Michigan Enacts Comprehensive Tolling Study
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Commentary

Michigan Enacts Comprehensive Tolling Study

The law could provide a long-term solution to funding and modernizing Michigan’s highways, which are in poor condition

Michigan Gov. Gretchen Whitmer recently signed Senate Bill 517—now Public Act 140 of 2020—into law, authorizing a two-part tolling study of the state’s Interstates and freeways. The law could provide a long-term solution to funding and modernizing Michigan’s highways, which are in poor condition with growing traffic congestion.

SB 517, authored by State Sen. John Bizon, was expanded from a proposal to examine if tolling is feasible to study both the feasibility and the implementation of tolling.

As important as the reform itself was the bipartisan political consensus that Michigan would be wise to explore a new funding approach for its major highways. A high-quality highway network is critical to advancing economic development and improving the quality of life, and Michigan’s highways are deficient. The legislation enjoyed strong bipartisan support in both the House and Senate. And a wide range of stakeholders, including the transportation community, the business community, fiscal conservatives, and progressive lawmakers ultimately supported the bill.

The Michigan Department of Transportation was a crucial supporter of the bill, viewing tolling as a vital long-range solution to the state’s revenue challenges and the most feasible method of maintaining and expanding highways.

Reason Foundation was a key player from the beginning of the process, with its transportation experts providing information, policy options, and technical assistance for legislators and stakeholders. We helped to facilitate consensus among stakeholders on the two-part nature of the study, scope, and likely timeline. Additionally, we listened and responded to concerns from lawmakers and the business community on revenue diversion, roadway safety, and plan feasibility.

The fact that legislative Republicans, a Democratic governor and administration, and a libertarian think tank see the same potential opportunities for new transportation funding options to maintain infrastructure may seem unusual to some. But all parties agreed that Michigan needs to do something new to fix its degraded transportation infrastructure. While many other states remain paralyzed by political gridlock and inaction, Michigan’s leaders— across the political spectrum, in business and in government—found the will to explore an actual, workable solution.

The Need for Highway Funding Reform

Michigan’s Interstates and freeways are generally in very poor condition. The 2018 American Society of Civil Engineers Infrastructure Report Card gives Michigan roads a D-. Reason Foundation’s most recent Annual Highway Report ranks Michigan 30th overall in performance and cost-effectiveness. Michigan ranked  34th in rural Interstate pavement condition and 42nd in urban Interstate pavement condition—worse than most neighboring states.  Traffic congestion is a problem in several of the state’s metro areas, particularly Detroit.

Traffic congestion, in addition to adding unpredictability and stress to commuters to and from work and school, also harms Michigan’s economic activity and limits growth in business activity. High-quality roadways are one of the top factors businesses examine when making expansion and relocation decisions. The delivery economy has grown by double digits each year in recent times and truck traffic is expected to grow by more than 100% over the next 30 years. In Michigan, I-94 linking Detroit with Chicago and I-69, which will link Mexico and Canada within 10 years, are major freight highways. As this part of the economy grows, Michigan needs to improve its Interstate and freeway network.

Today, the primary method for funding roadways is the gas tax. Understandably, raising the gas tax is unpopular with drivers and politicians. To generate the money needed to fix Michigan’s highway network the state gas tax would have to be raised by well over 20 cents per gallon.

Long-term, an even bigger problem with the gas tax is that it is an increasingly unsustainable and unfair way to pay for roadways. The increased use of electric vehicles, hybrids, and more fuel-efficient conventional vehicles have reduced the purchasing power of the gas tax and made it increasingly complicated to administer—with electric vehicles using roads but not paying gas taxes.

Some have likened the gas tax similar to a rockstar on a farewell tour. Similar to a fading rockstar, per-gallon fuel taxes were an effective funding mechanism for the past 50 years, but are now outdated. Over the long-term, the gas tax is going to need to be replaced by another, more sustainable funding mechanism.

The best long-term replacement for the gas tax on Interstates and other major highways is tolling. When some think of tolling they imagine old-school tollbooths requiring drivers to hand over the exact change to a toll booth operator who seems like he would rather be somewhere else. But today’s high-tech, 21st-century approach to tolling is very different.

Today, toll booths have been replaced with electronic gantries, overhead structures. Quarters have been replaced with transponders placed on cars, such as EZ Pass, that instantaneously note when a vehicle passes under a gantry. The cost of toll collection, once as high as 25% of revenue in the 20th century, has now decreased to less than 10% on tolled facilities. Most experts believe that as tolling and technology continue to improve, the overall cost of collection will decline to less than 5%, roughly equivalent to the gas tax.

Tolling is popular with taxpayers as well. In several studies, when asked whether they preferred tolling or gas taxes, the public chose tolling. Why? Unlike the fuel tax, which is collected from all motorists and then dispersed to all roadways in the state, with no link to which roadway a driver actually uses, tolls can be dedicated to an exact stretch of roadway. Users of a toll road have the peace of mind of knowing that the tolls they pay are being used on the roadway they use. And motorists who do not use the toll road don’t have to pay for the roadway.

If the state’s study finds that tolling is considered feasible, Michigan should be encouraged to use public-private partnerships (P3s) to build the tolled facilities. P3s use private capital to reduce the overall costs of projects and have several advantages, such as delivering needed infrastructure, raising capital, shifting risk from taxpayers to investors, providing a more businesslike approach, and enabling innovations.

Conclusion

Both the process and the content of Michigan’s tolling study and implementation plan offer a model to other states looking to repair, maintain and modernize their Interstates and freeways. Out of all the potential revenue sources for highways, tolling is the most fiscally sustainable over the long-term. If Michigan adopts tolling, the state would be on its ways toward a safer, less congested roadway network that helps creates economic development and population growth.

For more information, listen to Baruch Feigenbaum discuss the law and tolling study on the Michigan DOT’s “Talking Michigan Transportation Podcast.”

Baruch Feigenbaum is senior managing director of transportation policy at Reason Foundation and lead author of Reason's Annual Highway Report.

Leonard Gilroy is vice president of government reform at Reason Foundation and senior managing director of Reason's Pension Integrity Project.