Capital Ideas II

State transportation funding lessons from 2015 – challenges for 2016

Funding: the toughest lesson learned


As part of the work of our START network, T4America tracked and reviewed all state legislation proposed this year to raise new revenue to fund transportation, along with a wide array of legislation to reform the way these funds are spent. In this report we evaluate and highlight three specific bills that show how states can find success by building legislative packages and campaigns that stick to proven keys to success.


MICHIGAN 2014-2015

Michigan’s four-year push to raise new transportation funding, led by Governor Rick Snyder, ultimately resulted in $600 million in new revenue and a commitment to rearrange $600 million in future general fund revenue, totaling $1.2 billion. A resounding defeat by the voters along the way, however, should be instructive for other states about the perils of overly complicated ballot measures, a lack of accountability and low trust in the state’s ability to produce a return on investment.

Michigan Governor Rick Snyder

Spanning 2011 to 2015 and one unparalleled defeat at the ballot box, Gov. Snyder and Republican legislators finally assembled and approved a complicated package of bills in November 2015 that combines a per-gallon gas tax increase (7.3¢ on gas and 11.3¢ on diesel), a 20 percent increase in vehicle registration fees and a future diversion of $600 million in general fund dollars annually to total roughly $1.2 billion in additional transportation investment.

But there are a few caveats: only half of the total funding will come from new revenues via fuel tax and vehicle fee increases; the new revenue won’t begin phasing in until 2017 (after the next election) and won’t be fully implemented until 2021; and the transfer of general funds doesn’t begin until October 2018 and is supposed to come from yet-to-be-identified cuts to other programs. Additionally, only the new revenue will be distributed through the existing transportation formula that sets aside portions of the money for rail and transit projects. The other $600 million in general fund dollars can only be used for roads, bridges and highways.

Further complicating the math surrounding the availability or viability of the $600 million general fund transfer to transportation are two unrelated tax breaks in the package to appease weary legislators: a $200 million homestead tax credit that will take effect in 2019 and an income tax rollback that takes effect in 2022 — so long as the general fund grows by more than the rate of inflation plus 1.425 percent.

Despite the constant drumbeat from Gov. Snyder and MDOT over the last four years, the administration’s call for $1.2 billion or more in new revenue rang hollow for many legislators and a crushing ballot measure defeat for a sales tax increase for transportation showed that it was not resonating with voters, either. The legislature, with Governor Snyder’s support, were unwilling to stand up for an immediate boost in funding. And because the general fund transfers to transportation (taken from yet-to-be-decided programs) won’t begin until October 2018 and won’t fully phase in until 2021, legislators passed the buck on the hard decisions about what programs to cut to pay for transportation.

Evaluating the bill


Reminder: this section is a comparison of each bill against a combination of T4America’s guiding policy principles and T4America’s overall recommendations for successful state funding or policy legislation identified in our first Capital Ideas reportClick any one of the nine titles below to expand or contract that section.

The package raises $600 million through fuel tax and vehicle registration increases. Another $600 million is promised from future general funds, but without any dedicated source identified to cover that cost. New revenues don’t kick in for two years and the general fund transfers won’t begin until October 2018 and won’t fully phase in until 2021, after many legislators and the governor have left office.

A token flexibility measure allows the city of Detroit to use 20 percent of its earmarked highway funds for transit. Existing funding formulas set aside most of the new transportation revenue for county highways and city streets.

Despite clear distrust from voters of the state’s process for selecting projects — evidenced by a crushing ballot measure defeat — provisions that would have reformed the project selection process to be more transparent and performance-based were not included in the final negotiations.

The bill did little to promote innovation.

New revenues will flow through an existing allocation formula that reserves a portion of funds for transit, rail and other modes. However, legislators bypassed this multimodal distribution with general fund dollars and dedicated that money exclusively to for roads, bridges and highways.

Transit investments are a priority for many metro Detroit legislators, and the agreed-to transit funding level won the necessary support from a few members to reach agreement with the highway focus from rural legislators.

Governor Rick Snyder (R) has championed additional funding for transportation since October of 2011 and was a central negotiator on the agreed-to proposal. However, the final package that he agreed to was far removed from the original proposal he put forth.

There was a strong coalition for a transportation funding bill that included construction industry interests, labor groups and the Michigan Environmental Council, Michigan Municipal League, Michigan Farm Bureau, Michigan Public Transit Association (MPTA), Rails-To-Trails Conservancy, AARP, Michigan Statewide Independent Living Council and Transportation for Michigan (Trans4M).

Support for additional transportation revenue was focused on the state’s repair needs — ubiquitous potholes or bridge repair needs, though considering the lack of bipartisan and voter support, it’s unclear how effective that message proved to be, especially when heard alongside the reality of planned mega-expansion projects. For years, Governor Rick Snyder (R) and other leaders in Michigan have been pushing for additional transportation funding to address a growing backlog of needed repairs and to widen and expand highways.

A Four-year odyssey


For years, Governor Rick Snyder (R) and other leaders in Michigan have been pushing for additional transportation funding to address a growing backlog of needed repairs and to widen and expand highways.

Governor Snyder spent his first four years in office highlighting Michigan’s infrastructure needs. Roads, bridges and other infrastructure across the state face serious repair needs and funding for repair and other priorities hasn’t kept up. A 2014 report from the state’s Asset Management Council found just 20 percent of highway miles were considered to be in “good” condition. A 2012 bipartisan legislative report concluded that the state would need an additional $1.5 billion each year to bring its highways up to a state of good repair. The state DOT’s message focused on repair needs and how little the state invested compared to neighboring Ohio and other states.

A long and bumpy process to a compromise

In his State of the State address in January 2014, Governor Snyder jump-started funding discussions by reiterating his call for more than $1 billion in additional annual transportation funding. Throughout the 2014 legislative session, disagreement between the Republican controlled House and Senate and the governor’s office proved challenging to overcome, and the House, Senate and Governor all backed different options for increasing transportation funding.

In the Senate, Appropriations Committee Chair Roger Kahn (R-Saginaw Township), along with Senate Republican leadership, unveiled two alternative plans that would have raised $1.6 billion per year, either by replacing the gas tax with a two percent increase in the state sales tax, or an increase in both gas taxes and registration fees. The governor’s proposal backed a “user fee” approach that would have raised an additional $1.2 billion per year through a similar approach to the Senate’s first option: replacing the gas tax with a wholesale tax and increasing registration fees. The House offered up a slimmer package that would have directed $450 million in general funds to transportation and replaced the gas tax with a comparable wholesale tax. House Speaker Jase Bolger (R-Marshall) noted the limited appetite in the House for significant tax increases, but considered the package a viable way to begin addressing the funding need.

Leaders could not reach a compromise throughout 2014. It wasn’t until after the November 2014 elections, with legislators freed from immediate electoral pressure, that they acted, however — though voters would have the ultimate say. The Senate passed a package that eliminated the 19 cents-per-gallon fuel tax, replacing it with an increase in the percentage wholesale tax that would have equated to 25 cents per gallon in 2015, rising to 41 cents per gallon in 2018. The House alternatively proposed taking existing revenue from the sales tax on gasoline currently directed to local governments and schools and dedicating it to the state highway account. The funds raised by this proposal would have bypassed the state’s multimodal funding formula, denying new funding to transit and other non-highway projects.

In a last-minute, late-night agreement on December 19, 2014, the legislature passed a funding package but chose not to decide the critical issue of raising revenue. The package included a proposed amendment to the state constitution to increase the state’s sales tax from 6 percent to 7 percent, which requires voter approval. The agreement that shifted the decision to voters and raised no immediate revenue received strong bipartisan support, passing the House 94-16 and the Senate 26-12.

If supported by voters in the May 2015 ballot measure, the package would replace the per-gallon fuel tax with a percentage-based wholesale tax, repeal the sales tax levied on fuel and increase the sales tax from 6 to 7 percent on all other goods to make up the revenue (which is partially dedicated to municipal aid and K-12 schools). Overall, this was projected to bring in an additional $1.2 billion for transportation, including $456 million each for state highways and county roads, $254 million for local transportation needs; and $130 million for transit statewide.

Reform and demonstrating “value for money”

With the ballot measure looming in the spring of 2015 and Gov. Snyder was using the bully pulpit to ask for funding and educate the public about the state’s need. However, in January the state DOT received bad press when it was discovered that millions of dollars were spent on railcars that had been sitting idle for many years, raising questions and sowing doubt in the public’s mind. Unfortunately, the state had no answer to restore confidence in the process of how the state spends money.

Further compounding the public mistrust was the poor condition of the system vis-a-vis the state’s misplaced priorities. Dollars for repairing state highways and local streets were so hard to come by that one town held a bake sale to raise a portion of the funding needed to replace a bridge that serves as the vital link to the village center. But at the same time, MDOT was still planning to spend $2.9 billion to widen I-94 through the center of Detroit, a project that has been on the shelf for 30 years.

Several legislators championed reform measures aimed at directing limited funding to the most important projects. Rep. Jim Townsend (D-Royal Oak), a START Network member, with support from T4America and other START members, championed a measure demanding that projects prove “value for money” through objective performance measures and project selection criteria that match the goals for the transportation program. It would have directed MDOT to score and rank projects and report to the public on their benefits before funding a project, adding a layer of accountability and ensuring that the new funds would help achieve the public’s desired outcomes. That measure drew significant bipartisan support in last minute negotiations on the funding package in 2014 that produced the deal, but with the very short timeline for negotiation in the post-election lame duck session, that proposal and many other good ideas were left on the cutting room floor.

Following the end of the 2014 session, Rep. Townsend has continued to work with transportation stakeholders to refine the process to one that works best for the state. This type of reform is critical for realizing long-term benefits for transportation investments, and is enormously influential on building public support for additional transportation investment. Put another way, more public confidence in an improved system results in more public support for providing that system with more money. And without that confidence, voters are often hesitant to support new revenue, as evidenced by the 2015 ballot measure.

Voter rejection

Throughout the winter and early spring of 2015, Governor Snyder and transportation interests worked to make the case for transportation funding. The Safe Roads Yes campaign raised more than $9 million — more than half of that from the construction industry — to turn out supportive voters. The statewide Michigan Chamber of Commerce did not weigh in on the proposal, while the Detroit Regional Chamber of Commerce was a big supporter. The largest group opposing the measure raised just $500,000.

On May 5, 2015, voters overwhelmingly rejected the complicated measure, 80 percent to 20 percent, setting a new record for opposition in the process.

Aside from the lack of trust, the ballot measure suffered most from its complexity and the short time frame that supporters had to explain the measure and mobilize support — just five months between legislative passage and the decision at the ballot. The decision for voters was incredibly complicated, with various tax increases tied to transportation, education, local government funding and low-income tax credits. T4America has often noted that voters are most likely to support a ballot measure for transportation funds when the measures are simple and direct, when voters have a clear idea of how the funds will be spent and how the planned projects will meet their communities’ needs. In contrast, Michigan’s ballot measure asked voters to endorse a tax hike for unspecified projects across the state, mixed up the issue with education funding — always a hot-button topic — and included no mechanisms for improving transparency and accountability for the new money.

Blank checks can be hard for voters to stomach.

Back to the drawing board

The voters’ rejection was resounding, but the needs hadn’t waned. With the 2014 measure now dead, legislators returned to finding a way forward on new funding for transportation throughout the 2015 session. The debate in Lansing centered on whether to raise new revenue or cut other programs in order to add funding for transportation, and the legislature ended up splitting the difference in a compromise package.

The Senate revisited ideas considered in 2014, and in July 2015 the chamber narrowly passed a new package to raise fuel taxes to 34-cents-per-gallon and shift $700 million from the state general fund to transportation. The proposal passed 20-19, receiving only one Democratic vote and relying on the Republican lieutenant governor to break the tie. The House narrowly passed a package directing $1.1 billion to highways by drawing nearly $800 million from the general fund and cutting earned-income tax credits, largely avoiding raising any actual new revenues. This package passed on several close votes, with near exclusive support by Republicans.

Legislators adjourned for a summer recess leaving a wide gap between the competing proposals, but bipartisan and bicameral negotiations picked up again in the fall. House negotiators reportedly moved considerably closer to the Senate’s revenue proposal, but top-line numbers and tax policy disagreements led to a public breakdown in these negotiations. From there Republicans — who hold sizable majorities in both chambers and the governorship — ran negotiations. The resulting package passed very narrowly, including just one vote each from the Democratic minorities in each chamber.

The final package

Only half of the funding in the package passed will come from new revenue. The package will increase the gas tax by 7.3-cents per gallon and 11.3 cents per gallon, bringing both rates to 26.3-cents-per gallon — but not until 2017, well after the next election. The rates will then be indexed to future inflation. The new rates will bring in an estimated $400 million more annually. Additionally, vehicle registration fees will increase 20% and hybrid and electric cars will face new fees, together generating $200 million in new revenue, though these fees also don’t kick in until 2017.

Another $600 million will be transferred from the state general fund, from yet-to-be-identified cuts to other programs or from a budget surplus if one exists, beginning in October 2018.

The new tax and fee revenue will be distributed through the existing transportation formula, which sets aside portions of the money for rail and transit projects. However, the $600 million in general revenues will be sent directly to the road fund and can only be spent on highway projects.

Lessons learned: accountability is crucial for enduring support

Even with the Governor leading the charge from his bully pulpit, he could not overcome the skepticism of the legislature or the public about the need to raise new transportation revenues. Skeptical legislators handed the decision to voters who rejected it resoundingly.

The package meets — on paper — the governor’s request for an additional $1.2 billion per year for transportation. But the package ramps up new funding slowly — full funding won’t be in place until 2021, and (future) legislators will still have to decide how to cover the $600 million general fund cost via other cuts.

The long ramp-up and reliance on general fund dollars mean that citizens, advocates, elected leaders and the business community in Michigan will have to continue making the case for additional investment to future legislators.

To rebuild public trust in how any current (or future) funds are spent, the state must continue working to reform the way it prioritizes and allocates funds, and the legislature should find ways to increase the transparency and accountability of this process. (And communicate about the reforms to the public.) They’ll be much better equipped in the future if they can show that any new money generated will truly flow to the most pressing needs across the state.

Leaders in Michigan should heed the lessons learned in other states: voters will support transportation investments — and reelect legislators who support increases in transportation funding — if they know up front that new dollars will be spent with more transparency and accountability on glaring repair needs and other local priorities.