State's road-fix shortage: $300M

Declining gas tax revenues, end of bond program cited.

Gary Heinlein / Detroit News Lansing Bureau

Industry and government transportation leaders are warning that a dramatic drop in Michigan road funding next year will result in steadily deteriorating highways and the loss of thousands of construction jobs in Michigan.

Because of declining fuel tax revenues and the completion of a state transportation bond program, spending on Michigan road and bridge repairs will decrease by $300 million, from $1.6 billion in 2007 to $1.3 billion in 2008. Without a fresh infusion of cash, funding will level off following another $100-million reduction in 2009.

"We need $320 million more a year," to keep 90 percent of the roads in good condition, said state transportation director Kirk Steudle. "Where that is going to come from, I don't know."

In the meantime, Michigan motorists can expect fewer miles of repaired roads and fewer lanes built to relieve congestion, even as the state attempts to attract new businesses and get out of its malaise.

The projected funding decline is linked to shrinking state gasoline tax receipts and the completion of a three-year, $800-million Granholm administration program that used bonds and private investment to accelerate work on some key road improvements intended to foster economic development.

"The condition of our roads will get worse as each year goes by -- actually as each month goes by -- and they're already in bad shape," said Mike Nystrom, a construction industry spokesman who co-chairs a state coalition that has pressed for a 6-cent boost in the 19-cent state gasoline tax and 10-cent increase in the 15-cent diesel fuel tax to shore up road repair revenue.

Road funding gets severe cut

This year's drop in road funding -- 18 percent -- is among the most severe of 2008's budget cuts, Nystrom said. Meanwhile, spending on prisons, human services, the Legislature and many other functions will increase under the state spending plan adopted just last month.

In the past, the state sold bonds for added roadwork. Nystrom, government relations vice president for the Michigan Infrastructure and Transportation Association, said without some other sources of additional road money, the state stands to lose as many as 25,000 heavy-construction jobs. The major Michigan road-building firms will be forced to go after bids elsewhere, sending their workers out-of-state, he said.

Meanwhile, the prospects for projects that add lanes, relieve congestion and build new roads to support economic development are especially grim. Spending on "capacity improvements and new roads" will drop from $310 million this year to $165 million in 2008, then $38 million in 2009, $45 million in 2010 and $28 million in 2011, the State Department of Transportation projects.

Steudle said $28 million "is enough to pay for about half of one (new) interchange." Motorists pay a price when funding is inadequate, Washington D.C.-based The Road Information Program (TRIP) says.

The industry group reported in May that the lack of desirable safety features, inadequate capacity to meet travel demands and poor pavement condition costs Michigan drivers $7 billion annually in auto repairs, lost time and fuel wasted while sitting in traffic jams.

TRIP estimated those costs averaged $1,671 annually per driver in Metro Detroit, $1,085 a year per driver in the Grand Rapids area, $866 annually per driver in the Lansing area and $785 per urban driver elsewhere in the state.

In a study this year sponsored by the Mackinac Center for Public Policy, Grand Valley State University professor John Taylor said firms like Internet giant Google, which plans to hire 1,000 workers at a new regional office in Ann Arbor, "won't be happy about investing in a metropolitan Ann Arbor region that is in danger of being ensnarled by congestion on US-23."

Major highway projects at risk

Expanding US-23 is among at least $40 billion worth of projects that await funding in Metro Detroit over the next 25 years. The state's financial straits imperil the rebuilding of I-94 in Detroit, expansion of I-75 in Oakland County and dozens of other improvements.

Road expert Taylor proposed an increase in fuel taxes to speed up road improvements. He said the state should designate a priority network of roads that would get two-thirds of the added money from that, and institute government spending reforms to offset the fuel taxes hike. Cities, counties and townships should be encouraged to raise more local road money, possibly through an added charge on vehicle registration fees, he added.

"There's no way out of it without a fuel tax increase, some local registration fee options and getting local governments more involved in funding of local roads," Taylor said.

But with gasoline prices now spiking above $3 a gallon--and possibly headed toward $4 a gallon next year -- a gasoline tax increase looks like a long shot. That's especially true following hefty income and business tax increases just enacted to solve the state budget crisis.

"The timing couldn't be worse," said Republican Sen. Judson Gilbert of Algonac, chairman of the Senate Transportation Committee. "(And) there's no support out there for raising gasoline taxes."

Gas tax increase proposed

The last fuel tax increase came in 1997, when lawmakers boosted the gasoline tax from 15 cents a gallon to 19 cents but left the commercial diesel tax at 15 cents. Gas tax revenue rose to a high of $943 million for road work in 2002 but fell to $897 million by 2006 and is expected to decline further as motorists fill up less often in the years ahead.

As the 2007 road-building season winds down, the transportation department has slightly surpassed its 10-year goal of getting at least 90 percent of all state roads in good condition. Transportation Director Steudle said that could be the peak.

His projections, absent more money, show deteriorating roads until just 65 percent of them are in good condition by 2014 -- the same proportion that were in good condition when the decade-long drive to improve the transportation system began under ex-Gov. John Engler. Local roads -- those funded by cities, counties and townships -- are chronically under-funded and will suffer even more, officials say.

Michigan gets its road funds from a combination of state fuel taxes, vehicle registration fees and federal funding. Congress sends the state and local governments in Michigan 92 percent of the revenue collected here from the federal tax of 18.4 cents a gallon on gasoline and 24.4 cents a gallon on diesel.

That makes Michigan one of 21 "donor" states, and that's not likely to change.

Nystrom and the Michigan Infrastructure and Transportation Association are calling for two consecutive 3-cent gasoline tax increases, boosting it to 25 cents a gallon over the next two years. They'd hike the 15-cent diesel tax to 25 cents a gallon. They would offset those increases by rolling back the 6-percent sales tax the state also charges on gasoline.

Michigan's 19-cent gasoline tax ranks 31st in the country and its 15-cent diesel tax ranks 45th. But its sales tax on fuel -- Michigan is one of seven states to charge that -- moves the state up to second in combined taxes on gasoline and ninth in combined taxes on diesel, according to Grand Valley State's Taylor.

The drawback to offsetting a fuel tax increase by reducing the sales tax on gasoline and diesel is that three-fourths of the revenue from the sales tax goes to schools.

Most of the remainder goes to local governments. Lawmakers would have to find another source for that money -- an unlikely prospect.

You can reach Gary Heinlein at (517) 371-3660 or gheinlein@detnews.com.