Gov rivals agree on the need to fix roads, not on how to pay

Jonathan Oosting
The Detroit News
Gretchen Whitmer, left, and Bill Schuette.

Lansing — Michigan Democratic gubernatorial candidate Gretchen Whitmer’s ability to “fix the damn roads” would depend on the Legislature’s appetite to raise taxes or voters’ willingness to let the state take on billions of dollars in debt to be repaid with interest.

Republican Bill Schuette opposes her plan, arguing Whitmer is “describing the road back to the lost decade” by threatening to impose tax hikes that would slow economic growth.

But experts say his own promise to rebuild roads by reprioritizing state spending is unrealistic given his separate proposal for a $1 billion income tax cut that could significantly strain state resources.

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“I think it’s a stroll down the alley of optimism, and he’s going to get mugged by cold hard facts,” said Mitch Bean, a former director of the non-partisan Michigan House Fiscal Agency who has donated $350 to Whitmer's campaign over the past two years. “The resources aren’t there. It’s just not a reality.”

Both leading candidates for governor are vowing to repair crumbling roads and bridges by stressing the economic importance of transportation and the hidden costs borne by motorists forced to fix damaged rims and cracked windshields. 

Term-limited GOP Gov. Rick Snyder made road funding a top focus and coaxed the Republican-led Legislature to raise fuel taxes and registration fees as part of a spending plan he signed in 2015. The law will eventually dedicate $1.2 billion in annual funding toward road repairs by 2022.

The spending is projected to slow deterioration but not completely reverse it. In 2016, a task force appointed by Snyder said the state should still spend an additional $2.2 billion a year if it hopes to keep the majority of its roads and bridges in good shape.

“The revenue that was gained (from the 2015 law) was dearly needed, but it was probably less than half of what we needed at the time,” said Mark Van Port Fleet, chief deputy director for the Michigan Department of Transportation. “We’re trying to do the best we can, be smart with the money and spend it wisely, but the predictions are that the system is going to continue to decline.”

‘Fix the damn roads’

Schuette has not specified how much he wants to increase road spending, but Whitmer's proposal calls for an ambitious $2 billion-a-year investment into a state infrastructure bank that would provide loans, matching funds and grants for state and local projects.

The former Senate minority leader from East Lansing told The Detroit News she'd add that spending to her first state budget proposal and challenge the Legislature to again raise revenue through “user fees,” such as higher gas taxes or registration fees paid by motorists.

If lawmakers are "not strong enough to take those votes," Whitmer said she'd ask voters to authorize $20 billion in general obligation bond sales over 10 years, which would require approval on the statewide ballot. 

Michigan Democratic gubernatorial candidate Gretchen Whitmer fills a pothole during a campaign event in Southfield, Mich., Monday, Aug. 6, 2018. (AP Photo/Paul Sancya)

"That's not the best way to do it, but we have to have a backup plan," she said. "If the Legislature is not going to take the action necessary to fix the problem, we'll go to the people to do it. Every day we don't fix it, the problem gets bigger and more expensive and more dangerous for our families and our businesses."

Selling bonds for road construction could be a costly mistake, said Eric Wilson, chairman of the Oakland County road commission, who disagrees with the approach despite what he calls a "very real" need for additional funding. 

“The problem is that bonding is not free,” Wilson said. “I understand the interest rates are low right now and the state has a good credit rating. But if you’re going to take money in the future to pay back what you’re doing now, how much is that going to cost you and your ability to maintain roads then? It’s a long-term thing.”

Michigan’s last major road bonding initiative was the Build Michigan III program under former GOP Gov. John Engler that added hundreds of millions of dollars in bonding.

The state is still paying it off. Transportation debt service costs the state more than $200 million a year, money that could otherwise be spent on more road maintenance or construction.

Bond now, pay later

Schuette argues additional taxes or debt could slow the state's economic rebound.

“This is about decision making and relationships, and what Gretchen Whitmer wants to do is raise more taxes, raise more fees and have more burdensome debt,” the Midland Republican told The News. “The fact is we need to grow our state.”

Jay Rising, the state treasurer under former Gov. Jennifer Granholm who helped devise Whitmer's infrastructure bank plan, estimates $20 billion in bonding would cost the state about $70 million a year in interest and debt payments.

But because of inflation, it would begin needed projects now rather than wait for traditional funding, he argued.  “You can either pay interest, or you can pay higher construction costs,” Rising said.

The infrastructure bank, which would also help fund water projects and other infrastructure upgrades, would operate outside the traditional funding formula the state uses to dole out dollars to local and county road agencies.

The bank would consider projects on a case-by-case basis to determine the best way to help finance each, Rising said. In some cases, it could mean grants. On other projects, the bank could provide state-guaranteed loans.

Traffic on westbound I-96 makes its way past orange construction barrels near Ionia, Michigan on Tuesday.

Whitmer argues her plan could help the state and local road agencies leverage up to $1 billion a year in additional federal funding. Schuette, who is endorsed by Republican President Donald Trump, has also vowed to maximize federal funding, citing his relationships with the administration.

But Trump has not yet acted on his campaign pledge to boost transportation spending, and experts say there is no readily available federal source that Michigan is not already tapping.

“Every federal dollar that’s been available for Michigan, we’ve recovered,” Van Port Fleet said. "That's not true for all states... and we have been the beneficiary of redistributed money every single September since I can recall."

Reprioritizing spending

Schuette's four-part plan to rebuild Michigan roads does not identify a funding mechanism. But the former congressman and state senator said he'll make road funding a top priority in the state’s $56.8 billion budget.

"The goal is for Michigan to be an economic leader, and for us to be a leader in the world, you have to have first-class roads," he said.

Republican gubernatorial hopeful Bill Schuette, currently the Michigan attorney general, speaks at a campaign event on the Weir farm in Southern Michigan near Hanover.

Shifting more money into roads could require cuts elsewhere in the state’s $10 billion general fund that pays for public health initiatives, prisons, universities and other state programs. Schuette is also proposing to trim the personal income tax rate from 4.25 percent to 3.9 percent, which could reduce state revenues by $1 billion a year.

“I think everything in the budget will have to be looked at with a fresh start, and there will have to be contributions from everything,” he said. “I’m going to be a watchdog for people’s pocketbooks.”

The 2015 road funding law already requires the state to devote $600 million a year from the general fund to roads. Cutting taxes could make it difficult to find any more, said former state Budget Director Al Pscholka, a Republican.  

“With the fiscal position the state is in today, there aren’t red flags on the beach, but there’s yellow flags,” Pscholka said, noting other looming budget pressures that prompted the Snyder administration to oppose a tax cut plan in 2016. “There’s some caution out there because the general fund is still under some stress.”

Unclear savings

Schuette does not have a “real plan” to fix the roads, Whitmer argued. “If you like potholes, Bill Schuette’s plan is the one for you.”

The attorney general has proposed using any savings from the state's recently repealed prevailing wage law to fund road repairs. The mandate required union-level wages and benefits on construction projects that rely on state dollars, such as schools and government building.

Prevailing wage traditionally had little impact on Michigan road projects because most involve a mix of federal dollars, which triggers separate federal wage rules. But the 2015 road funding law has given Michigan the ability to pursue more projects funded solely by the state, Van Port Fleet said. 

Still, unions argue the prevailing wage law repeal will not save the state any money on road projects. "That money is just going to go to non-union, out-of-state contractors that do shoddy work," said Jonathan Byrd, legislative director for the Michigan Laborers District Council.

Schuette's other road fix proposals focus on things the state is already doing to some extent. He wants a "top-to-bottom audit" of the Michigan Department of Transportation, which has been subjected to 23 full or partial state audits in the past three years. He also has proposed "stronger, enforceable guarantees and warranties on roads and bridges."

Current Michigan law requires the state to secure warranties "where possible" on pavement projects that cost more than $2 million and on any new highway construction project. The 2015 road funding law generally requires county and local road agencies to do the same. 

Schuette couldn't describe any specific changes he'd like to make to warranty rules but told The News "it's a principle" that would guide him as governor.

In 2016, MDOT reported securing warranties of between two and five years on 140 separate highway construction or pavement projects but did not secure warranties on 23 other projects.

"Michigan has been a leader in the country in terms of implementation of warranties," Van Port Fleet said, noting that lengthier requirements could make it difficult for contractors to obtain insurance or drive up construction costs. 

"The value of the warranty is built into the contractor's price," he said, "so you need to make sure the value you’re putting into that warranty can come out."

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