Toll roads an alternative for funding

January 9, 2012
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Even with all of the road construction occurring within the state, there are a growing number of miles of deteriorating roads, and Michigan often ranks low in overall road quality. While harsh Michigan winters work against maintaining roads in excellent condition, the state's current deficit problems make it worse.

Michigan has more than 120,000 miles of paved roads. The Reason Foundation, a Los Angeles-based non-partisan public policy think tank, ranks each state’s roads on a number of criteria. Its rankings confirm what many of us already know about Michigan roads. They were rated 42nd for interstate rural congestion in 2008, 47th for urban interstate congestion, 38th for the condition of urban interstate highways, and 37th for narrow lanes. Overall, the state ranked 35th, but that paints a brighter picture than drivers actually experience. Michigan’s overall road rank certainly would be worse except for the state’s low fatality rate — eighth overall.

Michigan funds road construction and repair from four sources: state gasoline taxes, state diesel fuel taxes, vehicle registration fees and matching funds from the Federal Highway Trust Fund. State gasoline excise taxes are 19 cents per gallon, while diesel fuel taxes are 15 cents per gallon. In addition, drivers pay Michigan’s 6 percent sales tax on gasoline and another 18.4 cents per gallon federal tax. Because sales tax revenue on gasoline is earmarked for the School Aid Fund and revenue sharing, none of it ends up allocated to roads. The federal tax goes to the Federal Highway Trust Fund, which is allocated back to the states for highway projects, but not dollar for dollar.

In the mid-1990s, state gasoline taxes funded about two-thirds of Michigan’s road and bridge expenses. As the price of gasoline shot up during the ensuing years, however, people drove fewer miles, and average vehicle fuel economy increased significantly. Gasoline taxes now account for less than one-half of the road budget, with registration fees accounting for most of the rest. As average fuel economy continues to increase, state revenue from fuel taxes will continue to fall. Clearly, the current system for funding Michigan roads is outdated.

How can Michigan citizens ensure enough money is available to maintain and enhance state roads? The honest answer is there isn’t enough money to keep our roads from further deterioration and decline, but politicians are considering several proposals. One proposal is to raise in steps both the state gasoline and diesel fuel taxes to 27 cents per gallon. Gov. Rick Snyder strongly opposes this solution, and it’s likely most citizens agree with his position.

Another proposal is to eliminate the 19-cents-per-gallon gasoline tax, increasing the sales tax on motor fuels to 7 percent, and earmarking that money for roads instead of school aid and revenue sharing. The price of gasoline would fall by the 19 cents per gallon fuel tax, but increase by 1 percent from the higher sales tax (an increase of 4 cents per gallon when gasoline is $4 per gallon). This proposal would be a win for Michigan roads, but a potential loss to Michigan schools. Voters would have to approve a higher sales tax on gasoline.

There is a third alternative that hasn’t received much attention: toll roads. Drivers dislike the idea of toll roads, but consider the following points. They are common in many states, including most other Great Lakes states. Toll roads don’t have potholes because they fund themselves. The days of long tollbooth waiting lines are mostly gone because of E-ZPass devices, RFID transponder systems known as open-road tolling devices. Drivers barely slow down as they whiz through the E-ZPass lanes. In addition, toll roads collect money from tourists who might not fill up their gas tanks while driving in Michigan.

The expense in creating these tolling stations could be financed with bonds, creating investment opportunities for some, promoting job growth in the construction sector, and providing a stable base of employment for some who have been affected by job loss in the state's manufacturing sector.

Where in Michigan might toll roads be located? Wherever there are severely overcrowded state highways or unfinished road projects that have the tiniest probability of completion. For example, what are the odds U.S. 131 will be completed as an expressway south to the Indiana Toll Road or north from Cadillac to Petoskey and then farther north to Mackinaw City? Or completing U.S. 31 north from Ludington to Traverse City? Or M-46 from 131 east to Saginaw? You get the idea. These road improvements have virtually no chance of ever being funded unless it’s done by toll roads.

We need to create a coordinated planning and funding system providing for long-term maintenance of our road infrastructure. Toll roads would be one method of doing this. Tolls aren’t new to Michigan. We have over 50 years of experience paying tolls to drive across the Mackinac Bridge. Michigan drivers must decide whether paying something like 6 to 10 cents per mile for toll road driving is a better alternative than higher fuel taxes, and even worse, waiting years, maybe decades, before our congested unfinished roads are completed. The cost of building and operating toll roads are paid by users, not by everyone in the state buying motor fuels and paying registration fees. Local drivers can avoid tolls by traveling local roads.

Toll roads are another possibility to help Michigan come to grips with ongoing reductions in road funds. They deserve serious consideration.

Gregg Dimkoff, Ph.D., and Eric Hoogstra, Ph.D., are members of the finance department at Seidman College of Business, Grand Valley State University.

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