Michigan Taxpayers Don’t Need to Spend $4 Billion Annually on Infrastructure

Recent report has been misinterpreted

Michigan’s 21st Century Infrastructure Commission recently came out with a report that made 107 recommendations to improve the state’s telecommunications networks, energy, transportation, drinking water and sewers. Media and state pundits jumped on it, claiming it says that Michigan needs $4 billion each year in additional infrastructure spending. But that’s not exactly what the report actually says.

The bulk of the report’s recommendations center around improving the management of existing infrastructure. There are 74 recommendations that will not require new spending, such as comprehensive planning, more coordination among agencies that control infrastructure, and many others. To this end, the report wisely recognizes that improving infrastructure is more than just spending money on building new stuff.

But some of those recommendations seem empty or just plain confusing. Consider this one: “To enhance community resiliency and optimize costs, the Michigan [DEQ] and [DNR] should facilitate the development of tools that enable stormwater and wastewater system owners, managers, and operators to fiscally and operationally manage green infrastructure through asset management plans.” It’s unclear to me what this means or what it calls on the DNR and DEQ to do, let alone why this recommendation will help.

When spending is called for in the report, it is often for projects that aren’t really infrastructure. For example, it asks for $20 million annually to “promote Michigan as the focal point of the global intelligent vehicle industry.” Marketing a niche industry is much different from reconstructing roads.

Related, it also calls on the Department of Transportation and the Michigan Economic Development Corporation to “advance Michigan’s intelligent vehicle industry.” It provides no details about how that should be done, but it will cost $2 million. Altogether, of the 33 recommendations to spend more money, only 11 actually call for spending more money on infrastructure.

Other parts of the report are objectionable. It says that the state has targeted itself to produce 30 percent of its energy from renewable sources. That’s odd considering that voters rejected a proposal to increase this mandate to 25 percent in 2012 by a margin of 62-38.

Where the report does call for more spending, it’s important to remember that most new revenue to pay for it should not come from general taxes. The second largest area of spending called for in the report is to improve the Soo Locks. But funding for such an endeavor should come from enacting fees on the ships that use the locks. As William B. Newman and Jarrett Dieterle write, “User fees are appropriate under a beneficiary-pays principle, which recognizes that commercial lakers like the 1,000-foot vessels transporting iron ore through Sault Ste. Marie derive special benefits from the locks beyond those enjoyed by the general public.”

Indeed, little of the state’s infrastructure is paid by general tax dollars and most is paid by user fees. Local water and sewer entities have no limits on what they can charge their users, provided that they abide by user fee principles in their billing. The communications towers are paid by charges on the people who use them. The costs of erecting and maintaining power lines are paid by the people who use electricity.

Regulators and managers ought to prioritize ways to keep the costs they pass along to consumers down, but the costs should be paid by the people who actually make use of the infrastructure. Likewise, the costs assessed upon end users can be an appropriate economizing feature: The infrastructure that gets built only can be sustained if enough people use it at the prices it takes to maintain it.

The largest area of spending called for in the report, however, is the exception. The report asks taxpayers to spend $2.2 billion more on road funding, above what was generated by the recent gas and registration tax increases. The report’s recommended figure is odd though, because even tax increases proposed in the ill-fated Proposal 1 of 2015 wouldn’t have generated that much new revenue for roads. Plus, the major roads that carry half the state’s traffic already have good ratings — 84 percent of these roads are in good or fair condition. That’s not to say that the state ought not improve roads, but it does bring up the question of urgency.

Michigan funds its roads with a loose user fee principle. The bulk of payments come from fuel taxes and vehicle registration taxes, which tend to be generated by the people who use the roads. But Michigan has spent general taxpayer dollars on the roads and the federal government borrows money to give to states to spend on the roads, all of which get paid jointly by all taxpayers. State lawmakers have leveraged this loose user fee principle to get a tax hike and redirect some of the general taxpayer dollars that were spent on the roads to other budget priorities.

All this goes to show that this report makes a very weak case for taking $4 billion from taxpayers and spending that money on infrastructure. There may be room for improvements, but much can be provided under the policies currently in place, and residents should be skeptical that general taxes need to pay for further infrastructure.