Less Driving Means Less Gas Tax Revenue

Road funding will be affected by the pandemic

People are driving less during the COVID-19 pandemic. As a result, the state government’s fuel tax revenue is falling. The state uses this money to pay for road repairs, and road funding was the biggest dispute in Lansing last year.

This means fewer road repairs in the short term but there are obviously bigger concerns now than a temporary reduction. The bigger factor affecting the long-term condition of roads is the length of the pandemic, as it is with many things.

Fuel taxes provide $1.5 billion for the state’s $5.4 billion transportation budget. Other major sources include the vehicle registration tax, the state income tax and the federal government.

The tax is expected to fall as people travel less, but the reduction in taxes comes more from people driving passenger vehicles less, rather than commercial trucks traveling less. Trucks use more fuel, but they also put more wear on roads, and trucks are more heavy users of trunkline roads — the I-, US-, and M-designated routes in the state. This means that there will be less tax in collections, but not necessarily less wear and tear on the lanes of the state’s major lanes.

There will be less of a decline in vehicle registration taxes. Even if people drive less, that doesn’t mean they register fewer vehicles. But since the state’s taxes are at least partially based on auto purchases (and the value of vehicles purchased), the decline in auto sales will decrease vehicle registration taxes. In addition, the Secretary of State’s office is affected by the stay-at-home orders, so processing and collecting vehicle registration taxes may be delayed.

The state also puts $468 million from the income tax into the transportation budget and has already etched in $600 million for the next year. Given the way that this allotment is written into the tax code, however, it is not subject to a change based on income tax collections. So that sum will be distributed to roads even as income tax revenue drops. Gov. Gretchen Whitmer wanted to end this allocation and replace it with a higher fuel tax last year, so there may be further discussion about it in the current budget.

Federal funding is uncertain. One of the federal COVID-19 spending bills gives the state $280 million to distribute to local bus services but nothing for road maintenance. There are some relief funds available, but Congress would need to loosen restrictions on their use before the state can spend them on roads.

As to road conditions, the Michigan Transportation Asset Management Council projected that road quality before the pandemic was going to stay around 60% of monitored roads being in good and fair condition. That percentage may decline as a result of less revenue.

The state’s transportation taxes will return to normal levels sometime after the pandemic is over, and the effects will be smaller if the pandemic is shorter. The same could be said of income taxes, school revenue, pension funding, and the rest of the state budget. Road funding losses may also be mitigated by loosening the restrictions put in place by the executive orders of dubious constitutionality. They hinder our ability to interact with each other, and this affects the revenue of the state government as well as the lives of state residents.

Roads are long-term assets that require maintenance. There will be less revenue for road repairs over the short term due to the secondary effects of the novel coronavirus. Losses will be smaller if the pandemic is shorter.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.