Michigan governor turning to bonds to fix roads

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Michigan’s State Transportation Commission approved up to $3.5 billion in bonds Thursday, signing off on a crucial piece of Gov. Gretchen Whitmer’s backup funding solution to help fix major highways and bridges in the state.

Whitmer announced the borrowing plan in her State of the State address late Wednesday and the commission acted at a meeting Thursday. Republican lawmakers last year rejected a tax hike proposed by the new governor, a Democrat. Whitmer sought a gas tax hike that would have raised the $2.5 billion transportation officials say is needed annually for roads.

The state would issue the state trunkline fund bonds will over the next four years and state officials said they bonds are expected to be paid back over 25 years at interest rates of 2.5% to 3.5%. The plan will allow the Michigan Department of Transportation to increase the cost of its five-year road and bridge plan to about $7.3 billion from $3.9 billion.

Bond interest payments from the MDOT state trunkline fund are $118.4 million this year, but with the new bonding, interest payments are expected to increase to near $300 million annually. The state has about $463 million of outstanding bonds that are rated Aa2 by Moody’s Investors Service and AA-plus by S&P Global Ratings.

MDOT Finance director Patrick McCarthy said the state is expected to issue $500 million this year with $1 billion priced in each of the next three fiscal years. “The pricing for 2020 could occur any time between late spring and early fall, subject to market conditions,” he said.

Whitmer said in her address that Republicans refused to consider her plan unveiled last year to increase the gas tax by 45 cents per gallon, so “that’s why it’s time for Plan B.”

“My Rebuilding Michigan plan is financed without an increase at the gas pump, and it will do three things: save time, save money and save lives,” Whitmer said. “Since it doesn’t require the legislature to act, we can get started right away. We can get to work on these state trunkline roads and freeways and take advantage of today’s low interest rates.”

Whitmer said that over the next five years, the money raised from the bonds will be used to add and expand 122 major new projects and nearly double the amount available to fix roads.

Whitmer warned that bonding is not a long-term solution for the state’s road problems. “These new projects will only address the worst of our most highly traveled state roads,” she said. “We still need the legislature to come up with a real, long-term solution to fix the roads.”

Some of the other options under discussion to raise revenue for roads include tolls on roads or bridges. The Michigan Senate this week approved a feasibility study of bringing toll roads to the state. Under the bill, MDOT is required to hire an outside firm to look into what would happen if tolls were added on state highways. The study, which is due 18 months after the bill becomes law, must include revenue projections.

The governor does not need legislative approval to move forward with the bonding plan. Opponents of the plan disagree with the amount ofthe debt created by these borrowings.

State Rep. Jack O’Malley, R-Lake Ann, who chairs the House Transportation Committee, said in a statement that funding roads via bonds has been done before — and that seeking billions of dollars in upcoming years won’t be any different except for the larger burden it puts on taxpayers.

“Who ends up paying for that state government tab? Taxpayers — and almost always ones who are far removed from the decisions that were made at the time,” O’Malley said. “It’s a nonsensical plan that will have far-reaching effects on our future generations. We’ve bonded almost $2.5 billion for roads since 1992 and we’re still behind the eight ball with some of the worst roads in the country. We need more effective solutions to deliver real repairs and real results.”

Senate Majority Leader Mike Shirkey, R-Clarklake, said Whitmer’s plan B is far from a roads plan. “Bonding is a financing tool, not a funding source. Billions of dollars of debt is not a long-term plan for infrastructure; it is asset management,” Shirkey said in a statement. “Senate Republicans have put billions of dollars into roads over the past few years. The men and women of Michigan work hard to send us their tax dollars and we work hard to pump those dollars into taxpayer priorities like roads. The governor’s response was to veto those dollars.”

Whitmer vetoed Republicans' proposal of $375 million in one-time spending targeted at road and bridge repairs in the state’s budget for the 2020 fiscal year, which began Oct. 1.

Speaker of the House Lee Chatfield, R-Levering, said his starting point is requiring all sales and fuel taxes collected at the pump are used on roads. “All the money at the pump right now is not going to the roads,” he said. “Until we address that we are always going to have a road funding problem.”

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State budgets Infrastructure Revenue bonds Gretchen Whitmer Michigan
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