Road Debt Gives Michigan Little Other Than Interest Payments

Taking on more debt isn't the answer to fund road repairs

After a year-long stalemate in the legislative debate on road funding, some people are again suggesting that taking on more debt could improve road conditions. While this can improve roads now, it does so at the expense of the future.

Michigan’s road debts get paid off with revenue that would otherwise go to road repair. The state already carries $1.1 billion in transportation debts, all of which originated more than nine years ago. The state paid $161 million on its road debts last year, financed with federal grants and transportation funds, money which could have been used to pay for current road repairs instead.

It costs more to borrow from the future to fund today’s road needs because debt also costs interest. Of the $161 million in debt payments, $34 million was for interest. That’s money paid to the generous bondholders who loaned the state money, and does nothing to improve the conditions of the roads.

Debt also doesn’t fix the basic road funding challenge. The long-term goal is to repair roads faster than they fall apart. Funding levels are already close to achieving this, with the Michigan Transportation Asset Management Council remarking, “The expected increase [from the 2019 budget] in funding will halt the steady decline in pavement condition.” Borrowing funds from future projects to pay for current needs makes it more difficult to achieve this long-term goal moving forward, because the state will have to pay the debt service on the loan in addition to the what is needed to continue steadily improving pavement conditions.

Maybe that is why the governor and legislative leadership have been reluctant to openly endorse a debt-based plan. Gov. Whitmer wants to use a tax hike to spend more on roads and her other priorities, while legislative leaders want to improve road conditions with current resources. Borrowing seems to satisfy neither of these objectives.

Taking on additional debt to fund road repairs will allow lawmakers to declare that they have done something significant about roads. But that plan has real costs, and the state is better without it.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.