Transportation Funding Bills

Michigan’s 2025 Transportation Funding Package

On October 3, 2025, the Michigan House and Senate passed a seven-bill package primarily related to state transportation funding. The governor approved all bills in the package on October 7, 2025, enacting a transportation funding package aimed at addressing critical infrastructure needs and creating a sustainable revenue model for future investments. The package combines fuel tax restructuring, elimination of sales tax on fuel, and new revenue streams from corporate income and marijuana excise taxes. It also establishes the Neighborhood Roads Fund (NRF) for distribution of funds across state and local transportation systems.

Michigan’s transportation infrastructure has faced decades of underfunding, resulting in deteriorating roads, bridges, and transit systems. Previous funding mechanisms relied heavily on fuel taxes and income tax earmarks, which proved insufficient and volatile. The 2025 package represents the most comprehensive overhaul of Michigan’s transportation finance system in decades, designed to generate predictable, dedicated funding for statewide infrastructure improvements.

Key Components of the Funding Package

1. Fuel Tax Restructuring

• Motor Fuel Excise Tax Increase: Effective January 1, 2026, the state excise tax on motor fuel increased from 31 cents to 52.4 cents per gallon (51 cent base rate plus inflation). This rate will continue to be indexed annually for inflation.
• Elimination of Sales and Use Tax on Fuel: Sales and use taxes on fuel purchases will be removed, ensuring transportation dollars remain dedicated to infrastructure.
• School Aid Fund Protection: General fund transfers will offset the loss of sales tax revenue to maintain education funding.

2. Amends the Income Tax Act

• Effective October 1, 2025, a $600 million earmark of income tax revenue to the Michigan Transportation Fund was repealed.

3. New Revenue Streams

• Corporate Income Tax Earmark: Approximately $680 million annually will be redirected from corporate income tax to the Neighborhood Roads Fund.
• Marijuana Excise Tax: A 24% excise tax on wholesale marijuana sales is projected to generate $420 million annually, also dedicated to the NRF.

4. Neighborhood Roads Fund (NRF)

• Purpose: Created to manage and distribute new revenue streams for local and regional transportation projects.
• Initial Allocations (FY 2026–2030): $100 million annually for local critical bridge repairs and closures; $40 million annually to the Local Grade Separation Fund; $35 million to the Comprehensive Transportation Fund (CTF); $65 million to the Infrastructure Projects Authority fund (IPAF); remaining funds split among county road agencies, cities, villages, and the State Trunkline Fund as prescribed by formula.
• Post-2030 Adjustments: Allocations will shift to include $10 million to the Local Grade Separation Fund; $52.5 million to the CTF; $17.5 million to the IPAF; and remaining funds split among county road agencies, cities, villages, and the State Trunkline Fund as prescribed by formula.

Fiscal Impact

• Projected Revenue: FY 2026: Approximately $1 billion in new transportation funding; By FY 2030: Nearly $2 billion annually.
• Economic Benefits: Increased funding will accelerate road and bridge repairs, improve safety, and support economic growth through enhanced mobility.

Infrastructure Investment and Jobs Act

On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (IIJA) (Public Law 117-58, also known as the “Bipartisan Infrastructure Law (BIL)”) into law. The Bipartisan Infrastructure Law is the largest long-term investment in our infrastructure and economy in our Nation’s history. It provides $550 billion over fiscal years 2022 through 2026 in new Federal investment in infrastructure, including in roads, bridges, mass transit, water infrastructure, resilience, and broadband.

IIJA provides the basis for FHWA programs and activities through September 30, 2026. It makes a once-in-a generation investment of $350 billion in highway programs. This includes the largest dedicated bridge investment since the construction of the Interstate Highway System.

New programs under IIJA focus on key infrastructure priorities including rehabilitating bridges in critical need of repair, reducing carbon emissions, increasing system resilience, removing barriers to connecting communities, and improving mobility and access to economic opportunity.

Many of the new programs include eligibility for local governments, Metropolitan Planning Organizations (MPOs), Tribes, and other public authorities, allowing them to compete directly for funding.

Specifically, with regard to transportation, the BIL will:

• Repair and rebuild our roads and bridges with a focus on climate change mitigation, resilience, equity, and safety for all users, including cyclists and pedestrians. It is the single largest dedicated bridge investment since the construction of the interstate highway system.
• Improve the safety of our transportation system. BIL invests $13 billion over the Fixing America’s Surface Transportation (FAST) Act levels directly into improving roadway safety.
• Improve healthy, sustainable transportation options for millions of Americans.
• Build a network of electric vehicle (EV) chargers to facilitate long-distance travel and provide convenient charging options.
• Modernize and expand passenger rail and improve freight rail efficiency and safety.
• Improve our nation’s airports.
• Launches new and expanded competitive grant programs.

Current as of January 2026.