By Eric Lupher/President, Citizens Research Council of Michigan
Michigan started this year with competing road funding plans from the governor’s office and the House of Representatives. It became clear this past summer that a deal would not be struck for the fiscal 2026 state budget without a road funding component.
The resulting transportation funding package has some positives that will increase resources for roads, but it also contains policy changes that appear haphazard and less than fully developed.
The most positive aspect of the 2025 transportation funding package (TFP) is the exemption of motor fuel from the state sales tax and adoption of an equivalent increase in the gas tax rate. This tax swap, in combination with the end of earmarks from the Personal Income Tax, will provide over $700 million in FY26 and over $1.1 billion in future years.
After that, things get a little dicey, leaving county road commissions little confidence to plan projects based on the hoped-for new revenues.
The package also attempts to provide more funding for roads from a new Marijuana Wholesale Tax ($417 million per year) and a new earmark of Corporate Income Tax (CIT) revenues ($688 million in FY26, growing to $1.04 billion per year).
It is unclear when or if marijuana tax revenues will be available, as the tax is currently subject to legal challenges.
CIT problems are a little different. Road funding has second claim to CIT revenue after $1.25 billion is reserved for other uses, primarily the state’s General Fund. From the time the CIT was reenacted in 2012 until 2020, revenues exceeded $1.25 billion in only one year. Revenues have trended higher since the pandemic, peaking at $2.3 billion in 2023. We don’t know if the 2012-2020 period is the norm or the period since.
So, we don’t know how much will actually be available for roads. As the state’s fiscal year begins, budget managers will have little certainty about how much revenue to expect. They will not be able to begin depositing funds for road use until late in the fiscal year, maybe not until the books are closed after fiscal year end.
Planning, project selection and accountability are further complicated by the new mechanism for distributing the marijuana revenue and CIT allocation. The Citizens Research Council has long championed reform of Public Act 51 of 1951, the primary means of distributing motor fuel and vehicle registration fee revenues. The act is potholed with earmarks, fund divergences and allocation formulas that do poor work of directing resources to the roads with the greatest needs.
Rather than attempting to fix some or all of Act 51, the TFP creates a parallel Neighborhood Roads Fund (NRF). It directs greater amounts to county and municipal roads, but it uses the same formulas for dividing funds among them.
The NRF does not have the same matching requirements for county road projects that are contained in current law. This sounds liberating, but the devil is in the details.
How will county road commissions differentiate funds received from the Michigan Transportation Fund (which requires a match) from the funds received from the NRF (which do not require a match)? If they could, how should they decide to ask some townships for matching funds, but not others?
In a best of all worlds, the 2025 TFP could result in Michigan dedicating twice the funding amounts as the state provided in 2015. In the worst of all worlds, the house of cards could collapse, and we’ll have funding only from the sales tax/gas tax swap.
A fuller explanation of these issues is available in a new report available on our website at www.crcmich.org.