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Can We Fix Our Transportation Funding Deficit in Michigan?

Posted by John Kaczynski on

The State of Michigan continues to debate the question of, "Can we fix our transportation funding deficit?" This deficit can be fixed. However, at what cost?

Some of our public officials believe that any form of a tax increase would mean "political suicide" for them in the 2014 primary or general election. Others believe that an improved infrastructure would lead to economic growth. And, some citizens are okay with Michigan looking more like Mississippi, rather than a prosperous State like Minnesota that invests in their infrastructure.

Instead of diving into the endless arguments about who is to gain from this solution, how about we actually talk about some various ways we could fix the infrastructure funding of our state?

First, how much money are we talking about? The State needs $1 billion of additional funds. So, this equates to roughly $143 per driver (7 million drivers in Michigan). Or, if you want to break it down further, about 40 cents more per driver, per day.

Background of Transportation Funding

The federal excise tax has not been increased from 18.4 cents per gallon since 1993, when a gallon of gas was $1.11 or the tax was 16.6% per gallon. Our state excise tax has not been increased since 1997 from 19 cents per gallon, when a gallon of gas was $1.27 or 15% per gallon. And, the average mile per gallon (MPG) for vehicles has almost doubled from 14.2MPG in 1993 to 24.9MPG in 2013.

State/Federal Excise Tax

Today, the 18.4 cents per gallon federal excise tax and 19 cents per gallon state excise tax equate to roughly a 5% tax for $3.50 per gallon. This equals a decline of over 10% in taxes per gallon since '93 and '97 (or a 10% tax break). If we were paying 16.6% per gallon, the federal excise tax would be 56 cents per gallon. If we paid 15% per gallon, the state excise tax would be, 53 cents per gallon.  This would equate to roughly $1.09 in federal and state excise taxes.

Fuel Efficiency

Individuals today drive an average of 13,500 miles per year.  In 1993, this would mean an individual would purchase about 950 gallons (13,500 / 14.2MPG) of fuel. In 2013, this same person is now purchasing only 542 (13,500 / 24.9MPG) gallons of gas per year. This equates to a person paying $174.80 (1993) in a federal excise tax and $180.50 (1997) in a state excise tax. Today, the same person is paying $99.73 in a federal excise tax and $102.98 in state excise tax. This is a total loss of tax revenue of $152.59 ($75.07 federal+$77.52state). This means that individuals have received a $152.59 tax break due to increased efficiency in our vehicles.

Problem

We started off the discussion with identifying the fact that Michigan needs to raise $143 per driver for transportation funding. We have shown that the average driver is paying 10% less in taxes and is also receiving a tax break of $152.59 due to increased fuel efficiency. When you combine these two issues, the problem becomes clearer. We have a structural deficit in our transportation funding formula. Therefore, how do we recapture $143 per driver to pay for the $1 billion needed for our roads?

Possible Solution

  1. Increase the State Excise Tax to 25 cents in 2014, 30 cents in 2015, 35 cents in 2016 and 40 cents in 2017; and
  2. Increase the average vehicle registration by $5 per year in 2014.

In 2014, assuming that gas prices were still $3.75 per gallon [added on 25-cents to the $3.50 per gallon average) the average driver would still only pay 11.4% in excise state taxes on gas. This is still 3.6% below the State tax from 1997.

We mentioned earlier that we needed to recapture an additional $143 per year, per driver to add an additional $1 billion into the State Treasury. This tax increase still only gets us to approximately $139 per driver, or $5 short of the $143 needed.   Therefore, by also increasing the vehicle registration by $5, you will meet the additional $143 per driver that is needed to break the $1 billion threshold to fix the transportation-funding deficit.

Market Impact

The question continues to be, can individuals afford this? In Michigan, the median household income is $48,500. There are approximately two drivers per household. Therefore, the increased cost would be $288 per household, or .5% of their household income. Are you willing to pay .5% more per year for good roads and infrastructure?

Conclusion

Whatever your answer to the above question, quality transportation infrastructure is important to the economic vitality of businesses. Businesses look for three variables when investing in a State: 1) Highly trained / educated workforce; 2) Good roads / infrastructure; and 3) High quality of life factor for employees. If our State is in the business of "economic development", then it is a no-brainer that investing in our roads is a win-win for our businesses and our citizens.

Opinions expressed here are those of the author and do not necessarily reflect the views of Andy Rapp, Q-TV, Delta College, or PBS.

About

Currently Speaking host Andy Rapp

Veteran journalist Andy Rapp has been hosting Currently Speaking since 1999.

Each week, he's joined live in the studio by journalists, academics, and experts. Along with viewers at home, they tackle the local, national, and global issues that matter most.