LANSING — Gov. Gretchen Whitmer's $3.5 billion road-bonding program to jump-start highway reconstruction projects across the state will cost taxpayers $1.6 billion in interest over the life of the 25-year bonds, state officials said Tuesday.
Michigan Department of Transportation officials and state Treasurer Rachael Eubanks detailed the Democratic governor's Rebuilding Michigan bond plan Tuesday during a House Transportation Committee hearing.
MDOT Director Paul Ajegba said rebuilding $3.5 billion in highways and bridges over the next five years will lower maintenance costs, which have increasingly consumed the agency's budget in recent years.
"We've been doing a lot of Band-Aid work for a long, long time," Ajegba told the committee.
Whitmer's bond debt will nearly double MDOT's capital spending over the next five years to $7.3 billion, adding 122 projects that the agency otherwise would not have the money to do in that period.
Forty-nine of those projects will be directly funded by the bond proceeds. MDOT finance director Patrick McCarthy said the interest payments are estimated at $1.6 billion over 25 years, meaning the $3.5 billion in roads will ultimately cost $5.1 billion.
Another 73 road construction projects will be added to MDOT's five-year plan that would have been done later this decade without the bond proceeds, Ajegba said.
In metro Detroit, the road construction projects over the next five years will include a $456 million rebuild of I-696 from I-275 to Dequindre Road, a $217 million rebuild of I-96 from Kent Lake Road to Novi Road and a $324 million reconstruction of I-275 in Wayne County from Five Mile to south of I-94.
The House Committee hearing was the first time lawmakers have been publicly briefed on the debt plan since Whitmer unveiled it last Wednesday during her State of the State address. The next day, the State Transportation Commission authorized MDOT to issue the bonds, which have to be repaid from MDOT's portion of fuel tax and vehicle registration fees that are distributed to the state, counties, cities and villages.
State officials believe they can get interest rates between 2.5 percent and 3.5 percent in today's municipal bond market.
Eubanks noted interest rates on tax-free bonds have been as high as 6.9 percent in 1994 to as low as 1.8 percent today.
"There's never been a time in history where interest rates been lower," Eubanks told lawmakers.
Former Lt. Gov. Brian Calley, president of the Small Business Association of Michigan, used the committee hearing to continue his and SBAM's public opposition to the bonding plan. SBAM's legislative policy position calls for opposition for new state debt that doesn't have a dedicated revenue source to repay the debt, Calley said.
Whitmer's bonds will deplete MDOT of cash flow in the future, Calley said.
"More entities get in trouble because of cash flow than get into trouble because of profitability," he said.
Calley, who has not ruled out running for governor again after losing to Bill Schuette in the 2018 Republican primary, argued the bonds would saddle future Legislatures and governors with debt service for a quarter century.
"Interest rates are low and you net-present-value it all day long, but it's still cash flow that's needed for maintenance in the future, which is spent and used today," Calley told lawmakers.
Ajegba cautioned the bonding program is not a permanent long-term solution to the state's annual road funding deficit, which infrastructure experts have pegged at more than $2 billion annually.
During the hearing, Rep. Joe Bellino Jr. noted the bonding program will pay for the replacement of a bridge over I-75 in his Monroe County district that he heard reports Tuesday morning has holes in the decking.
"Without the bond money, all we're going to do is go out and patch that pothole — and keep patching it and patching it," Ajegba told Bellino, R-Monroe.
State Rep. Jack O'Malley, chair of the House Transportation Committee, said Whitmer's bonding plan to fix highways is a "gimmick" that won't help local roads leading to freeways.
"I'm sure the people of southern Michigan are going to love the fact that their interstates are getting fixed," said O'Malley, a Benzie County Republican. "But I can just picture when they exit that interstate. ... This doesn't help local roads."
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Whitmer's highway construction financing plan to top $5.1 billion over life of bonds - Crain's Detroit Business
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