Universities or Roads?

A comparison of what a little extra revenue provides to residents

Lawmakers negotiate over their priorities in the annual budget process. This involves trade-offs: A dollar for schools is a dollar that doesn’t go to the roads or to prisons or to any other use. Lawmakers try to find the right balance for the best allocation of the state’s limited revenues.

Lawmakers ought to take their obligation for the roads more seriously than for higher education. There are alternative private options to state universities and the boards that control the schools pay attention to their competition. But there are, with trivial exceptions, no private options for the roads owned by state and local governments. Beyond that, extra money for public universities does less for residents than money for the roads.

To show why the state should prefer extra road funding over extra university funding, here is a comparison between general university spending and road funding, and what would happen if either one were increased by $100 million each year.

Universities receive money from their students in tuition, from their supporters in contributions, from research grants, and from the state taxpayers in annual appropriations. Taxpayer support already represents a minority of public universities’ total revenue.

The only thing that lawmakers ask universities in return for taxpayers’ $1.5 billion in support is that they charge students from Michigan less than out-of-state students.

But it’s tough to keep tuition down when the cost of running a college keeps increasing each year. Costs have been rising above inflation while the number of students is down. The full-year equivalent enrollment of resident students peaked in the 2010-11 school year and the schools have lost one out of 13 full-year equivalent students since then. Over the same time, their total spending increased 14 percent over inflation.

With tuition, student population and cost trends, spending an extra $100 million on state universities might lower tuition increases to 2.7 percent for the year instead of 3.9 percent.

And even if lawmakers keep adding that $100 million in future budgets, it won’t affect the following year’s decisions about tuition hikes. Those decisions will be based on university expenses.

The one-year reduction in the increase of tuition may encourage more people to attend university, but probably not. And it wouldn’t do much for graduation rates, either. There are greater forces at work than a $100 million increase or decrease in state spending.

University administrators are already concerned about chasing potential students away with high tuition rates. That is why universities advertise need-based and merit-based scholarships. The University of Michigan goes even further with its Go Blue guarantee, which pledges that in-state students from families who earn less than $65,000 a year won’t have to pay tuition. If increased taxpayer support leads to lower tuition increases, that won’t help students in financial need. Instead, it will benefit students from middle class and affluent families.

And the universities could still thrive even if lawmakers took a hundred million away from current levels. After all, they operated with less in the past.

So while an extra investment in higher education might not get much, that same money could make a difference on the roads. The state’s Transportation Asset Management Council, which reports on road conditions, indicates that current funding is around maintenance level. That is, no worse, but no better. “The expected increase in funding will halt the steady decline in pavement condition. … But no appreciable improvement can be expected. Any future changes in funding will affect the forecast.”

State funding has already increased a lot over the past decade as lawmakers have found more money in the state’s existing resources. They’ve also hiked fuel and vehicle registration taxes. As a result, taxpayers put $3.6 billion toward the roads for 2019, up from $2.0 billion in 2011. That’s in addition to local governments that have property taxes dedicated to their own roads.

So, a further $100 million would only increase the road budget by about 2.7 percent. But this and further increases lawmakers are considering in the current budget debate could make a difference. The state could go from funding just enough to maintain the roads to funding that improves them. Going beyond “just keeping up” matters because these are long-term projects, and the state will eventually reach its targets for quality roads if it spends enough to patch and reconstruct roads faster than they deteriorate. Still, better conditions are not guaranteed, since increases in costs could wipe out gains from increased revenue.

To put things in context, another $100 million is enough to cover a quarter of the state’s 2019 significant projects.

How that money gets spent is another story, though. The extra $100 million would get divvied up between the state and local governments, with 39.1 percent going to I-, US-, and M-designated roads, 39.1 percent going to county road commissions, and 21.8 percent to cities and villages. Exactly what it does from there is up to state and local government administrators, subject to state rules.

So, the state could send extra money to Michigan universities, hoping they wouldn’t increase in-state tuition as much. Or, lawmakers could use the money on roads, to improve them faster than would otherwise be the case. Residents get a better deal on the roads.