State to scale back road aid after overpayments

Lansing — Michigan will cut anticipated road funding payments to local governments by $31 million this year after mistakenly sending them extra money last year.

County and local officials will still end up receiving more money overall because of a $100 million supplemental road spending bill the state Legislature passed in December, but it won't be as much as they originally planned because of a technology glitch. 

State officials are blaming the error on conversion to an expensive new computer system that produced faulty revenue data numbers. While they're working to resolve the issue, they can't guarantee it won't happen again. 

The technical glitch created budget uncertainty for local road agencies as they prepare for the looming pothole season, but officials say they can deal with it.

To recoup the overpayments, the Michigan Department of Transportation and State Treasury plan to lower road funding allocations for counties by $19.3 million this year, including a clawback of $1.6 million in Oakland, $1.5 million in Wayne and $1 million in Macomb.

Detroit, the state’s largest city, got an extra $1.3 million the state will take back through reduced monthly payments, along with $213,000 for Warren, $162,000 for Dearborn and $158,000 for Livonia.

State Sen. Pete MacGregor, R-Rockford, called the road funding mistake "ridiculous" and blasted the state's new computer system, known as SIGMA, during an extended rant at a Wednesday budget hearing.

"It floors me" that the state is not able to guarantee the accuracy of payments to local governments so they can budget based on that revenue, MacGregor told Michigan Department of Transportation officials. 

It’s not the first state error attributed to SIGMA, MacGregor noted, arguing for additional investigation into problems associated with the $178 million computer system that fully launched in late 2017.

“When we continue to make these mistakes, it makes it very difficult for elected officials who appropriate this money to trust in investing in anything in the state when it comes to IT,” MacGregor said.

State transportation officials detailed the error and plan to reduce pending payments in a letter to local officials last week, saying the state “knowingly and intentionally took the greatest hardship with any adjustments” made in road funding dollars.

State 'bore the brunt'

Michigan distributes gas tax, vehicle registration fee and other road funding revenue through a formula devised in 1951. It reserves 39.1 percent for the state trunk lines while sending 39.1 percent to county road commissions and 21.8 percent to cities and villages.

Total overpayments, including the state's share, amounted to $50 million. MDOT "bore the brunt" because it returned its $19 million share for state trunk lines at once rather than spreading out the impact, said spokesman Jeff Cranson.

The state will provide roughly $1.3 billion to local governments this year, so scaling back pending payments by $30 million to account for the error does not require a “material adjustment,” said Patrick McCarthy, a financial operations administrator for MDOT.

The department is spreading out the reductions over 10 months “to try to reduce the impact to all of our counties and cities and villages,” he said.

Michigan began using the SIGMA computer system months ago, but state transportation officials say there were “unexpected delays” in information, reporting changes and year-end accounting adjustments that affect monthly road funding payments to local governments.

Rather than delay payments, MDOT opted to distribute funds based on revenues reported from the previous month and then adjust future payments. But additional year-end SIGMA data issues and unannounced changes to a Department of State revenue report resulted in “incorrect” payments to local governments, officials said.

Budget Department spokesman Kurt Weiss acknowledged SIGMA had other issues “early on” as the state began implementing the massive computer network overhaul.

When a large number of state employees began using the system in October 2017, there were performance issues including slowness and accessibility common with major information technology launches, Weiss said. But those issues were fixed relatively quickly, he said.

Computer issues linger

As The Detroit News reported, Freedom of Information Act requests were delayed because of payment processing issues when SIGMA first launched. The Lansing State Journal reported about 200 state workers were underpaid in late 2017 because the system did not correctly process overtime.

The road funding error “is probably more of a process issue than actually a system problem with SIGMA,” Weiss said. “People are learning the system still, and this was the first time MDOT closed their books in SIGMA. I think that’s the bigger contributing factor, and I think this will improve moving forward.”

The Department of Transportation was not able to provide that same guarantee to local governments. In last week’s letter, McCarthy and budget supervisor Dave Wearsch said there are “variables involved” the department cannot control.  

“I think people were looking for a guarantee this won’t happen again,” McCarthy said. “I could not guarantee that, but we are doing what we can to ensure it doesn’t happen again, working with our partners from the Department of State and Department of Treasury."

The state funding glitch and pending reductions are “certainly a concern,” said Craig Bryson of the Road Commission for Oakland County. But Bryson pointed to a silver lining: The end of the year error coincided with the Legislature approving a supplemental spending plan to pump extra money into roads.

“So that sort of covered the loss, if you will,” he said. “It was still disappointing, and we have to give (the overpayments) back, but we had not anticipated the other additional money from the state, so that had not been budgeted.”

Because of that fortuitous timing, “we didn’t have to cut any programs,” Bryson said.

DOT often makes adjustments to monthly payments because of minor errors, but this one was large enough to turn heads, said Denise Donohue, director of the County Roads Association of Michigan.

“The real challenge for road agencies is just not knowing that it’s coming,” she said.

While the state essentially handed out extra money it is now recouping, Donahue said the volatility makes budgeting difficult for local agencies. She urged state transportation officials to be as transparent as possible over the mistake.

“It certainly has to be repaid," Donahue said. "However, if that’s my bank account, nobody told me to keep it in escrow. I spent it. I put it into roads. People are having to make adjustments."

That's not the case in Warren, said city engineer Jim VanHavermaat, who added that he did not anticipate any significant issues because of the over-payments and pending funding reductions.

“It’s not like when we got that money we were going to spend it right away,” he said.

But the funding error comes as local governments — like the state — are struggling to fund projects necessary to maintain crumbling roads.

“The roads, like the tires on your car, they were out, and funding is definitely an issue,” VanHavermaat said.

Wayne County is evaluating the impact of the state "mishap" and hopes it does not happen again, said public services spokeswoman Whitney Lewis.  "The funds that were allocated were already insufficient to our great infrastructure needs."

Democratic Gov. Gretchen Whitmer this month proposed a 45-cent-per gallon gas tax increase to fund additional state and local repairs, but Republican legislative leaders have balked at the tax plan and are creating alternative road funding plans. 

The overpayment error occurred before Whitmer took office. Department of Transportation Director Paul Ajegba said that when he came on board and heard about the issue, he stressed the need to minimize the "hardship" on local governments rather than asking them to pay back the funding immediately. 

MDOT made clear to local officials that "adjustments" to their funding dollars this year will not reduce their share of supplemental road dollars approved last year by the Legislature. 

The department agreed to delay its share of that supplemental funding until later in the year so that local payments "could be accelerated," McCarthy and Wearsch said in their letter. 

joosting@detroitnews.com

Twitter: @jonathanoosting