Rough Estimate Puts Cost Of 25-Year Whitmer Road Debt Well Above $1 Billion
State has money to fix roads now without borrowing
The Michigan State Transportation Commission wasted no time in voting to approve a first installment on Gov. Gretchen Whitmer’s plan to borrow $3.5 billion for road repairs. News stories cited officials estimating that the borrowing will take place over four years, with loans extending some 25 years at interest rates between 2.5% and 3.5%.
A highly simplified analysis gives a rough idea of what this will mean for taxpayers. If $3.5 billion were borrowed all at once at 3.0% and paid off gradually over 25 years, the state would incur total interest expenses of around $1.45 billion. If the state used transportation tax revenue to make monthly payments on the debt, borrowing this year would subtract nearly $200 million per year from the amount available for road fixes and other transportation spending over the next quarter-century. The actual cost will be different and likely lower but this gives an idea of the magnitude.
Two weeks before Whitmer announced she would go to the bond market for road dollars, Sen. Roger Victory, R-Hudsonville, introduced Senate Bill 716 that put a limit on state borrowing. It would prohibit the Transportation Commission from issuing more than $100 million in bond debt unless it gives legislators a 30 days-notice. If the bill were enacted, it would also allow the Legislature to halt the debt issuance with a majority vote in the House and Senate.
The bill was referred to the Senate Appropriations Committee on Jan. 14. Given this week’s events, and the fact that the governor would have to sign the bill, it will not become law.
The media, meanwhile, continues to report that without some type of new revenue, the state is doing nothing to fix the roads.
The Detroit Free Press reported: “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.’”
But taxpayers have already been doing an increased amount of “something” about roads for the past several years.
At the end of 2015, lawmakers increased vehicle registration taxes and motor fuel taxes, both taking effect in 2017.
Projections showed that the registration tax increase would bring in at least $226 million more for roads in 2020, and the gas tax increase, another $298 million. Faster than expected economic growth means the actual revenue increases are probably higher.
The Senate Fiscal Agency projects that when the 2019-20 fiscal year ends on Sept. 30, the state will have an unspent balance of $897 million. With simple majority votes in the state House and Senate and the governor’s approval, all or some of this could be spent on road repairs this year. With a new infusion of debt-funded cash, however, that is unlikely.
Most of the state revenue that goes to road repairs is allocated to the state Transportation Fund. The fund’s revenue in the 2011-12 fiscal was the equivalent of $2.3 billion in 2019 dollars. Projections for the current fiscal year say that the fund will receive a total of $3.6 billion in taxes, a 57% increase rise over eight years when adjusted for inflation.