Michigan Bridge Study: Covenants Would Protect Taxpayers; Costs May Rise

CHICAGO — A new independent study on a controversial plan to build a publicly funded bridge in Michigan says proposed bond covenants would protect state taxpayers if toll revenues fall short of expectations, but that interest rate costs could push the price tag past $4 billion.

The study, by the Anderson Economic Group LLC, says current legislation authorizing the bridge would protect taxpayers and shift risk instead to either the Canadian government or to financial guarantors backing the bonds, depending on the final structure of the debt and toll-setting power.

The study seems to support Gov. Rick Snyder, who crafted the legislation and has repeatedly vowed that taxpayers would face no financial risk.

The project is one of Michigan’s most controversial legislative debates. The bridge would be built over the Detroit River between Michigan and Windsor, Ontario, to ease congestion at what is the busiest trade route in the country.

But the owner of an existing bridge two miles upriver plans to build his own replacement span for $500 million, and is fighting to defeat the government plan.

Snyder’s proposal would create a new authority that would issue revenue bonds and enter into a long-term lease with a private company to build and manage the span.

The project would be a partnership among Michigan, Windsor, and the United States and could cost anywhere between $2.1 billion and $4.7 billion, including new custom plazas and interchanges, according to the study. Revenue bonds backed by tolls and rents from duty-free shops would finance 44% of the costs.

If revenue falls short of projections, tolls could increase. However, the legislation leaves open the question of who will control tolls, an issue that will affect bond repayment liability and final project cost, the study says.

If the authority retains toll-setting power, then Canada has offered to take full responsibility to provide debt-service payments if revenue falls short. That is the most likely scenario, sources said.

But if the private company has the power to set toll rates, the legislation requires a bank or other financial guarantor to take full responsibility for timely payments to bondholders.

That option would likely mean that the market would demand higher interest rates to take on the risk, the study’s authors warned.

“In this scenario, interest rates could be a factor contributing to overall costs approaching the worst-case scenario cost estimate of over $4 billion,” the study said.

Meanwhile, another report released this week report warns that Michigan needs to spend $1.4 billion more a year to just maintain its roads and bridges. The report comes a month before Snyder is set to unveil a major infrastructure funding proposal.

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Transportation industry Michigan
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