Talking Michigan Transportation

Transportation funding in Michigan, some history

• Michigan Department of Transportation • Season 7 • Episode 218

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On this week’s Talking Michigan Transportation, another conversation with Bill Hamilton, a senior analyst at the Michigan House Fiscal Agency (HFA). The HFA is a nonpartisan agency that helps the Michigan House of Representatives in developing the state budget.  

Hamilton explains that the HFA has 15 analysts specializing in specific budget areas, typically departmental budgets. He also talks about overall Michigan transportation budget, which supports roads and bridges for 615 road agencies.  

Also discussed: the Act 51 distribution formula. He explains that while the act dates to 1951, it has been amended a number of times over the years. This includes a breakdown of the distribution of money from the Michigan Transportation Fund (MTF) and the three buckets where money flows: the State Trunkline Fund (STF), county road agencies, and cities and villages.

Jeff Cranson:

Hello, welcome to the Talking Michigan Transportation Podcast. I'm Jeff Cranson. I'm pleased to have been able to have another conversation with Bill Hamilton, who is a Senior Fiscal Analyst at the Michigan House Fiscal Agency. That's a nonpartisan agency that assists the House of Representatives in understanding all kinds of complex issues as they develop the state budget. He's specialized in transportation for a number of years. He's an incredible font of wisdom and I wanted to talk to him about how this funding crisis of many decades came to be, what the history is of funding roads or not funding roads adequately in Michigan, and all the things related to that. So, I really hope you enjoy the conversation. So, bill Hamilton making a repeat appearance on the Talking Michigan Transportation podcast, thank you. I always appreciate your insights. In the introduction, I let people know that you are a font of knowledge on transportation funding in Michigan and its history. I did not mention that you're also an itinerant bagpipe player.

William Hamilton:

I am. I haven't played in a little while, but it's warm weather. I should get them out and begin playing again.

Jeff Cranson:

Yes.

William Hamilton:

Well, thank you.

Jeff Cranson:

Maybe the next time you're on we'll do that. So talk a little bit about what a senior fiscal analyst at the Michigan House Fiscal Agency does and your background.

William Hamilton:

Thank you, Jeff. I am a senior fiscal analyst at the Michigan House Fiscal Agency. Fiscal analyst at the Michigan House Fiscal Agency. We are a nonpartisan agency of the Michigan House of Representatives and the focus of our work is on the state budget. So, we assist the House of Representatives in deliberating on the annual state budget. So, we have 15 analysts. We specialize in different budget areas, different departmental budgets. I work on the budget for the Michigan Department of Agriculture and Rural Development and also the state transportation budget and even though the bill title says it's the budget for the state transportation department, I call it the State Transportation Budget generally because over half of the funding authorized in the budget is either distributed to or made available to local units of government.

Jeff Cranson:

And we're going to get into that distribution in some depth later and not to take anything away from my good friend Nate Engel at MDARD, but it sounds to me like their budget, for various reasons, is a little less complex than the transportation budget.

William Hamilton:

It is quite a bit smaller. Yes, so the state transportation budget is a $6.8 billion budget in the billions, and the budget for the Department of Agriculture and Rural Development, MDARD, in the current year it's $168.6 million.

Jeff Cranson:

So let's get into. There are several things all related to this, but one of the things that I think is hard to get your head around for people and it's come up a lot lately since we're talking about transportation funding again is the Act 51 of 1951. That decides what the distributions are between MDOT trunk lines, county roads and city and village roads. I think one of the first points of confusion is people hear Act 51, 1951 is just a coincidence, but they think, well, that's just a really old law and that belies the fact that it has been updated many times since then. Right?

William Hamilton:

It is correct. So it's a public act from 1951, as you mentioned, public Act 51 of 1951. That was a long time ago, that's what? Is it 70 years plus? So two things are true. It has been amended a number of times. Section 10 of Act 51, which really describes the distribution formula. I just looked today that's been amended 31 times. So, yes, it's been amended a number of times. From a different perspective, it's been amended a lot, but in some cases, in some sense in a piecemeal fashion. So there are incremental changes, a lot of piecemeal changes, which in some cases make it overly complicated.

Jeff Cranson:

Yeah well, and I think I don't know if you know much of the history before 1951 and how road jurisdictions worked and how it came to be, but I have to believe it has a lot to do with Michigan's home rule history, the fact that we have 615 road agencies, of which MDOT is just one. A lot of states don't operate that way. In a lot of states the state has jurisdiction over many more miles of roads. But having said that, while MDOT has what sounds like a small number of the total miles of roads, those trunk lines do account for 53% of overall traffic and almost 80% of commercial traffic and I think that's lost on people sometimes.

William Hamilton:

Exactly. Well, one quick thing you mentioned Act 51. So Act 51 is a statute that guides the annual appropriation. So when we think about the appropriation process, we think of legislators, members of the appropriation committee, making affirmative decisions about state budgets, and that's true in many cases. I mentioned the MDARD budget. So every year legislators make an affirmative decision, say about how much to appropriate for local conservation districts or county fair programs.

William Hamilton:

The transportation budget is different in character in this way. Much of it is governed by an external statute, so the appropriators have much less authority on how to make distributions of the funding in the transportation budget. The funding in the transportation budget, much of it is guided by a public act, an external statute, public Act 51 of 1951. And one of the things Act 51 does, it created the Michigan Transportation Fund, the MTF, and it guides the distribution of revenue credited to the MTF and in 2025, to the MTF and in 2025, that's a total of $3.9 billion of revenue, primarily from motor fuel taxes, vehicle registration taxes, $600 million from an earmark of income tax revenue and about $113 million from an earmark of marijuana excise tax revenue. So that's $3.9 billion. It hits the Michigan Transportation Fund and then it's distributed by a formula established in Section 10 of Act 51.

Jeff Cranson:

So to further confuse people, the portion of that Michigan Transportation Fund that goes to state trunk lines is called the State Trunk Line Fund. How do you, in the simplest terms, when you're dealing with a new young staffer or a new lawmaker, for instance, and you're trying to explain the difference between those two?

William Hamilton:

Well, the one thing. I start with one of the things, one of the principal things that Act 51 does, especially Section 10 of Act 51, it allocates this off-the-top programs, or deductions, then a portion of it to public transportation programs in the Comprehensive Transportation Fund. The balance flows down to a distribution to three buckets, if you will to the state trunkline fund, to county road commissions and to cities and villages. So why do we make this three-part distribution to different road agencies and programs? And, as you mentioned, michigan has a divided jurisdiction. The state trunkline fund is the program, is the fund that supports state trunk line programs under the administration, the jurisdiction of the Michigan Department of Transportation. So those include the Interstate Highway System in Michigan, the US numbered highways and the M numbered highways. So so that state trunk line fund supports the trunk line maintenance, the capital construction program and administration of the Michigan Department of Transportation.

William Hamilton:

Then the other two buckets to county road commissions. Because again we have divided jurisdiction. We have 83 counties that have authority over a county system, and actually I should stop there for a second. We talk about a county system but there are in fact 83 separate county road agencies, each with jurisdiction over their part of the county pie, as it were, were. And we have 531 eligible cities and villages that receive a distribution from the MTF to pay for the maintenance of city and village streets under their jurisdiction. So that's a quick outline. And then, of course, we have to describe the state trunkline fund in the different jurisdictions.

Jeff Cranson:

Stick around. There's more to come right after this short message.

MDOT Message:

Even with the best planning, backups and traffic congestion can occur during road construction. This can pose hazardous situations for both motorists and construction workers, particularly when drivers are distracted. Motorists are more likely than workers to be killed or injured in work zone related incidents. Additionally, the leading causes of all work zone related crashes are distracted driving and speeding. So it's crucial to do your part in ensuring the safety of both drivers and focusing on your most important task safe driving. Slow down and stay focused.

Jeff Cranson:

So talk about what it means, what restricted funding means. I'm not sure everybody even knows what that term means and what the origins of that are.

William Hamilton:

Yeah, so when you look at a budget bill and you can go to the Michigan Legislative website and the most recent budget bill actually from last session is House Bill 4437. So if you go to the legislative website and type in from last session, 4437, you can look at a budget bill and it's comprised of a whole number of fund sources. The general fund are funds that can be used for any public purpose or general government activities. State restricted funds are funds that are dedicated for a particular purpose. They're restricted or dedicated either in the Constitution or in a statute, a public act, like in this case Act 51, or some other legal authority. So the biggest part of the transportation budget, about two-thirds of the budget, is made up of state-restricted funds. Again, as I mentioned, primarily fuel taxes, registration taxes and some other revenue sources.

Jeff Cranson:

And that other third, when you talk about two-thirds, that other third is federal funding.

William Hamilton:

Yeah, the other third, roughly one third historically, year after year, comes from federal sources. We can talk a lot about federal aid, but the short description of federal aid we have very little control over it as a state. The federal government makes funds available to states for different programs that are established in federal law. So again, it's different in character than the MTF state restricted funds. The MTF follows a distribution model. Funds are distributed. A good chunk of it is distributed every month to local units of government credited to the state trunkline fund. MTF funds are distributed, federal funds, a better term to say, is made available for qualified programs.

Jeff Cranson:

And there's another myth, although at one time it was true that Michigan was among donor states and that they sent more money to Washington than they actually got back, but it's been several years, the Highway Trust Fund has been basically broke and has to be propped up with general fund at the federal level. So I just want to make it clear that it's no longer true that Michigan is a donor state and that that's not an answer to our funding problem.

William Hamilton:

Exactly what you said. It is no longer a donor state in the way people used to talk about it. I have a paper on the House Fiscal Agency website, which I'll promote a little bit on federal aid, which talks about these issues.

Jeff Cranson:

Yes, yes, I will definitely link to that in the show notes. Your papers are always very helpful, so tell me this, because we've been debating this so long. You know, my idea is that we should have a public service commission (PSC) to actually decide how roads and bridges are funded, just like we do for utilities. I mean, we don't ask the legislature to keep the lights on. What do you think about that idea?

William Hamilton:

Now you promised you weren't going to ask me an opinion question. The only thing I will say is, with a formula-driven distribution model, it's difficult to ask the question about priorities or the question about when you look at a formula, you might ask what drives that formula, what's the purpose of that formula, what's it based on? And the only answer we can make today is nobody knows. Some of these formulas were established 50 years ago. Again, even though we've had incremental amendments, some of the basic distribution models are 50 years old and we don't really know the basis of these formulas. We don't know what the intent is necessarily. So I'll leave it at that.

Jeff Cranson:

Yeah well, I think any PSC members who might listen to the podcast would say if that idea gets any traction, I'll be resigning immediately. So talk a little bit more about the history and how we've got here. I mean, you've watched various legislatures debate this. It was a big deal when Governor Engler signed off on a four cent fuel tax increase in 1997. I've seen analysis and math that said, if that had been 11 cents and indexed for inflation, we probably would have a pretty sustainable revenue source or inflation.

William Hamilton:

We probably would have a pretty sustainable revenue source. Have you ever looked into that? I have not. As I mentioned the MTF, the two biggest drivers of MTF revenue traditionally have been motor fuel taxes and vehicle registration taxes. Now vehicle registrations tend to go up. The registration revenue tends to go up because a good part of it is based on the value the manufacturer's list price of the vehicle. So when you go to the Secretary of State or you get the tabs online these days, your annual registration tax has been going up because the price of vehicles tends to go up, either with inflation or additional options, which used to be options now built in. So registration tax revenue tends to increase.

William Hamilton:

The fuel taxes are consumption taxes, so consumption has been quite flat and flat, in fact, incrementally declining. Fuel consumption peaked in Michigan in 2002, 2003. So we've had this long-term decline in consumption. What's happened since 2017 is, as you mentioned, the motor fuel tax rate increased in 2017, and it's been indexed to inflation. So even though the consumption base continues to decline, revenue from the fuel tax has increased. So that's a long description of the fact that basically, from In 1997 through about 2016, MTF revenue was quite flat. Fuel tax revenue was flat. Registration tax revenue made up for it a little bit, but not much. MTF revenue did not begin to pick up until 2017, with the implementation of a November 2015 road funding package.

Jeff Cranson:

Which includes phased in, which included, I should say well, still includes phased in hike in the fuel tax, but also a commitment of $600 million in income tax each year to roads, exactly.

William Hamilton:

So that's been built in to the MTF revenue since 2022,. I think revenue since 2022, I think.

Jeff Cranson:

Yeah, that's how long it took to actually phase in.

William Hamilton:

Yeah, exactly.

Jeff Cranson:

After it was agreed to in 2015. Lastly, just talk a little bit about what your research is showing you about other states, and other states struggle with this, but some do better than others, especially growth states where people are moving in. That makes a big difference, obviously, in terms of revenues and what you're taking in in terms of revenues. Many states have tolls which we don't have.

William Hamilton:

What would you? You know in a nutshell, a brief conversation with somebody that said well, how does Michigan compare on this front to other states? Well, I have to confess I have become quite skeptical of cross-state comparisons because they're invariably skewed or it's hard to sort out all the different variables between states. As you mentioned, some states have toll roads and the toll roads are typically administered by a separate toll authority. The state transportation department doesn't manage the toll system, so that's a huge facility that the transportation agency doesn't have to manage. They're self-funded with tolls.

Jeff Cranson:

Sorry to interrupt, but I'm really glad you made that point because I had someone say to me fairly recently that you know well I get the tolls make a difference, but like Ohio for instance, it's just one road, so how much can that really make a difference? That's $350 million that they take in that ODOT doesn't have to spend on other roads right?

William Hamilton:

No, exactly, and it's the big, high-level, complex facility that is self-funded. And it's the big, high-level, complex facility that is self-funded. And one of the other things we forget about toll roads. So again, for years the legislature and the executive branch have grappled with the road funding issue Like how much do we need, what sources we need for transportation funding? The toll authority doesn't have to worry about that. The managers of the toll facility will go to the toll authority and say, hey, we need to upgrade this facility. Our capital preventive maintenance program says we need $300 million, $500 million, to upgrade the Indiana tollway. And you know what they do they raise tolls. They raise tolls.

Jeff Cranson:

Sounds kind of like the PSC model.

William Hamilton:

Well, there you go. You don't have to go to the legislature, you don't have a vote of the people. So it's and it's the same with any kind of a toll facility. They manage the tolls based on the expectation of need on that facility.

Jeff Cranson:

Yeah, I think that's a key takeaway from what you said that as hard as many researchers try, it's very difficult to get an apples-and-apples comparison across all states.

William Hamilton:

And again, michigan does not have local option taxes especially. I know some communities have used property tax millages, like many townships have property taxes and they take their revenue and partner with the County Road Commission. So property taxes are effectively the only local option tax. We don't have a local option sales tax.

Jeff Cranson:

Well, except the city of Grand Rapids passed an income tax for streets.

William Hamilton:

Really Dedicated to roads.

Jeff Cranson:

Yeah, 2014. Well, why was I not informed? I don't know. I guess you have to get over here more often.

William Hamilton:

I will have to get over to the west side more often, but we don't have a local option sales tax. Many places have local option registration taxes. The local options are fairly limited.

Jeff Cranson:

Yeah, that comes up from time to time and it's a difficult vote. Eric Lufer, the president of the Citizens Research Council, actually talked about that a little bit at the Senate Appropriations Committee meeting on Wednesday. I think that it would provide more options because not every city has an income tax. Obviously, counties don't have an income tax. Their property taxes millages. In many cases townships. While they don't have jurisdiction over any roads, they will adopt a millage that goes to the county and then the county uses on those roads, and quite a few do.

William Hamilton:

I think 35 counties have countywide millages too, dedicated to the county road program.

Jeff Cranson:

Yeah, and that makes sense and at that level it's easier to get an approval from the people you know. Yep, absolutely the more local you go. Anything else you want to say, Bill, about your analysis and your work.

William Hamilton:

I know we could talk forever about this. No gosh, thank you for having me. I'll give a little plug to the House Fiscal Agency website. Maybe you plan to. Anyway, you can just Google House Fiscal Agency, Our website will pop up. You'll see a transportation drop-down menu and from that menu I have a whole number of publications. Feel free to look at my publications. If the audience has questions, email me and I'm happy to chat about it.

Jeff Cranson:

And give those publications a rating. I laughed, I cried. If you only read one fiscal analysis this year, this is the one to read.

William Hamilton:

Well, there you go, you've set up, thank you. Thanks for the little attaboy there, thank you.

Jeff Cranson:

No, thanks, bill. I appreciate you coming on, you bet. Thank you. I'd like to thank you once more for tuning in to Talking Michigan Transportation. You can find show notes and more on Apple Podcasts or Buzzsprout. I also want to acknowledge the talented people who help make this a reality each week, starting with Randy Devler, who skillfully edits the audio, jesse Ball, who proofs the content, courtney Bates, who posts the podcast to various platforms, and Jackie Salinas, who transcribes the audio to make it accessible to all.