been forced to make deep cuts including: layoffs; working with equipment beyond its service life; reducing construction and maintenance; and more than 25 of county road commissions have reverted paved roads to gravel. Unfortunately road commissions are now at the point where most have had to cut services. They have reached a point where there is nothing left to cut that will not negatively impact the level of services provided.
The source of this information and for more information about funding of roads, please visit www.micountyroads.org.