Pot for Potholes II: Michigan's New Neighborhood Road Fund Hits a Dip
Buckle your seatbelts, the ride gets bumpier.
Last month, we wrote about how Michigan’s local road agencies will be waiting a year before they see the full benefits of the State’s road funding deal passed late last year. The Citizens Research Council of Michigan published a deep dive on this yesterday too. Last week, the Michigan Department of Transportation (MDOT) released updated local road funding estimates for every county, city, and village. Buckle your seatbelts, the ride gets bumpier.
Exercise caution when counting on new taxes
The State always cautioned local road agencies that the estimates provided during the State budget negotiations last year were preliminary. The new road and transportation funding package included tax policy changes and budget transfers with uncertainty on their timing and amounts. As we’ve discussed before, there’s also a lag between when the State collects dedicated revenue for road funding and then distributes it to local governments. Local fiscal year budgets are not the same as the State fiscal year budget. We call that the joys of governmental accounting!
The new MDOT local road funding estimates for counties, cities, and villages are available below. Counties and cities/villages are separate, and then they are further separated into tables for traditional Michigan Transportation Fund (MTF) and the new Neighborhood Road Fund (NRF). Recall the MTF is primarily funded from the gas tax, while the NRF is funded from new Corporate Income Tax (CIT) transfers and the new Wholesale Marijuana Tax (WMT). To see your local unit’s total road funding estimate based on the State fiscal year, combine both your MTF and NRF amounts from the separate sheets.
In these new tables, the total local NRF estimates for both FY26 and FY27 are about $80 million lower than the preliminary estimates MDOT released in October. While not confirmed, MDOT appears to have counted a full fiscal year’s worth of WMT in FY26 even though the tax didn’t take effect until mid-fiscal year on January 1. Then, the FY27 estimate still grows based on annualizing the WMT. A classic double count. The budgeteer’s worst nightmare! Good news is the MTF base is a bit higher from the gas tax, which helps counter-balance the lower NRF.
Bottom Line: As we’ve said in previous posts, Michigan’s local road agencies should exercise caution before committing their expected new road funding. Yes, big increases are coming, but you have to wait out the roller coaster ride of new tax policy implementation and the nuances of State vs. local fiscal years before you’ll see new cash in hand. Be patient. In future years, the new annual funding levels will stabilize and become more predictable.
That said, the new local road funding isn’t a promise in the State budget. It wholly depends on actual gas tax, CIT, and WMT revenue collections. If those revenues underperform, there will be less road funding. If the gas tax and WMT overperform, there will be more road funding. The CIT transfers for roads have a ceiling in the statute that adjusts upward each through 2030 provided revenues keep up.