. ‘

iii; HIHHIHH If! I

5?.

THE HISTORY Of THE MICHIGAN
ROAD TAX STRUCTURE

Thai: for rho Dom-u of I. S.
WAN STAT! com
M E. Lulm
1948

 

 

The History of the Eichigan

Road Tax Structure

A Thesis submitted to
The Faculty of
KICiIGAH STAT? CCLLEGE
of

AGRICULTLRE AID APPLIED SCIEKCE

By

E. E. Luhrs
I“

Candidate for the Degree of

Bachelor of Science

March 1948

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~Acknowledgement-
The author wishes to eXpress his thanks to the
many persons and organizations without whose help it would
have been impossible to gather all the information and data
included in this thesis. il_wish especially to thank the
\M/ .
Eichigan State Highway Department, The Michigan Good Roads
Federation, The Michigan County Road Association, The
Hichigan municipal League and the civil engineering faculty
of hichigan State College for their c00peration and assis-

tance.

K. E. Luhrs

'. I "'

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INTRODUCTION

Roads and streets are the bonds which integrate our
economic and social functions. They knit together our rural
and urban areas, making possible the patterhof life to which
we are accustomed today. It is necessary to remember that
every mile of these roads and streets are public prOperty and
therefore both a public asset and liability. It is impossible
to comprehend fully the part that the automobile and the roads
that it travels plays, but the fact stands out that the auto-
motive industry is the number one industry in Hichigan and
that the tourist and resort industry is second in importance.
In addition to providing essential roadways for motor vehicle
travel, Michigan's road system fulfills other important needs,
such as providing adbss to land of property owners as well as
general governmental responsibilities of transportation of
mail, public health and safety national defense and other
services of direct and indirect benefit to the community as a
whole. But above all, as the Bureau of Labor Statistics
indicates, the automobile is removed from the luxury class, it
is now considered as the fourth necessity of life in the
United States, taking rank after food, clothing and shelter.

In 1905 there were 2,958 automobiles registered in
Eichigan, 245 miles of stone or crushed macadam highways, 7,700_
miles of gravel roads, and over 60,000 miles of clay, sand and

earth roads. In 1946 there was one passenger automobile to

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each 115 families and one self propelled motor vehicle to each
family in the state. There was a total of 104,517 miles of
highways in Zichigan at the end of the same year. This growth
'is tremendous, and hichigan can be truly proud both as a pioneer
in the automotive industry, and as a pioneer in providing
adequate highway facilities and services to it's citizens.
These improvements have not been without cost. During the
period from 1905-1946, governments in the state’have raised
more than two billions of revenue for the support of roads and
streets. On top of this, the federal government has
contributed through cash grants—in-aid and emergency relief
expenditures, close to 400 million dollars. It is the
purpose of this study to see how this revenue was raised and
distributed.

Within the state the revenues have come principally from
two sources; taxes on property and taxes on motor vehicles.
During the period from 1910 to 1946 these two types of taxes
have contributed substantially equal amounts, but their
relative importance has changed greatly. Local prOperty tax
which at one time completely supported the entire highway
system, now is of relative minor importance and contributed
only 142 of the highway revenues in 1946. The motor vehicle
tax which has grown in importance with the adOptation of the
Teight Tax in 1915 and the Gasoline Tax in 1925, now

supplies the major portion of the revenue. The reasons for

' 7
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this change are evident, they are the results of changing
economic conditions. The major causes for the shift in the
taxation policy are;

1. Growth of population

2. In creased complexities of our way of life due to the
expansion of industrial pr duction and scientific
achievement.

3. The relative decline of agriculture, and the
practical disappearance of once important resources
in some areas of the state

4. The inappr0priate use of land for agriculture and
suburban development.

5. The phenomenal growth in the number and use of
automoblies and the accompanying deveIOpment of

K highway and street facilities.

0. The demand for other governmental services

commensurate with these expansions.

These changes have definitely shifted the burden from the
property owner to the automobile user. It is evident that a
limited application of the benefit theory of tax distribution
has taken place. The benefit theory of taxation is one of
the four well known theories of taxation that exist today.
These theories are knu n as the benefit theory, the

trivilege theory, the ability theory and the equalizatién

&

theory. The benefit theory states that each individual
should be taxed according to the benefits he receives from
the performance for the community of the government
functions. The actual division of the tax under this theory
should be on one or the other of the following bases; cost

of service or value of service. It can be seen that through

the motor vehicle taxes the motorists as users and benefitors

'5' '-

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have paid their share of the taxes. However, some motorists
.such as city motorists receive less benefit for their money,
whereas, long distance haulers are often said to have
received larger benefits than their contribution to highway
costs.

The privilege theory holds that the government gives
special permission to do certain acts which otherwise would
be illegal. The permission to do these acts constitutes a

privilege which should be paid for by the citizen. It is

difficult to see how this theory applies to road taxation
today, because it is impossible to classify the use of high-
ways and roads as a special privilege, a theory which was
prominent when roads were first built and financed by the
use of tolls.

The ability theory is based on the precept that the
activities of government are undertaken for the benefit of
society as a whole, and therefore the costs of the activities
are a charge on society, and not any individual. For that
reason the cost of government should be distributed among the
citizens in proportion to their ability to pay. This theory
is difiicult to apply to road taxation because automobile
ownership is not a true index of wealth or ability to pay due
to the fact that auto ownership is a necessity for so many

motorists.

I
x'n

The equalization theory is a radical theory which
argues that the state should use it‘s taxing power to reduce
inequalities in the wealth of it's citizens. It has no
connection w'th road taxation and is just mentioned in pass-
ing.

In reviewing these theories of taxation, attention must be
paid to one of the features which has come into prominence in
the last few decades. That is whether a tax is prcporticnal,
progressive,or regressive. A proportional tax is one that the
rate of taxation is the same for all incomes or that the tax
is the same fraction of income for all. Under a progressive
system of taxation, the rate of tax is much greater on
successively richer individuals. Then the tax burden falls
more heavily on the poor than on the rich, the tax is said
to be regressive. 0n the whole, it is the general opinion of
the present economic and social system that the progressive
type of tax is desirable because the prOportion of income de-
voted tc the necessities of life is smaller for the rich man
than for the poor man. Along these lines it must be admitted
that road taxes tend to be regressive because people in the
lower income brackets spend a larger per cent of their income
on automobile transportation than do families of larger
income. How this situation could be remedied, if so desired,
would be a difficult problem, but one which is worthy of

consideration due to the fact that revenues from taxes on

automobile ownership and operation have become the greatest
single source of revenue, and as such must be protected.

Let us examine the various types of taxes or fees that
have been used by various states as sources of highway funds
in the past,in the light of the above discussion. Some of
these taxes have never been used in Iichigan, but are worthy of
study as sources of highway funds.

The earliest type of tax used for the support of roads was
the property tax. In early pioneer days property was the
principal base on which taxes were levied; the economic system
was simple and governmental activities were few. Prior to the
automobile, roads were primarily used for access to property
and it was prOper that the property taxes should be used to
support these roads. It was taxation under the benefit
theory. However with the advent of the automobile there was

, Jug”
growing demand for better roads and user taxes as the gasoline
tax and registration fees came into effect. However, until
the depression prOperty taxes remained the pr mary source of
funds. With the advent of the depression, and the devaluation
of property and the delffiuency of prOperty taxes, the burden
upon the property owners was lightened until property tax became
a secondary source of highway funds.

Registration fees have been and are used by all the states
as producers of highway revenue. Originally instituted to

help finance the costs of registration they have developed to

the point of being large revenue producers. They might be
classified under the privilege system of taxation. That is
the state gives the privilege of automobile ownership and

this fee. The fees are

F4)

use of the roads for the payment 0
based upon weight and horsepower of the automobile, and tend
to be regressive because in general the weight and horsepower
of the car is not indicative of the owner's ability to pay.

The gasoline tax is the primary source of revenue for
highway funds today. Since it's institution it has been
readily accepted by the motorist. The gasoline tax is probably
the least regressive of all the highway taxes. It falls
under the benefit system of taxation. The person who buys more
gas pays more tax, but because he travels more he receives a
larger share of the benefits derived from the highway system

77/508.“

and services. It also falls under the category of the abilityflof
taxation in that the person with the larger income will tend to
travel more, use his automobile more frequently, and thus pays
a larger share of the tax.

Special operator‘s and chauffer's license fees are of
minor importance as sources of revenue. They are based on the
benefit theory of taxation, in that certain commercial users
get a larger benefit from the highways and therefore should
pay these extra fees.

In some states there is a tax on installment paper, or

installment sales contracts for automobile purchase. This type

’2‘

of tax should never be resorted to if possible, because it is
a most regressive type of tax in that burdens the very poorest
group of automobile owners, those who purchase on credit at
high rates of interest.

Tolls for the privilege of using roads and bridges were
one of man's earliest fiscal devices. They were used in early
American days, and necessarily so, because they provided the
funds for road construction under the old turnpike system.
However, with the advent of the automobile and the realization
that a more centralized system of transportation was required,
necessitating a more thorough and uniform system of finance,
the toll system bec me outmoded. It is not in general use
today, and is only looked upon as desirable when some extra
service is furnished, such as the Pennsylvania Turnpike, the
Holland Tunnel or the Straits of Mackinaw ferry service.

These tolls fall under the benefit theory of taxation; the
person paying the toll has gotten an extra service and pays
for this benefit.

Kothing has been mentioned of the distribution of the
revenues obtained from the above taxes. It is here that one
of the major problems concerning highway finance is brought
into focus. Should the money obtained from motor vehicle
taxes be used expressly for highway and road purposes, or
may it be used for the general fund. It is the opinion of the
majority of the eXperts that the funds raised from motor

vehicle taxes are dedicated to use for highways and roads.

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If this condition were not accepted, the motorist would stand
out as paying double taxes. He would be paying regular taxes
for the general services, such as health, protection and
education, and on tOp of that he would be paying his motor
vehicle tax, a portion of which would be going for the same
services. As long as there is need for improvement and
maintenance of highways, the motorists' user taxes should be
used for those purposes, except in time of emergency.

Another problem concerning the distribution of these tax
revenues is the manner in which they are to be distributed to
the divisions in the state. At the present time there are
three separate systems of highways and streets in Michigan:
(1) State trunklines (2) County roads, and (3) City streets.
Each of these systems has a different legal basis, and each
offers a different combination of highway services, and each
have claim upon the total road tax revenue. The method and
amounts distributed have changed from time to time, and
quite naturally have been cause for debate as to it's distri—
bution. This subject will be discussed more thoroughly when

studying each of the separate systems.

*THE E CHICAN H GHEAY SYSTEH TODAY*

 

There is a grand total of 106,435 miles of roads and
streets in hichigan distributed between rural and urban areas
and among state, county and municipal jurisdiction as
follows: I

Rural Hiles r; {TJ
County roads...................8E,€51’ fifih~3
State trunklines............... 8,248" ft éfg

Total rural......92,909 J;;. o

Urban . y,
County roads................... 687'” (”LL‘J
State trunklines............... 1,038’ sliil
Other city streets.............11,801 g:'

Total urban......l3,520 tt~7;{g

'_.1

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ILEWTI

The degree of improvements on road and streets varies

Grand total.....106,435

widely among the various systems. Two-thirds of the mileage
of rural state trunklines is made up of roads with dustless
surfaces (high or intermediate types) and about one-third
consists of gravel roads (low type). Less than one-eighth
of the mileage of rural county roads consists of dustless
ifsurfaces, over half being made up of gravel roads, and
almost a third consists of dirt roads. In cities and
villages, more than nine-tenths of the trunklines mileage is
made up of dustless surfaces. Nearly one—half of the mile-
age of non—trunkline streets is gravel or dirt.

Kore than $,4OO structures have been built on Kichigan's
roads and streets. Most of these are bridges, the remainder
are railroad grade separation, or highway grade separations.

There are 1,108 structures on rural state trunklines, 6,247

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on rural county roads and 1,059 on urban and local streets.

All in alljthis is an impressive array of highway facilities,
however, as the Highway Study Committee in their analysis of
I"Highway Needs In Michigan" observed, fourty—six per cent of
the road and street mileage within the state is now deficient
and requires improvement to meet the demands of today's traffic.
The problem which confronts the state is a pressing one, The
Highway Study Committee estimates that a total long range
program from 12 to 15 years involving from $158,444,000 to
$179,141,000 annually would be necessary to correct the present
deficiencies and to maintain existing roads and streets. It is
a staggering sum, a challenge which will have to be met if
Michigan is to maintain it's position as a leader in highways
and the tourist industry.

With this problem in mind, the three main systems of
highways and streets will be examined, and their financial
history given especial attention. An endeavor will be made to
correlate the various changes in policy with the causes for
change. The methods of raising revenue from the various types
of road taxes, and the distribution thereof will be studied

with the question of raising highway funds in the future.

*TH STATE TAL STRUCTURE*

[11

 

The network of roadways that now serve Michigan began
centuries ago as Indian trails. These Indian trails were used
by settlers and gradually expanded until now many of the state
and county roads follow their path. While Kichigan was still
a territory in the period covering 1816 to 1835, the only road
building that was not local was that supported by the Federal
government. Roads were built between Detroit and the following
cities: Toledo, Chicago, Saginaw, Grand Rapids and Port Huron.
These roads were of vast aid to settlers. However, after
Michigan became a state in 1837 the Federal government with-
drew it's support in road building, and the roads fell into
poor condition. The state had little money, so the only
remedy possible at the time was to charter plank road
companies. The first plank road company was chartered in 1844,
and in 1844 the State Legislature passed a General Plank Act
to regulate their Operations. The specifications for plank
roads and their rates were set forth in this legislation.
However, the program was a failure because the roads deteriorated
rapidly and could not be kept up from the tolls received. The
majority of the companies abandoned operations long before the[}-
turn of the century. A "dark age" fell upon road transportation
until the turn of the century and the invention of the auto—
mobile which awoke public interest in the roads. In 1901, the
state legislature established a special committee headed by

Senator Horatio S. Earle to investigate the problem of highway

L

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improvement. The committee's report urged that a state high-
way commission be established and a state aid system be
inaugurated.. To make it possible for these steps to be
taken, the committee recommended that the State Constitution
be amended to remove the prohibition against using state
funds for road improvement. The Constitution of 1850
prohibited the state from engaging in any work of internal
improvement, except in the expenditure of funds obtained from
federal grants. This restriction on state participation in
road building represented a reversal of the earlier attitude,
for under the Constitution of 1835, the state was required to
encourage road building and all other internal improvements.
However, in carrying out this mandate, the state went into
heavy debt which was one important factor in contributing to
the virtual bankruptcy of the state in 1841. Several other
attempts were made to have the state participate in road
building, but in 1872 and 1891 the Michigan Supreme Court
declared that the state had no right to be a party to
internal improvements because it invaded the rights of local
self-government.

In 1903 the legislature enacted a law creating a state
highway department, but the attorney-general declared the act
void under the Constitution of 1850. In 1905 the Constitution
was unamimously amended so as to read, "The State shall not be
a party to, nor interested in any work or internal improvement,
nor engaged in carrying on such work except in the improvement

of or aiding in the improvement of the public wagon roads, and

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in the eXpenditure of grants to the State of land or
prOperty." eThe same legislature created a state highway
department, set up a state aid system, and enacted a motor
vehicle registration law. Senator Earle was appointed as
Michigan's first State Highway Commissioner. The Highway
commissioner was appointed by the governor until 1913,
when that method of taking office was supersedgby the
method of public election according to the provisions of P.A.
1909, No.283.

The state aid system Which went into effect in 1905
gave much help to local road building and formed the begin-
nings of a state-wide highway system. It provided for grants
to counties and townships as rewards for the construction
of roads according to specifications laid down in the statute.
The amount of these rewards ranged from $250 to $1,000 per
mile of road built. Between 1906 and 1913 these grants
averaged 24% of the costs for constructing the reward roads.
In the law of 1905, streets and roads within the limits of
cities and villages were not eligible for reward; but an
amendment in 1915 made them eligible if they were a part of
the county system. fry

In 1913 reward roads were eligible to receive annual x/' r
rewards for repairs. An amendment to the general highway/{n
that year provided for an annual apprOpriation for this
purpose of an amount equal to 2 per cent of total rewards

already paid, provided repairs were made according to

standards of the State Highway Department. In 1927 repair

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rewards were abolished.

The privilege for applying for rewards on new construc-
tion was suspended in 1923 and in 1925 it was revoked, although
reward payments were continued on construction already under-
way. (A 1929 law discontinued rewards on all construction not
finished by 1930, but payments on such construction were not
completed until 1933.

In 1913 the state took steps to develop an intergrated
highway system. There were 60,000 motor vehicles registered in
the state. Increasing use of automobiles brought an insistent
demand for more and better through roads, connecting city with
city. Prior to that time, the state had not engaged directly
in highway construction, but had merely paid local units for
part of the costs of their own highway projects. Therefore
in 1913 the state legislature established a 3,000 mile trunk-
line system. The system was a compromise, because not only
did it specify the cities through which the trunklines would
be built but it required that plans drawn by the state highway
for routes between cities be approved by local authorities.
According to the law, the state highway commissioner did not
have power I'to establish trunkline highways other than those
expressly enumerated in the act“. However, this act was an
important step in the foundation of the state trunkline system.

Also in 1913, the legislature imposed a "horsepower"

tax on motor vehicles. This was the beginning of a new era

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in highway finance. It was the acceptance of the theory that
the motorist should bear a share of the cost of highway and
streets. In 1915 the tax was also applied to the weight of
motor vehicles. The act provided for a basic rate of tax on
passenger cars of 25 cents for each horsepower, and 25 cents
per hundredweight; for trucks the tax was 15 cents per horse-
power and 15 cents per hundredweight. These rates were altered
in succeeding years. The tax and fees were to be collected by
the secretary of state, and deposited in the state treasury
to the credit of the state highway fund. The fund was to be
used for laying out, building, widening, improving and
maintaining the public highways and bridges of the state in
accordance with the law. 50 per cent of the amount collected
annually was to be returned to the counties, 7/8 of which
was prOportioned to the counties in ration to the amount of
tax collected in the county, and the remaining 1/8 divided
equally between all counties.

In 1915, the legislature passed the Covert act which
authorized property owners to initiate road construction by
petition, and which authorized and required land owners to
pay at least half of the cost through special assessments.
This act will be discussed in greater detail when studying
the county tax system.

A significant change in the financing of Michigan's
highways occured in 1917 when hichigan qualified for

participation in the Federal Aid plan. Congress in 1916

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passed the Federal Road Act which provided for grants-in—aid
up to 50% of the cost of rural roads, with funds allocated among
the various states in prOportion to their area, population and
road mileage. It was necessary for hichigan legislature in
1917 to pass P.A. No.99 which provided for: (1) authorization
of the state highway commissioner to make surveys, prepare
plans and specification, and to take charge of the building
and maintaining of federal-aid roads; (2) to permit counties,
townships and special assessment districts to issue and sell
bonds to finance federal-aid roads; and (3) to require the
levy of county and township taxes in an amount sufficient
to pay 25 to 50 per cent of the total construction costs.
For example, counties having a valuation of$100,000 or less
per trunkline mile were required to contribute 25? of the
cost of federal-aid roads, whereas counties having a
valuation between $100,000 and $200,000 per trunkline mile
were responsible for 303 of the cost. The percentages were
later changed in P.A. 1925, No.17. Construction was to be
carried out by local road commissions, under the supervision
of the state highway department and the federal government.

By 1919, there were over a quarter—million motor
vehicles registered, but the state trunkline network laid
out in 1913 under P.A. 1913, 30.334 was far from completed.
It was less than one half built, and there were many gaps
between cities. Two facts were outstanding; first, a central
administrative director was needed to produce a connected

state-wide highway system; and secondly, the money for inter—

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county roads was inadequate to allow the construction to keep
up with the increasing usage of automobiles.

In remedying the first fault the legislature passed P.A.
1919, No. 19, which gave the state highway commissioner super-
vision of the construction, maintenance and improvement of
trunkline roads. The cost of improving state trunkline roads
were to be met partly by the state, and in part by the local
unit concerned. The counties, townships or good-road districts
would pay per trunkline mile, ranging from 7%% to 25% of the
cost. The state would pay the remainder out of any mmney in
the state highway fund not otherwise appropriated. In case of
' failure of the county or township to raise the money the state
highway commissioner would send notice of his intention to
build the road, giving an estimate of the costs, to the county
board of road commissioners requiring the spreading of the
highway tax within the county to meet the portion of charge
credited to that county or township. The law thus gave the
state highway commissioner the authority for the entire trunk-
line system, although part of the expense was still borne by
the local units. In meeting the second need, the increased
financial burden was met by raising the rates of the weight
tax under P.A. 1919, No. 383, and by a $50 million highway
bond issue which was authorized by constitutional amendment,‘
Art. X5 Sec. 10 of Michigan Constitution 1908, adopted in 1919.
The state could borrow up to $10 million a year, and not ex-
ceeding $50 million as an aggregate sum.for the express

purposes of 3 (l) paying the state portion of federal-aid roads,

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(2) paying expenses incurred on state trunklines, and (3)
paying state rewards. The bonds were secured by a general
tax levy. 1.2 million dollars were to be included in the
state tax of 1921, and 1.5 million dollars each year there-
after. Such funds were set aside as a sinking fund under the
administration of the State Administrative Board.

These steps were a tremendous forward movement. It
centralized authority in the state highway commissioner, and
provided adequate funds. By 1924, the entire amo nt of the
bond issue had been spent. Almost 6,000 miles of trunklines
were improved during the six-year period.

In 1925, additional changes took place in the admin—
istrative and fiscal policy concerning the state highway
system that presaged a new era in Michigan highways. Under
P.A.1925, No.17, the state assumed full responsibility for
the cost of constructing and maintaining rural trunklines
and federal-aid roads; thus relieving the counties and town-
ships of any obligation to contribute to the cost of these
roads. In the second section of this act the state high-
way commissioner was given full power to contract with any
persons or firms for the construction, improvement and
maintenance of the trunkline highways.

P.A. 12 of the same year authorized the state highway
commissioner to lay out and establish five hundred additional
miles of state trunkline highways. It also incorporated all
roads that had been improved as federal aid projects or that

were to be improved as federal aid projects in the state trunk-

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line system. In 1929, under P.A.7 of that year, another
five hundred miles was authorized for construction, which
brought the total length of the trunkline network to over
8,900 miles in 1930.

However, the most important step inaugurated in 1925
was the establishment of the Gasoline Tax. In order to
finance the state trunklines a tax of two cents per gallon was
imposed on gasoline sold for use on the highways; as
authorized by P.A.1925, No.2 a gasoline tax enforcement fund
was set up in the same year by drawing out of the gasoline
tax revenues sufficient sums to defray the expense of
collecting the tax. The tax was accepted immediately and
was an outstanding success. In 1927 the rate of tax was
increased to three cents per gallon, methods of collections
outlined, and disbursement of the revenues formulated.
Thus, in P.A.l927, 50.150, a privilege tax of three cents
per gallon was imposed on all gasoline sold or used in
producing or generating power for propelling motor vehicles
used upon the public roads and highways in the state. All
wholesale dealers were to be licensed by the Secretary of
State, upon the presentation of a sworn application upon a
form prescribed, and the payment of an annual license fee
of five dollars. The license of the wholesaler could be
revoked in case of non-payment or neglect or refusal to
file his monthly report. The act provided that the whole—
sale distributor would pay the tax on all gasoline handled

by him, except for a deduction of three per cent to allow

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for evaporation and loss.

All revenue under this act received and collected by the
secretary of state, excepting the license fees, were to be
deposited in the state treasury to the credit of the state
highway fund. After the end of the calendar year the revenue
was to be apprOpriated from the highway fund for the specific
purposes and amounts set forth in the following shcedule:

(1) Payment of 2 million dollars annually to several
counties and townships for payment of state rewards
due these counties and townships until full pay-
ment was made.

(2) For the payment of interest on state highway bonds
and the principal thereof, not less than three
million dollars.

(3) A sum equal to the difference between six million
dollars and 50% of the total weight tax collection
shall belong to the counties. 778 of this
difference being distributed to the counties in
proportion to the collections made in that county,
and the remaining 1/8 of the difference to be
divided equally among the 83 counties.

(4) A sum of 2,000 dollars per mile of trunkline hig -
way, contained within the limits of a city or
village shall be paid annually to each city or
village provided that the highway is maintained in
a manner satisfactory to the state highway

_ commissioner.

(5) If there was any balance it was to be used for the
general construction, betterment, improvement and
maintenance of the public highways within the state.

In 1929 the state abolished the rewards to local units for
highway construction under P.A.195, of that year.

With the coming of the depression in 192 and the years
followed, great changes were made in the administrative and
financial structure of the state highway system which had
developed in the previous 30 years. Prior to 1929, the general
property tax had been the main source of revenue for supporting

the highways, even though the weight tax and the gasoline tax

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had been introduced and were of growing importance. However,
as a result of the depression; property values dropped,
prOperty tax collections fell accordingly, and there was a
wholesale tax delinquency. Out of this situation grew the
demand for an immediate reduction in real estate taxes.
Coupled with this demand was a growing conviction that better
administration, both as an operating unit and financially,
could be obtained if the local township roads were consolidated
under county authorities. The township authorities were
doing their best, but with 1,269 separate township systems there
was a great deal of overlap and waste.

Therefore in 1931,-in section 130 of the Public Acts of
that year, or what is more commonly known as the McNitt Act,
attempts where made to remedy the above conditions. The act
authorized the consolidation of township roads within the
county system over a five-year period, 1932-1936. During each
year, one-fifth of the township roads were to be incorporated
in the county system. To finance the transfer, the act
provided that the following amounts from the weight and
gasoline taxes should be apportioned among the counties for
the maintenance of township roads according to the prOportion
of the total township mileage within the county, $2 million in
1932, $2.5 million in 1933, $3 million in 1934, $3.5 million
in 1935 and an million in 1936 and thereafter. Thus, the
68,000 miles of township roads were to become part of the
county system, and their expense to be paid by revenues from

the motor vehicle taxes. To further aid the property owners,

-23-
the local tax levy on prOperty for highway purposes was
restricted within a three mill limit, and could only be used
to pay the interest and principal on debts that had been
previously incurred and to improve local roads.

Even before the depression the problem of Congestion in
cities and the lack of prOper facilities had brought to
prominence the necessity of develOping more adequate fiscal
arrangements for the support of trunkline deveIOpments in
the muncipalities. Therefore, in P.A.l93l, No.13l, or the
Dykstra Act, provision was made for larger state participation
in urban street costs. The state was allowed to pay from 50
percent of the cost of trunkline construction in cities of
over fifty thousand pOpulation to 100 percent of such costs
in cities having less that twenty thousand population,
provided that the streets in the latter cities did not exceed
twenty feet or the width of the road immediately beyond the
city limits. This legislation established Xichigan as a
forerunner among states in helping finance city streets with
state funds. Hichigan cities such as Saginaw, Ann Arbor,
Jackson, Grand Rapids, Flint and Kalamazoo took advantage of
this legislature and inititated street widening and con-
struction plans during the 1930's.

The year 1932 brought little relief from the depression.
In fact, the depression reached it's lowest level in that
year with record unemployment, lowest farm prices and general
tax delinquency at it's peak. Many local units were defaulting
on road bonds issued under the Covert Act. To meet this

situation, the legislature in a special session that year passed

-224_
the Horton Act, which drastically revised the distribution of
the motor vehicle revenues. As amended in 1934, the following
appropriations were made to the counties: (1) the entire
proceeds of the weight tax, and (2) $6,550,000 from the
gasoline tax. A sum equal to seven-eighths of the proceeds
of the weight tax plus $2,550,000 of the gasoline tax proceeds
were apportioned to the counties according to weight tax
collections, and the remaining one—eighth of the sum of these
two items was distributed among the counties under the hcfiitt
Act on a prorata basis according to township road mileage.

All of the funds appropriated under the Horton Act were
earmarked for definite purposes; as previously stated, $4
million from the gasoline tax could be spent only on former
township roads. The balance of the total allocation was to
be divided into two equal parts as follows: the first fifty
percent was to be used for the general needs of the county
road commission; the second fifty percent was to be
apportioned among the following five uses in the stipulated
order of priority;

(1) Reduction of special assessment installments
under the Covert Act maturing after May 17,
1932, the effective date of the Horton Act,
regardless of whether such assessments were
levied against special assessment districts,
cities and villages, townships-at-large or
counties-at-large.

(2) Any funds remaining after the payment of the
first priority were to be used to reduce the
taxes levied on the county-at—large for
county road and bridge bonds.

(3) Any remaining balance may be used for the
reduction of taxes levied for township high-
way purposes.

(4) 0f any remaining funds an amount up to fifty
percent may be allocated for the maintenance

-25-

of additional KcEitt roads. If the county board
of supervisors failed to vote funds for such
roads, the funds becam available in part for
city streets according to priority five.

(5) The balance, if any, was to be divided between
the county road commission for general road
purposes, and the cities and incorporated villages
on a prorata basis according to pOpulation.

However, as this act was amende; by P.A.l941, No.256, the
five priorities are fixed so that only two—thirds of the fifty
percent may be used by the counties according to the first
3 priorities, and that only fifty percent of the funds remaining
after the deduction of allocations for the first 3 priorities
may be used for the fourth priority, thereby insuring the
fifth priority of receiving at least 8 percent of the total
fund.

The funds allocated to the cities and villages under
the fifth priority of the Horton Act must be spent according
to the following five designated priorities:

(1) Payment of the city or village share of main-
tenance costs for state trunkline and federal
aid roads.

(2) Payment of the city share of obligations under-
taken jointly with the state highway department
for construction under the Dykstra Act.

(3) Payment of debt service incurred for street
improvement.

(4) Reimbursement of property owners for special
assessments paid for the improvement of state
trunkline highways, if the legislative body of
the city decides to aparOpriate money for this
purpOF—J e.

(5) General street purposes.

In addition to establishing a system of priorities for
the use of the $6,550,000 which is turned over to the
counties as eXplained above, the act set a number of

regulations concerning the eXpenditure of the remaining

proceeds of the gasoline tax which are aparOpriated for the

f

-23-
state trunkline system. The state highway department is
linited in it's eXpenditures by the following:

(1) A sum of $4,052,059.78 each year is reserved
for interest and sinking fund payments on
state highway bonds.

(2) A sum of $5 million is earmarked for the
maintenance of the state trunkline system and
non-trunkline highways and bridges.

(3) Of the amount that remains after deducting
current operating expenses of the state high—
way department and other contractural
obligations, one-fourth must be spent for
construction in the Upper Peninsula, and one-
fourth for construction in the Lower
Peninsula north of Townline 12.

As a result of the adOptaticn of the Horton Act, local
tax levies for road purposes were practically eliminated. In
this manner motor vehicle taxes became the principal basis of
rural highway finance in hichigan.

In 1933, the motor carrier fee was adepted, and displaced
the net weight tax previously levied on common and contract
carriers. A mileage tax, which was graduated from one mill
per mile of operation for vehicles under eleven thousand
pounds gross weight to two mills for vehicles weighing over
fifteen thousand pounds is levied, plus the weight tax and

r“asoline tax. The proceeds are appropriated to the state

. l
,
ht

the
highway department after expenses of administration have been
met.

In 1934, the weight tax on passenger cars was lowered to
35 cents per hundred weight, at which rate the tax now stands.

In 1937, under P.A. No.102, the legislature made a
continuing appropriation of $5 million for the state highway
department to be used for the construction and maintenance of

highways. However, only $1,750,000 was allowed by the governor

-27-
for the fiscal years ending June 1938 and 1939, and in 1939
this law was suspended until 1943 at which time the payments
became operative again.

In 1937 the veight tax was amended so as to provide a
special rate for farmers who owned and operated trucks in
their business. The rate of fifty cents per hundredweight
was prescribed instead of the higher commercial rate.

In 1938 a constitutional amendment requiring that
motor vehicle tax funds should be used exclusively for high—
way purposes was passed and approved by every county in the
state. Part of the Antidiversion amendment reads as follows:
"All taxes imposed directly upon gasoline and like fuels sold
or used to propel meter vehicles upon the highways of this
state, and on all motor vehicles registered in this state,
shall, after the payment of the necessary expenses of
collection thereof, be used exclusively for highway purposes,
including the payment of public debts incarred therefor, and
shall not be diverted or apprOpriated to any other purposes;
provided, the legislature may provide by law a method of
licensing, registering, and transferring motor vehicles and
their certificates of title, and licensing and regulating
motor vehicle dealers and Operators; and may prescribe
charges sufficient to pay for the enforcement thereof."

After this date to the present, there have been no
striking changes in the state policy due to legislature, the
only laws being passed, were those amending previous laws and

in general changing the rate of taxation. In 19u1, the weight

tax rate for farm trucks was reduced to 35 cents per hundred—
weight, and there vas established a special category for
trailers and semi-trailers owned and operated by farmers, the rate
for which were 35 to 50 cents per hundredweight, as compared with
commercial trailer rates of 50 cents or one dollar per hundred-
weight, depending on the weight of the trailer. This law also
provided that busses of church, parochial or grammar schools
were to be issued license plates at the rate of 50 cents per
pair, without any other tax, placing this group in the same
category as vehicles owned by governments of the state. In 1945
there was another change in the weight tax rate which applied
to commercial trailers weighing between 500 and 1,000 pounds.
The rate which had previously been 50 cents was raised to one
dollar per hundredweight. In 1945 a liquor tax was applied for
highway purposes and this tax along with the returns from the
severance tax brought $3.6 million in revenues to the state in
1946. However, this special liquor tax eXpired in 1947. Also
in 1945 legislation was passed that required that racing fees
returned to the cities by the state he used for street improve-
ment, but this requirement also lapsed in 1947. The final
iinor change occured in 1947 when the legislature established
a tax rate of five cents per gallon on all fuel used by
automotive highway vehicles having diesel-type engines.

In discussing the state trunkline system, mention must be
made of federal road support. Earlier mention has been made of

’the inauguration of the federal aid policy in 1916. In 1921

-29-
this act was amended and established the policy of using funds
on a federal—aid system to be selected by the state highway
departments with the approval of the U.S. Bureau of Public
Roads. Another change was made in federal policy by the
Hayden-Cartwright Act of 1934, which among other things,
attempted to discourage the diversion of motor vehicle revenues
to non—highway purposes. The act provided that any state which
devoted a smaller amount of motor vehicle fees and gasoline
taxes than specified by law on June 18, 1934, would be penalized
by the witholding of federal-aid allotments in an amount not
greater than one-third of the allotment to which it would have
other wise been entitled. In addition to the 1‘laydenu-Cartwright
Act, the Federal-Aid Highway Act of 1933 contained a provision
allowing states which had not diverted highway revenues, and
which were unable to match federal-aid funds for 1938 and
1939, to be relieved of the matching requirements; provided
that at least ninety percent of motor vehicle taxes had been
applied to administrative and Operative eXpenses of the state
highway department, the maintenance of the state and federal—
aid highway systems, and the payment of interest on and the
amortization of bond obligations of the state for the payment
of which such revenues had previously been pledged.

The importance of these federal-aid grants during the

depression cannot be minimized. Road construction in Michigan

a

mould have been at a standstill if it had not been for these

funds. Highway grants which had averaged $3 million annually

 

Os.

-30-

increased to $12 million dollars in 1937. In addition, U.P.A.
expenditures were made in hichigan; these expenditures reaching
a peak in 1939 when over $71 million of federal funds were

spent for highways in hichigan.

 

Ye have seen the evolution in highway financial policy
in the state which has gradually shifted the burdens of
supporting the highways from the property owners. Before the
appearance of the automobile, there was no need for a state
system, travel was local in nature, and the primary purpose
of the roads was for access to property. Therefore, in view
of tne services rendered it was proper that revenues were
provided from taxes levied on the prOperty of each community.
The development of the automobile and the growing usage of the
highway, demanded some sort of centralization. For this
purpose the state highway department was created. As the
roads became more used by motorists it was inevitable that
they should pay an increasing percentage of highway costs
the weight and gasoline taxes. fiith the coming of the
depression this change in fiscal policy was accelerated so
that now the major portion of the highway revenue is obtained
from user taxes.

1

nese taxes in general are a regressive type of tax. How—

*“3

ever, they are much better than the general prOperty tax in that

‘

'the persons who benefit the most are paying the taxes. 31th the

-31-
a’optation of the Anti—Diversion Amendment, the purpose for
wh'ch these revenues are raised are guaranteed, strictly in
accordance with the benefit theory of taxation.

In a lerll, there has been no major Opposition to the
changes enacted in the fiscal policy. There his been much
contention as to the manner in which the revenues are
distributed, each unit of government claiming that theuo
share is inadequate.

In comparing Iichigan taxes with the rest of the state
taxes, a favorable comparison is found. Only one state,
Missouri, has a lower rate of gasoline tax, while three
other states have rates of three cents per gallon. hichiga:
weight tax varies from 75 to 120 percent of the national
average. On the whole, the hichigan motorist paid an
average of 3.7 mills in gasoline and weight taxes for each
mile traveled. This amounted to 68 percent of the national
average in 1946.

On the following pages are shown various graphs and
tables which show the sources of revenue to the state and

their relative importance, and the distribution of these

funds.

 

 

 

 

 

Xichigen :idnway Users i real Tax Contribution
to Government is Cver<3106 ”11110 a year.
Tax Ana lvsis for 1941

State special imoosts for hi hray purposes

2":Otor fuel. OOOOOOOOOIOOO'OOOOOO 0.0.0... 0 COO....$35’480,‘207
Registration feeSOOOOOOOOOOOOO. 00...... O .00.... 24,420’LE.OO
hotor vehicle titles........... ........ . ....... 1,132,475
Driver's license fees,......... ........ . ...... l,%51,752
'otor carrier special taxes.... ........ . ....... 608,89
Road, Bridal e and Ferry lOllSOOOOOOOOOOOOO 0 COO... 701L000 _

Total special state hiehway imposts..... 63,794,72

*Ger eral contributions

to sta

te

Lovern.r ent

 

General s9 les tax on eutornotive

Cil productive severance tr

Total state taxes borne oy hie:hway users .......

General contributions to

products.........$l7,7lo,972

OOOOOOOOOOOOOOOOOO

Federal Government

 

Gasoline

Lu-‘Dricating 011.0...-00000000000000.00.0.0000...
sorieSOOOOOOOOOOOOOOOO

Automotive parts and acces

* Does not include cointy and municipal ta .xes

 

 

 

31“
135,70
17 nnH_ $67:
11/“
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1, ,1ai,9oe
/ /
7,:Tv ,LDJO
9M 00 in:
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or prOperty taxes.

AMOUNT - MILLIONS OF DOLLARS

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GENERAL REVENUES FOR ROADS AND STREETS IN
MICHIGAN
AMOUNT a PERCENT CONTRIBUTED BY THE SEVERAL GOVERNMENTS
PERIOD 1910 To 1946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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DISTRIBUTION OF MOTOR VEHICLE REVENUE IE MICHIGAN

TO STAIB HIGHWAY'DEPARTMENT, COUNTIES, AND CITIES & VILLAGES

YEAR 1946

STATE HIGHWAY DEPT. RECEIVES- LOCAL GOVERNMENTS RECEIVE-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. NET GAS TAX LESS $6,750,000 1. ALI. IEIGHT m EXCEPT
2. FOREIGN VEHICLE WEIGHT TAX ERON FOREIGN VEHICLES
a NET MISC. LICENSES & FEES, 2. 86,750,000 OF GASOLINE
LESS WEIGHT THE COLLECTION TAX
EXPENSES
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ISLAIE HIGHEKY COUNTIES CITIES &

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MILLIONS OF DOLLARS - TAXES RAID

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4o
WEIGHT AND GASOLINE TAXES
FOR HIGHWAYS IN MICHIGAN
8 PAID BY EACH OF SEVERAL USER
OR VEHICLE GROUPS YEAR 1946
6
34
_32_'
GASOLINE TAX
3o
28
WEIGHT TAX
26
24
22
20
18
16
14 NOTE:
STATE OWNED VEHICLES
CONTRIBUTED 0.1% OF TOTAL
12 THROUGH GASOLINE TAX
1O
16%
8
6
8.3%
4
2 $—
1.2%
PASSENGER CONNERCIAL PROPERTY PASSENGER RARE
AUTOMOBILES VEHICLES CARRIERS CARRIERS VEHICLES

FOR HIRE FOR HIRE

 

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The Township Hi; hv.ay System
The outline of the township highway system was

established by laws enacted during the period while hichigan
was still a te itory in 1305, 1819, and 132 . The Act of 1305
authorized the territorial Tovernor to divide the territory of
Lichiga n into as many road districts as he saw fit. He was
required to appoint a supervisor for the upkeep and deve10p-
ment or roe ds with the district, and who was responsible for
the avsesenent of the road tax in the district. The road
work was financed by a tax, payable in labor on each adult,
meTe freeholder. The tax could be commuted at the rate of

62 cents for eecli da 's labor and the amount of labor was
limitei to thirty days of work on the roads in any one year.
In 1819 the county commissioners were given the final
authority and resaonsibility for the roads in each county.
However, the tozw Iship supervisor of hi :hwa ys was in charge of
the administration of road repair and development. In 1827
the organization of administrative practices for township
hif ways was established, and these practices survived until
the passage of the KcHitt Act in 1951. The law of 1827
provided for the election of three township highway commiss-
ioners and an overseer of highwavs in each road district.

These offices placed the control and administration of the

within each township.

(JG

1‘09;

In lSSl there was a consolidation of the various acts

concerning town sliip roads. In P.A.1Ssl, 20.245, the tax for
township roads was limited to one-half days labor, or fifty cents
for each $130 of propertyo m.ned by the taro yer; a minim1n of
one—tenth day's labor or it's ecuivalent in money was also

established. The amount of tax levy in a‘” year was decided

upon by the electors of the township in meeting. Ifa a majc r—

A-

Q

ity of the electors agreed, the highway tax could be assessed
on a money basis instead of on a labor ba's is. The act also
stipulat ed that all hi hw ay taxes levied had to be spent for
highway purposes within the township.

In 193} th e townships were authorized to issue bonds for
road construction, if approved by a majority vote of 60% at
a general township election. The bond issue was limited to
5 percent of the total value of preperty within the township,
and the township was re q1ire; to impose a tax to cover the
annual payment of principal and interest on these bonds.

State aid was given the towns hip roads under the State
Reward Act of 1905 and it's succeeding amendments, one of
which placed part of the township roads under state control
as state trunklines.

The option of paying township road taxes oy labor was
discontinued in 1907, and all t wnship r ad taxes were made
payable in cash.

There were no other major changes in the township road
system until 1951 when the needs for a more centralized

authority was realized and the township roads were incorporated

in the county system.

, . +-
Co1nty Road Tax Str1cture

 

1

The development of the county road system was an out-

1

srowth of the township hiah olished. in 1LC5 by

,—
,-
V

way syste:n esta
the Hichigan territorial governmen . These township roads
were allowed to develop in a rather hep-hazard manner until
1895, when the adeptation of a county road system was made
pernxiss ive for all counties under P. .149 of that year. This
was the most important piece of highway legislature that had
been enacted since Iichigan had reached statehood. The
general features of the law provided that a general election
was necessc dry to deter:: .ine whether a co1nty was to adopt the
county road system. Upon adoptation of the system, adminis tra
tion was placed in a local board of co1nty road connissio ers,
who were at first elected to office; but an amendment in 1911
permitted appointment in counties having over thirty surveyed
townships, providing this method of selection was agreed upon
by the county board of supervisors. In 19917, 1nder P. A. 5

55
1 in

Q)

appointment of county road commissioners was made opt ion
counties comprised of more than twelve surveyed tor .nships.
All the county roe is were under the sole jurisdiction of the
county road comm issioners whose duty was to keep th e11 in
proper condition and to make improvements when necessary.

The systen was financed by a county road tax levied on the
prOperty of the county-at-large, with a limit of three mills,

in addition to the township highway tax. Bond issues could be

-45-

floated by the county road commissioners, if approved by a
majority vote of the electors at a general county election.

The purpose of the act was to enable the established
county road commissioner to raise the 3*andards of road
administration above, the township level. However, there was
mistrust on the part of some that the state was trying to
usurp powers from the local governments and put it in the
hands of the counties, and aporoval on the county system
was often held up for this reason. To overcohe this difficulty,
under P.A.l909, 30.235, any part of a county which favored the
county system couli create a good—road district within which
the county road law would be Operative. The district could
be formed upon petition by ten percent of the resident free—
holders of any township or city, and approval of the prOposal
at a municioal election. The administration of the district
was placed in the board of good road commissioners, one
member representing each municipality involved. Financial
support L93 obtained by the levy of a uniform property ta
over the entire district. In addition each good roads
district was entitled to receive state rewards and a share
of the weight tax. When the entire county adopted the
county road system, the mood road district was dissolved.
It vas 1920 before all the counties except Benzie and
Oceana had adopted the county road system, these counties
finally adOpted the system in 1950.

Additional sources of revenue were provided by the state

2.2.7
_.,-
for the county road system. In 1905, as previously discussed
ounty road systems were eligible to receive state reward

After 1915 part of the proceeds of the weight tax was made
available to county road commissions.

In 1915, another method of finance was initiated as a
su elementary means of financing roa; improvements. Accord-
ingaT.;.1315, 30.59, or the Covert Act, the use of a special
assessment device was permitted upon petition of the owners
of prOperty fronting on at least two miles of the highway for
which the improvement was intended. The petition had to be
approved by the board of county road commissioners, who had
to prepare the method of financing the improvements, i.e.,
the apoortioning of costs to the spacial assessment road
district, the county-at-lsrge, and the township-at-large.
then the assessment roll had been prepared, bonds could be
issuei payable from proceeds of th: assessments. Driginally,
50 percent of the cost had to be borne by the district, but
in 1917 this was reduced to as low as 252 by the legislature.
This method of financing roads proved satisfactory until the
depression, at which time, property values declined and the
assessments were too heavy a load for the property owners to
carry. Therefore in 1351 and 1952, the thitt and Horton
Acts were passei to ease this situation, and as mentioned
before the IcFitt Act provided for the consolidation of the
township road within the county system.

An outstanding feature was added to the county road

‘3
(,A

H,

system in 1925 with the pas

0)

’8 O

C
t.

the super highway law.

-45-
This provided the machinery by which two or more counties
could COOpGIaue in the construction of super hightays, which
were defined by law, as roads exceeding a width of 106 feet.
A contract was made among the active counties in relation to
the coordinated development of these roads.

Financial support for these super highways was to be
provided from the proceeds of a special county tax not to
exceed the rate of one--alf of one mill, levied on the total
assessed value of pr0perty in each of the participating
counties, the levy of special assessment under the Covert Act,
and any funds available to the road commissions of the
various counties. The super highway had the status of a
county road within each county.

As observes during the study of the state tax structure,
in the years following the depression, the county system has
been supported mainly through the redistribution of motor
vehicle taxes by the state and by federal-aid grants; and
that the property tax is no longer an outstanding contributor
to the highway revenues of the county.

Let us examine the hsitory of Bay County which was a
pioneer in county road administration and which set an example
for the passage of the County Road Act of 1893. In 1883 the
legislature passed Local Act 273 which established a "stone
road district" in Bay County consisting of the cities of Bay
City, West Bay City and the Townships of Monitor, Williams,
Frankenhest, Bangor, Kawkawlen and Hampton. The act provided

for the appointment of "three stone road commissioners" by the

-49-
Board of Supervisors to hold office for one, two and three years
respectively. Thereafter one commissioner was appointed each
year for a three year term.

The Board was created to maintain and repair three road
crossing these townships and entering the cities, with the
provision that no road district funds were to be spent with-
in the corporate limits of the cities, A later act provided that
these main roads could be improved within the cities far enough
’tc join the city pavements; the cost within the cities shared
by the road district and the cities.

The "stone road board" was authorized to order the levy
of not more than one-half mill road tax to be spread on the
taxable prcperty of the district including the cities. The
commissioners were given full charge of maintenance and
construction of the roads named in the act, and were
authorized to employ such aides, assistants, and laborers as
were necessary.

The stone road act of Bay County was amended every two
years up to and including 1891. Local Act 350 of 1885
provided that the commissioners were to receive a salary of
$75 a year and permitted them to levy a two mill tax instead
of the original one half mill tax in the original act. Local
Act 396 of 1887 raised the number of commissioners from three
to five, while Local Act 386 of 1889 added 5 new townships to
the district, and authorized the Board to employ an engineer.

The act of 1591 added another road to the district. Tith the

r“ f\
Dv‘

passage of the general county road act in 1893, Bay County
gradually came under that act, and is now subject to it's
privileges and limitations, except that Bay County is allowed
five commissioners instead of the usual three. Special
credit should be given to Bay County, for it's position as

a leader in the field of county road administration and

The develOpment of the present county tax system and
its

administration has been traced from téia early beginnings as
township roads under the territorial government to it's
present stage. Several factors are outstanding; namely, a
more coordinated system has been develOped and the system is
no longer financed locally by use of prcperty taxes and
special assessments, but by the distribution of state-
'collected user taxes. This change is due to the recognition
of need for centralized system of ro ds in Kichigan, and the
necessity of relieving the burden of property owners during
the depression.

As discussed previously, the two formulas for
distributing highway funds to the counties involve the
application of the following factors: the mileage of the
township roads; the number of counties; and the weight tax
collections in each county. First, under the Mchitt Act,
gasoline tax revenues in the amount of $4 million are
distributed to the counties in ration of total mileage of

township roads within the county to the total state mileage

-51-
of such roads. The mileage of township roads are certified so
as to make sure that the counties are only receiving funds for
the true mileage of township roads rithin the county. This

mileage ca n as recer tifie; t‘ennially by the counties to provide

H:

the system. The second formula is used

to distrioute the entire proceeds of the weight tax and

for the expansion 0

$2,330,300 of the g-s oline tax to the counties. Cne-eignth of
this total is divir- .ed esually among the eL hty—three cour ties;
the ot.er seven-eigths are apportioned according to weight tax
collections within each county. This last formula was devised
under the Horton Act. In a dition 320 3,000 is granted to the
counties from the state highway fund for snow removal. This
appropriation was made in 1938, and is made to counties hav
over sixty inches of snowfall during the fiscal year, with the
apportionment being based upon each county's prcportion of
the total "inch miles of snow." This factor is computed by
multiplying the number of inches of snowfall in the county by
the number of miles of road in the county. Another source of
funds, the general property tax, is used in only six counties.
The methods of distribution of the motor user taxes to the
counties is criticized by some authorities, who feel that
traffic density should be a factor in the distribution of funds
to the counties. However, it must be realized that the
problem of devising a method for di:s tribution of tmie e funds is
a difficult one, as Fishman in her ”State-Local Fis~ cal

Relations in Illinois" Stated:

-52-

"Calculation of the significance to vehicle users of
any proposed improvement in the highway system must take
account of present traffic density, the size of the area to be
served, it's pOpulation, income, competing modes of trans—
portation, the geographical distribution of trading and
industrial centers, plus a substantial element of judgement
in predicting changes in these variables. No simple formula
will serve this purpose satisfactorily. The allocation of
funds to and within counties by a central authority equipped
with nec ssary information, experience, and discretionary
power appears to the Optimum from the standpoint of efficiency."

The administrations of the county system needs reorgani—
zation in some counties. In about three-fourths of the
counties in hichigan, county road commissioners are appointed
by the board of supervisors. Commissioners are elected by the
voters in the remaining counties. Experience has shown that
better county highway administration has been obtained under the
appointive system. In about half of the counties the road
commission operates purely as a policy-making body, leaving all
managerial authority in the hands of a full-time engineer who
is responsible to the road commission. This type of organization
is more efficient than the methods used in the other counties
in which the managerial powers are exercised by the board of
road commissioners. If corrections are made to remedy these
faults, and cooperation with other county and city agencies in

the develOpment of integrated regional highway programs is

obtained, the county system will operate at it's maximum

efficiency.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HIGHWAY EmmrTUREs BY THE COUNTIES IN
MICHIGAN ON COUNTY 142an AND FORMER TOWNSHIP ROADS
FOR CONSTRUCTION AND MAINTENANCE
YEARS 1937 To 1946
— CONSTRUCTION ~——MAINTENANCE
12
FORMER TOWNSHIP ROADS
(42.9%)

8
a 4
E
g o
g 20
a. COUNTY PRIMARY ROADS
0 (57.1%)
E
E3 16
H

12

8

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1937 38 39 4o 41 42 43 44 45 46

 

 

 

 

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29 31 33

1925 27

 

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-57-

*THE XUFICIPAL ROAD TAX

( Ii)

TRUCTURE*

 

The building of city streets has generally been a local
rcsponsibility, financed through prcperty tax levies, special
assessments and from appropriations from the general fund.

It should be realized that it is difficult to determine the
exact nature of taxes levied for streets as a large prcportion
of funds used for city streets come out of the general revenue
and were not specifically earmarked for street improvement,
maintenance or construction..

The Constitution of 1830 authorized the cities and incor~
porated villzges to impose taxes and to contract debt. It made
specific provision for the right of eminent domain provided tha
improvements were a public necessity, and judged to be so by a
jury. The Constitution of 1908 provided that cities and villages
would have the right to exert "reasonable control"over their
streets. The constitutional provisions concerning the financing
of city and village streets are given definite expression in a
number of acts. Cities and villages have the power to open,
improve and maintain streets. To provide the revenue for these
activities they are permitted to use the property tax and
special assessments. In connection with the levy of these taxes
and assessments for street purposes, cities and villages can be
divided into special districts. Cities and villages are
authorized to borrow in anticipation of general tax collection
for the same year, but not in excess of one-fourth of the levy

provided the loan must be repaid when these taxes are collected.

-53-
Funds may also be borrowed in anticipation of the collection
of special assessments made for streets. These regulations are
set forth in the Constitution of 1929.

Expenditures on city and village streets, other than state
and county expenditures on their respective trunkline and
primary roads have totaled 884.9 millions of dollars since 1910.
This is the greatest highway expenditure made by any of the
three jurisdictions, and represents about 37.0 percent of the
total expenditures. The urban units spent 83% of their total,
and federal relief agencies Spent the remainder. These funds
were obtained by general property taxes and special assessments
for the most part until the depression. Since than general
revenues provide little more than fifty percent of the funds
expended for streets, while the remainder is provided by pro-
ceeds from the state and county under the Dykstra Act, and the
Mchitt and Norton Acts, as explained previously. Under the
original Horton Act the cities and villages received funds only
if there was a balance remaining after the deduction of the
the fbrst four priorities. This system resulted in grave
misjustice to some cities. In 1942 there were 67 cities that
never received one cent from the distrubution of the weight and
gas taxes. In that year the per capita amount prcportioned to
cities ranged from 3.80 in Oakland County to 37.19 in Roscommon
County. However, this fault was remedied in 1941 by passage
of amendment to the Horton Act which required that the counties

leave a balance of at least eight percent of the weight and gas

I
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KO
I

tax refunds for city and municipal use. It is believed by some,

1

that the distribution of funds to tne cities should be made
directly from the state instead of passing through'the county's
hands.

The Highway Study Committee in it's report of 1943, recom-
mended that standard accounting practices shoul; be adopted by
the municipalities; closer COOperation with the state and
county be strived for; and that the state legislature direct
cities to classify street systems into major and local streets
on the basis of accepted principles of street planning, the
classification in each city or village to be carried out in
COOperation with, and subject to final approval of the State

Highway Department. These steps would enable a better view of

the financial needs of the municipalities to be obtained.

me as me

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GEGNEEIXE SHV’I‘IOCI s10 SNOITIIN

-62-
CONCLUSION

In the preceding pages we have traced tge deveIOpment of
the Michigan Road Tax system. 3e have seen how the system grew
complex, as the problem faced by the highway system became more
involved due to the deveIOpment of the automobile and highway
travel. hichigan has endeavored to meet these problems as they
arose, and are now attempting to find a solution to the
increased cost of maintenance and construction that exist to-
day. The only way this problem can be dealt with, as it has been
in the past, is through long range planning and legislation. As
it has been so aptly stated, "Highway progress is primarily a
history of legislation." Just what shape or form this
legislation will take place is a matter of question, and will
undoubtedly be a compromise between the state, county and
municipal levels of government.

As the financial history of highways and roads in Xichigan
was developed, we have seen the growth of three separate, but
coordinated systems of roafw and streets. The state trunkline
system consists of 9,386 miles of urban and rural highways.

This system is financed by the gas tax and federal—aid funds.
The county system is made up of 85,348 miles of rural and urban
streets. This system is financed in it's entirety with proceeds
from the weight and gas taxes, and secondary federal-aid grants;
with the exception of Allegan, Chippewa, Geobeic, Larquette,
:enominee and St. Clair counties, in which county property taxes

are assessed for highways. These taxes amounted to $0.36

-53-
million in 19+6. City streets comprise a total of 11,801
miles. City streets are financed through returns of the motor
vehicle taxes hrough the county, general revenues from the
city and federal emergency grants.

As has been discussed, the highway system has been financed
from three major sources of funds since 1931. Originally, the
general revenue, i.e., the property tax was the sole support
of the highway svstem. However, with the increased use of the
highways and the decline of real estate values due to the
depression, the prOperty tax has been relegated to a position
of minor importance. In 1947 less than one million dollars
was raised for the state trunkline through general revenues.
The major portion of this amount came from receipts of the
Straits of hackinaw ferry tolls, which go to defray ferry
Operating expenses. In 1946, only $0.50 million of county and
township taxes were assessed for roadsand streets. Eunicipal
property tax support for the same year amounted to some eight
millions of dollars.

The motor vehicle taxes, consisting of the gas tax, and
the weight tax and the motor carrier fees are now the major
support for highways. Since their adoptation they have played
an ever increasing role of importance. In 1946, over $59.2
million were raised by this type of tax. The cost of
collection amounted to $2.1 or 3.4} of the gross total revenues.
In 1946, the weight tax collection amounted to $27 million, the
gas tax revenues totaled $34.6 million and the motor carrier

fees came to a total of $0.67 million.

Federal aid funds also play a prominent part in Kichigan
highway finance. hichigan was allotted $16.6 million of funds
for the fiscal year ending in 1947. These included $0.8
million for projects on the federal—aid highway system, $5.7
million for those on this system and in urban areas, and $4.1
million for those on principal secondary and feeder roads
comprising the federal—aid secondary system. By agreement
with the counties, 73% of the secondary road funds are ex—
pended on sections of that system undercounty jurisdiction,
and the remainder on portions that are state trunklines.

As was stated in the introduction, Michig“n faces a long
range program of highway construction and improvement which
added to maintenance problems will cost approximately $160
million annually for the next twelve to fifteen years. The
method or methods by which this program will be financed is
open to question. There have been several suggestions as to
how the funds are to be raised, and they will be just
mentioned briefly as it is beyond the scope of this report
to study the possibilities closely. The Michigan Tax Study
Advisory Board in it's report of 1945 suggested that the
rate of gasoline tax be raised to four cents per gallon. The
report also urged that the distribution of motor Vehicle
revenues to the various levels of government be on a strict
percentage basis of 40} to the state highway department, 352

to the counties and 25% to cities and villages. The hichigan

E“)

hi hway Study and hichigan Good Roads Federation in their

. -65—
Joint analysis,*Highway Needs in.Michigan* mad the following
recommendations: a larger share of the expense for local roads
should rest on the local tax structure; state retail sales tax
on automobiles and accessories could be devoted to the support
of highways; and the weight tax rate should be raised to 55
cents per hundredweight, the rate prior to 1933. This analysis
also calls for a different method of apportioning the motor
vehicle tax revenues, as the present method of distribution was
adopted during the depression to meet the needs of that period.
In conclusion, Michigan has made tremendous strides in
the development of its roads and streets, both financially and
administratively. This has been due to the perserverance of
itscitizens and various organizations in their fight for
good roads, and the legislature for its recognition of the
importance of good roads and streets. With this same
combination, Michigan can look forward to its future highways

with a high degree of assurance.

F I N I S

~BIBLIOGRAEHY—

BEARINGS, CHARLESL. Imerican' Highway Policy. Washington:
The Brookings Institution, 1941 ' ' ‘

FORD, ROBERT 8. financing" Government in Michigan. Mich.
Govt. Studies, Bur.Govt.,Univ. 0f Mich., No.9 (1942'!

FORD, ROBERT S. Trends in Highway Finance. Michigan Pam-
phlets, Bur. Govt., Univ. Mich., No.5 (1940)

FORD, ROBERT“ S. ‘Michigan Highway Finance. Mich. Govt.
Studies, Bur. Govt., Univ. Mich., No.12 (1943)

HIGHWAY RESEARCH BOARD. Department of Highway Finance.
Report.... 5 Summary of Financial Surveys in Nine States,
Pros. Sixteenth Ann. Meeting of the Highway Research
Board, 1936.

KENNEDY, G. DONALD. Michigan State Highway Finance. Proc.
Twenty-Fifth inn. Highway Conf., 1939.

BNNEDY, G. DONALD. The Motorists Stake in the Highways.,
Proc. Twenty-Feurth Inn. Highway Conf., 1938.

MICHIGAN. Constitution of the State of Michigan, 1835, as
Amended. '

Constitution of the State of Michigan, 1850, as Amended.
Constitution of the State of Michigan, 1908, as Amended.
Constitution of the State of Michigan, 1929, as Amended.
Financial Report of Michigan County Governments, 1946.
State Highway 'Cbmmiss-ioner. Biennial Reports for the
seal Year(s) ending June 30.... 1905-1946.
State ighway Department. Report on Automobile Weight
’ ' Tax and Related Financial Studies, 1934.
Statutes Annotated... Vols.7 and 8. Chicago: Callaghan
‘ and Co.,’l936. ‘
Tax Study Advisory Board. Report of 1945.

MICHIGAN GOOD ROADS FEDERATION. Financing Michigan Highways,
Roads and Streets. Lansing: 194-7.

MICHIGAN GOOD ROADS FEDERATION. Highway Needs in Michigan.
Lansing: 1948.

MICHIGAN HIGHWAY UflRS CONFERENCE. The Miracle of Highway
Transportation in Michigan. Detroit: 1946.

NATIONEI. HIGHWAY USERS CONFERENCE. Highway User Taxes.
Highway User Series, No. 313, 1927".

OLSON, HERBET I. Financing Municipal Streets with Motor Taxes
Free. Twenty-First Ann. Highway Conf., 1935.

OWEN, IILFRED. Recent Trends in Highway Finance. Proc.
Thirty-Fourth Ann. Conf. of the Nat. Tax Assn” 1941.

RODGERS, FRANK'F. History of the Michigan State Highway
Department, 1905-1933. Lansing: 193.

samurai, LOUIS H. Distribution of Horton let Revenues.
Proc. Thirty-Seventh Ann. Convention Mich. Municipal
League, 1935‘.

vm “GONER, MURRAY D. The Crossroads. of Highway Administra-
tion. Proc. Twenty-Fourth Ann. Highway Conf., 1938.

VIN WAGOMR, MURRAY D.‘ Financial Needs of the State High-
ways. Proc. Twenty-Third Ann. Highway Conf. 1937.

0.3. PUBLIC Roms ADMINISTRATION. snnuai Report(s} for the
Fiscal Year(e-} ending June 30., 1919-1946.

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