Michigan Transportation Commission approves $3.5B in bonds to fix highways, bridges

LANSING – The State Transportation Commission acted quickly Thursday on a request from Democratic Gov. Gretchen Whitmer, unanimously approving up to $3.5 billion in borrowing to help fix major highways and bridges.

The bonding 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, commission chief administrative officer Laura Mester said in an audiovisual presentation.

The approval of the bonds gave a green light to new and accelerated projects around the state, including 10 new road and bridge projects totaling $1.4 billion in Wayne, Oakland and Macomb counties, plus another 18 accelerated or enhanced projects worth $301.4 million in those three counties, state records show.

"We still need a long-term solution," Mester told commissioners. "This will not fix all of our roads and bridges."

Whitmer announced the bond plan in her State of the State address Wednesday night at the Capitol. After the Republican-controlled Legislature rejected her plan for a 45-cent-per-gallon gas tax hike in 2019, Whitmer said she's not prepared to wait and "play games," and her administration will now bypass the Legislature by going to the bond markets.

Bonds will be issued with 25-year paybacks

The revenue bonds, to be sold over the next four years, are expected to be issued with 25-year paybacks at interest rates of 2.5% to 3.5%, Mester said.

"This is the perfect time to do a bond issue, because we can get interest rates so cheap," Commissioner Helen Zeerip said.

Commission Chairman Todd Wyett, citing studies that show that without action some highways will be beyond repair, said: "If we do not do something about our major trunk lines, they will go over a cliff, and it''s not recoverable.

"We ... look at our roads as assets."

Wyett, along with four other of the six commissioners, was appointed to the commission by Whitmer's predecessor, Republican Gov. Rick Snyder. Under the state constitution, no more than three commissioners can be from the same political party.

Whitmer and Republican leaders traded barbs at separate news conferences Thursday, with Republicans saying the bonding effort is not a long-term road funding plan and Whitmer saying she put forward a plan last year and is still waiting for Republicans to come up with a serious counterproposal.

Focus will be roads crucial to economy

Over the next five years, the money raised from the bonds will be used for major upgrades on state highways and bridges that are "critical to the state's economy and carry the most traffic," Mester said.

First, state officials will work with bond attorneys to create an official statement about the bonds, which is similar to a prospectus for investors, MDOT spokesman Jeff Cranson said. The first sale of bonds is likely to be in the $500-million range and take place in late spring to early fall, he said. Additional sales will take place as cash flow requires, he said.

The money will allow MDOT to add 26 new projects to its five-year plan and enhance 23 projects that were already planned, Mester said. In addition to those 49 projects that will be paid for with bond revenues, another 73 projects will be accelerated or enhanced, officials said. Revenue raised through the sale of the bonds can only be used on major state highways — ones with "U.S.", "I", or "M" in front of their names, not on lesser highways or local roads.

One criticism of the plan is that the bond money can't be used to fix local roads or highways under the jurisdiction of counties and other local governments.

More: Whitmer announces $3.5-billion road bonding plan in State of the State

More: Gov. Whitmer turns tables on outfit critics during State of the State

At least one commissioner voiced worries about ramping up roadwork too quickly, but appeared satisfied with staff assurances.

"If we are having this significant of an increase, this rapidly, of funds available, does the contracting community have the capacity ... to actually do the projects?" asked commissioner Michael Hayes.

"We certainly believe so," Mester replied.

Commissioner Chris Yatooma noted that heavy trucks bounce when they hit rough pavement, dramatically increasing the wear on roads. That's why it's important to keep roads as smooth as possible, he said.

The commission also voted unanimously Thursday to refinance at lower interest rates bonds that were issued in 2009 and 2011, for a combined estimated savings of more than $17 million.

In 2019, the Republican-controlled Legislature rejected Whitmer's proposal for a fuel tax hike that would have raised an extra $2 billion a year to fund road repairs.

The state last raised money for roads by issuing revenue bonds — given that name because the collection of future revenues such as fuel taxes and vehicle registration fees are pledged as collateral — in 2011.

Bond payments from the Michigan Department of Transportation State Trunkline Fund are $118.4 million this year, but without new bonding are projected to drop to $74.9 million in 2023 and to $19.6 million in 2024, Cranson said.

The state can handle about $300 million in annual debt service and stay within set limits, officials said.

On average, interest paid on the roughly $1 billion in bonds now outstanding is between 4.5% and 5.3%, according to the House Fiscal Agency.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4. Read more on Michigan politics and sign up for our elections newsletter.