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Transportation funding in Michigan, some history · Talking Michigan Transportation

• 0:07
  Jeff Cranson: Hello, welcome to the Talking Michigan Transportation Podcast.
• 0:10
  Jeff Cranson: I'm Jeff Cranson.
• 0:11
  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.
• 0:24
  Jeff Cranson: That's a nonpartisan agency that assists the House of Representatives in understanding all kinds of complex issues as they develop the state budget.
• 0:33
  Jeff Cranson: He's specialized in transportation for a number of years.
• 0:37
  Jeff Cranson: 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.
• 0:53
  Jeff Cranson: So, I really hope you enjoy the conversation.
• 0:56
  Jeff Cranson: So, bill Hamilton making a repeat appearance on the Talking Michigan Transportation podcast, thank you.
• 1:03
  Jeff Cranson: I always appreciate your insights.
• 1:05
  Jeff Cranson: In the introduction, I let people know that you are a font of knowledge on transportation funding in Michigan and its history.
• 1:13
  Jeff Cranson: I did not mention that you're also an itinerant bagpipe player.
• 1:17
  William Hamilton: I am.
• 1:18
  William Hamilton: I haven't played in a little while, but it's warm weather.
• 1:21
  William Hamilton: I should get them out and begin playing again.
• 1:24
  Jeff Cranson: Yes.
• 1:24
  William Hamilton: Well, thank you.
• 1:25
  Jeff Cranson: Maybe the next time you're on we'll do that.
• 1:27
  Jeff Cranson: So talk a little bit about what a senior fiscal analyst at the Michigan House Fiscal Agency does and your background.
• 1:36
  William Hamilton: Thank you, Jeff.
• 1:37
  William Hamilton: I am a senior fiscal analyst at the Michigan House Fiscal Agency.
• 1:42
  William Hamilton: Fiscal analyst at the Michigan House Fiscal Agency.
• 1:47
  William Hamilton: We are a nonpartisan agency of the Michigan House of Representatives and the focus of our work is on the state budget.
• 1:52
  William Hamilton: So, we assist the House of Representatives in deliberating on the annual state budget.
• 1:58
  William Hamilton: So, we have 15 analysts.
• 2:01
  William Hamilton: We specialize in different budget areas, different departmental budgets.
• 2:06
  William Hamilton: 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.
• 2:36
  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.
• 2:54
  William Hamilton: It is quite a bit smaller.
• 2:55
  William Hamilton: 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.
• 3:16
  Jeff Cranson: So let's get into.
• 3:18
  Jeff Cranson: 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.
• 3:36
  Jeff Cranson: That decides what the distributions are between MDOT trunk lines, county roads and city and village roads.
• 3:44
  Jeff Cranson: 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.
• 3:57
  Jeff Cranson: Right?
• 3:59
  William Hamilton: It is correct.
• 3:59
  William Hamilton: So it's a public act from 1951, as you mentioned, public Act 51 of 1951.
• 4:06
  William Hamilton: That was a long time ago, that's what?
• 4:08
  William Hamilton: Is it 70 years plus?
• 4:10
  William Hamilton: So two things are true.
• 4:13
  William Hamilton: It has been amended a number of times.
• 4:15
  William Hamilton: Section 10 of Act 51, which really describes the distribution formula.
• 4:21
  William Hamilton: I just looked today that's been amended 31 times.
• 4:24
  William Hamilton: So, yes, it's been amended a number of times.
• 4:27
  William Hamilton: From a different perspective, it's been amended a lot, but in some cases, in some sense in a piecemeal fashion.
• 4:36
  William Hamilton: So there are incremental changes, a lot of piecemeal changes, which in some cases make it overly complicated.
• 4:47
  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.
• 5:04
  Jeff Cranson: A lot of states don't operate that way.
• 5:06
  Jeff Cranson: In a lot of states the state has jurisdiction over many more miles of roads.
• 5:12
  Jeff Cranson: 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.
• 5:29
  William Hamilton: Exactly.
• 5:30
  William Hamilton: Well, one quick thing you mentioned Act 51.
• 5:33
  William Hamilton: So Act 51 is a statute that guides the annual appropriation.
• 5:40
  William Hamilton: 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.
• 5:53
  William Hamilton: I mentioned the MDARD budget.
• 5:54
  William Hamilton: So every year legislators make an affirmative decision, say about how much to appropriate for local conservation districts or county fair programs.
• 6:05
  William Hamilton: The transportation budget is different in character in this way.
• 6:09
  William Hamilton: 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.
• 6:20
  William Hamilton: The funding in the transportation budget, much of it is guided by a public act, an external statute, public Act 51 of 1951.
• 6:37
  William Hamilton: 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.
• 7:03
  William Hamilton: So that's $3.9 billion.
• 7:06
  William Hamilton: It hits the Michigan Transportation Fund and then it's distributed by a formula established in Section 10 of Act 51.
• 7:16
  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.
• 7:26
  Jeff Cranson: 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?
• 7:58
  William Hamilton: Well, the one thing.
• 7:59
  William Hamilton: 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.
• 8:18
  William Hamilton: 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.
• 8:30
  William Hamilton: So why do we make this three-part distribution to different road agencies and programs?
• 8:37
  William Hamilton: And, as you mentioned, michigan has a divided jurisdiction.
• 8:43
  William Hamilton: 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.
• 8:55
  William Hamilton: So those include the Interstate Highway System in Michigan, the US numbered highways and the M numbered highways.
• 9:03
  William Hamilton: So so that state trunk line fund supports the trunk line maintenance, the capital construction program and administration of the Michigan Department of Transportation.
• 9:14
  William Hamilton: Then the other two buckets to county road commissions.
• 9:17
  William Hamilton: Because again we have divided jurisdiction.
• 9:20
  William Hamilton: We have 83 counties that have authority over a county system, and actually I should stop there for a second.
• 9:28
  William Hamilton: 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.
• 9:40
  William Hamilton: 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.
• 9:54
  William Hamilton: So that's a quick outline.
• 9:56
  William Hamilton: And then, of course, we have to describe the state trunkline fund in the different jurisdictions.
• 10:01
  Jeff Cranson: Stick around.
• 10:02
  Jeff Cranson: There's more to come right after this short message.
• 10:10
  MDOT Message: Even with the best planning, backups and traffic congestion can occur during road construction.
• 10:15
  MDOT Message: This can pose hazardous situations for both motorists and construction workers, particularly when drivers are distracted.
• 10:22
  MDOT Message: Motorists are more likely than workers to be killed or injured in work zone related incidents.
• 10:28
  MDOT Message: Additionally, the leading causes of all work zone related crashes are distracted driving and speeding.
• 10:34
  MDOT Message: So it's crucial to do your part in ensuring the safety of both drivers and focusing on your most important task safe driving.
• 10:41
  MDOT Message: Slow down and stay focused.
• 10:47
  Jeff Cranson: So talk about what it means, what restricted funding means.
• 10:49
  Jeff Cranson: I'm not sure everybody even knows what that term means and what the origins of that are.
• 10:54
  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.
• 11:06
  William Hamilton: 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.
• 11:18
  William Hamilton: The general fund are funds that can be used for any public purpose or general government activities.
• 11:27
  William Hamilton: State restricted funds are funds that are dedicated for a particular purpose.
• 11:31
  William Hamilton: 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.
• 11:42
  William Hamilton: So the biggest part of the transportation budget, about two-thirds of the budget, is made up of state-restricted funds.
• 11:52
  William Hamilton: Again, as I mentioned, primarily fuel taxes, registration taxes and some other revenue sources.
• 11:59
  Jeff Cranson: And that other third, when you talk about two-thirds, that other third is federal funding.
• 12:04
  William Hamilton: Yeah, the other third, roughly one third historically, year after year, comes from federal sources.
• 12:11
  William Hamilton: 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.
• 12:22
  William Hamilton: The federal government makes funds available to states for different programs that are established in federal law.
• 12:32
  William Hamilton: So again, it's different in character than the MTF state restricted funds.
• 12:39
  William Hamilton: The MTF follows a distribution model.
• 12:41
  William Hamilton: Funds are distributed.
• 12:43
  William Hamilton: A good chunk of it is distributed every month to local units of government credited to the state trunkline fund.
• 12:51
  William Hamilton: MTF funds are distributed, federal funds, a better term to say, is made available for qualified programs.
• 12:59
  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.
• 13:17
  Jeff Cranson: 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.
• 13:25
  William Hamilton: Exactly what you said.
• 13:25
  William Hamilton: It is no longer a donor state in the way people used to talk about it.
• 13:29
  William Hamilton: 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.
• 13:36
  Jeff Cranson: Yes, yes, I will definitely link to that in the show notes.
• 13:39
  Jeff Cranson: Your papers are always very helpful, so tell me this, because we've been debating this so long.
• 13:47
  Jeff Cranson: 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.
• 13:58
  Jeff Cranson: I mean, we don't ask the legislature to keep the lights on.
• 14:00
  Jeff Cranson: What do you think about that idea?
• 14:02
  William Hamilton: Now you promised you weren't going to ask me an opinion question.
• 14:05
  William Hamilton: 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?
• 14:27
  William Hamilton: And the only answer we can make today is nobody knows.
• 14:32
  William Hamilton: Some of these formulas were established 50 years ago.
• 14:37
  William Hamilton: 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.
• 14:48
  William Hamilton: We don't know what the intent is necessarily.
• 14:50
  William Hamilton: So I'll leave it at that.
• 14:52
  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.
• 14:59
  Jeff Cranson: So talk a little bit more about the history and how we've got here.
• 15:06
  Jeff Cranson: I mean, you've watched various legislatures debate this.
• 15:10
  Jeff Cranson: It was a big deal when Governor Engler signed off on a four cent fuel tax increase in 1997.
• 15:17
  Jeff Cranson: 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.
• 15:28
  William Hamilton: We probably would have a pretty sustainable revenue source.
• 15:30
  William Hamilton: Have you ever looked into that?
• 15:31
  William Hamilton: I have not.
• 15:31
  William Hamilton: As I mentioned the MTF, the two biggest drivers of MTF revenue traditionally have been motor fuel taxes and vehicle registration taxes.
• 15:43
  William Hamilton: Now vehicle registrations tend to go up.
• 15:46
  William Hamilton: 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.
• 15:55
  William Hamilton: 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.
• 16:13
  William Hamilton: So registration tax revenue tends to increase.
• 16:18
  William Hamilton: The fuel taxes are consumption taxes, so consumption has been quite flat and flat, in fact, incrementally declining.
• 16:27
  William Hamilton: Fuel consumption peaked in Michigan in 2002, 2003.
• 16:33
  William Hamilton: So we've had this long-term decline in consumption.
• 16:36
  William Hamilton: What's happened since 2017 is, as you mentioned, the motor fuel tax rate increased in 2017, and it's been indexed to inflation.
• 16:49
  William Hamilton: So even though the consumption base continues to decline, revenue from the fuel tax has increased.
• 17:00
  William Hamilton: So that's a long description of the fact that basically, from In 1997 through about 2016, MTF revenue was quite flat.
• 17:07
  William Hamilton: Fuel tax revenue was flat.
• 17:10
  William Hamilton: Registration tax revenue made up for it a little bit, but not much.
• 17:15
  William Hamilton: MTF revenue did not begin to pick up until 2017, with the implementation of a November 2015 road funding package.
• 17:25
  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.
• 17:39
  William Hamilton: So that's been built in to the MTF revenue since 2022,.
• 17:43
  William Hamilton: I think revenue since 2022, I think.
• 17:46
  Jeff Cranson: Yeah, that's how long it took to actually phase in.
• 17:48
  William Hamilton: Yeah, exactly.
• 17:56
  Jeff Cranson: After it was agreed to in 2015.
• 17:58
  Jeff Cranson: 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.
• 18:06
  Jeff Cranson: That makes a big difference, obviously, in terms of revenues and what you're taking in in terms of revenues.
• 18:11
  Jeff Cranson: Many states have tolls which we don't have.
• 18:29
  William Hamilton: What would you?
• 18:30
  William Hamilton: You know in a nutshell, a brief conversation with somebody that said well, how does Michigan compare on this front to other states?
• 18:33
  William Hamilton: 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.
• 18:40
  William Hamilton: As you mentioned, some states have toll roads and the toll roads are typically administered by a separate toll authority.
• 18:48
  William Hamilton: 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.
• 18:58
  William Hamilton: They're self-funded with tolls.
• 19:01
  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?
• 19:16
  Jeff Cranson: That's $350 million that they take in that ODOT doesn't have to spend on other roads right?
• 19:23
  William Hamilton: No, exactly, and it's the big, high-level, complex facility that is self-funded.
• 19:26
  William Hamilton: And it's the big, high-level, complex facility that is self-funded.
• 19:29
  William Hamilton: And one of the other things we forget about toll roads.
• 19:32
  William Hamilton: 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?
• 19:45
  William Hamilton: The toll authority doesn't have to worry about that.
• 19:49
  William Hamilton: The managers of the toll facility will go to the toll authority and say, hey, we need to upgrade this facility.
• 19:57
  William Hamilton: Our capital preventive maintenance program says we need $300 million, $500 million, to upgrade the Indiana tollway.
• 20:06
  William Hamilton: And you know what they do they raise tolls.
• 20:08
  William Hamilton: They raise tolls.
• 20:10
  Jeff Cranson: Sounds kind of like the PSC model.
• 20:12
  William Hamilton: Well, there you go.
• 20:13
  William Hamilton: You don't have to go to the legislature, you don't have a vote of the people.
• 20:17
  William Hamilton: So it's and it's the same with any kind of a toll facility.
• 20:24
  William Hamilton: They manage the tolls based on the expectation of need on that facility.
• 20:32
  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.
• 20:42
  William Hamilton: And again, michigan does not have local option taxes especially.
• 20:45
  William Hamilton: 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.
• 20:57
  William Hamilton: So property taxes are effectively the only local option tax.
• 21:02
  William Hamilton: We don't have a local option sales tax.
• 21:05
  Jeff Cranson: Well, except the city of Grand Rapids passed an income tax for streets.
• 21:09
  William Hamilton: Really Dedicated to roads.
• 21:11
  Jeff Cranson: Yeah, 2014.
• 21:12
  Jeff Cranson: Well, why was I not informed?
• 21:15
  Jeff Cranson: I don't know.
• 21:17
  Jeff Cranson: I guess you have to get over here more often.
• 21:19
  William Hamilton: I will have to get over to the west side more often, but we don't have a local option sales tax.
• 21:27
  William Hamilton: Many places have local option registration taxes.
• 21:31
  William Hamilton: The local options are fairly limited.
• 21:34
  Jeff Cranson: Yeah, that comes up from time to time and it's a difficult vote.
• 21:38
  Jeff Cranson: Eric Lufer, the president of the Citizens Research Council, actually talked about that a little bit at the Senate Appropriations Committee meeting on Wednesday.
• 21:47
  Jeff Cranson: I think that it would provide more options because not every city has an income tax.
• 21:53
  Jeff Cranson: Obviously, counties don't have an income tax.
• 21:55
  Jeff Cranson: Their property taxes millages.
• 21:58
  Jeff Cranson: In many cases townships.
• 22:00
  Jeff Cranson: 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.
• 22:08
  William Hamilton: I think 35 counties have countywide millages too, dedicated to the county road program.
• 22:15
  Jeff Cranson: Yeah, and that makes sense and at that level it's easier to get an approval from the people you know.
• 22:20
  Jeff Cranson: Yep, absolutely the more local you go.
• 22:22
  Jeff Cranson: Anything else you want to say, Bill, about your analysis and your work.
• 22:31
  William Hamilton: I know we could talk forever about this.
• 22:32
  William Hamilton: No gosh, thank you for having me.
• 22:33
  William Hamilton: I'll give a little plug to the House Fiscal Agency website.
• 22:34
  William Hamilton: Maybe you plan to.
• 22:35
  William Hamilton: Anyway, you can just Google House Fiscal Agency, Our website will pop up.
• 22:39
  William Hamilton: You'll see a transportation drop-down menu and from that menu I have a whole number of publications.
• 22:47
  William Hamilton: Feel free to look at my publications.
• 22:49
  William Hamilton: If the audience has questions, email me and I'm happy to chat about it.
• 22:55
  Jeff Cranson: And give those publications a rating.
• 22:57
  Jeff Cranson: I laughed, I cried.
• 22:59
  Jeff Cranson: If you only read one fiscal analysis this year, this is the one to read.
• 23:02
  William Hamilton: Well, there you go, you've set up, thank you.
• 23:05
  William Hamilton: Thanks for the little attaboy there, thank you.
• 23:08
  Jeff Cranson: No, thanks, bill.
• 23:09
  Jeff Cranson: I appreciate you coming on, you bet.
• 23:11
  Jeff Cranson: Thank you.
• 23:11
  Jeff Cranson: I'd like to thank you once more for tuning in to Talking Michigan Transportation.
• 23:15
  Jeff Cranson: You can find show notes and more on Apple Podcasts or Buzzsprout.
• 23:20
  Jeff Cranson: 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.