GOP lawmakers prepare for road bonding fight with Whitmer

Craig Mauger
The Detroit News

Lansing — The next power struggle between Democratic Gov. Gretchen Whitmer and the GOP-controlled Legislature appears to be focusing on Whitmer's ability to sell bonds without legislative approval to create funding for Michigan's roads and bridges.

A Republican state senator says he's working on a bill that would require the Legislature's agreement for road-focused bond sales that exceed $100 million. Sen. Roger Victory's proposal comes as Whitmer's administration considers ways around the Legislature to make good on the governor's campaign promise to "fix the damn roads."

"Given that the Legislature is not serious about fixing the roads and bridges, the responsible thing to do is examine other options to protect Michiganders," Whitmer spokeswoman Tiffany Brown said.

The upcoming GOP proposal, which would require Whitmer's unlikely signature to become law, is meant to raise awareness and spur conversation, said Victory, R-Hudsonville, vice chairman of the Senate Appropriations Transportation Subcommittee. But it could also be an early volley in this year's road funding fight as Whitmer proposed issuing bonds as part of an "infrastructure bank" when she was a candidate for governor in 2018.

Under the idea, the state could sell bonds to create a quick influx of money that would be used to improve roads and bridges while paying the resulting debt over time. Similar to a car loan, the state could avoid having to collect all of the needed revenue upfront and could pay off the infrastructure upgrades over the lifespan of the improvements.

A large, deep pothole, 3 feet wide, is seen on  the westbound I-696 service drive at Belanger in Warren, Michigan on February 21, 2018.

But Victory said he opposes bonding "just for the sake of bonding" if there's no set revenue stream established to pay the debt.

Some lawmakers are gearing up for a debate over bonding as they await a new plan from Whitmer to fund road improvements. The governor last year proposed increasing the gas tax by 45 cents a gallon — after rejecting as "ridiculous" Republican opponent Bill Schuette's contention in a 2018 debate that she wanted to raise the tax 20 cents. That plan met significant opposition in the state Legislature.

The Democratic administration is now looking at a variety of options, including bonding, while continuing to negotiate with lawmakers.

As a candidate in 2018, Whitmer said she would ask the Legislature to raise revenue to improve roads. If lawmakers were "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. 

Now, some political observers in Lansing speculate the administration is considering selling revenue bonds that would create dollars for roadwork but would not require a statewide vote.

How bond sales worked before

Under Michigan law, the state transportation commission, which is comprised of gubernatorial appointees, can approve selling revenue bonds. The commission could pledge constitutionally restricted transportation revenue to pay the debt. The resulting money could go to improve the state's major highways.

But Todd Wyett, chairman of the state transportation commission, said he had heard no details of a potential bond sale plan as of Friday.

"No one’s put it on my desk," Wyett said.

Similar bonds were sold to pay for transportation improvements under the administrations of Gov. John Engler, a Republican, and Gov. Jennifer Granholm, a Democrat. 

The first phase of Engler's "Build Michigan" initiative in the 1990s involved the State Transportation Commission issuing about $200 million in bonds for road and bridge projects and $30 million in bonds for local critical bridge projects, according to a Senate Fiscal Agency report.

Twenty years ago In January 2000, Engler used his State of the State speech to announce the third phase of "Build Michigan," a $1 billion investment plan that was to include $900 million in bond proceeds.

This House Fiscal Agency graph shows the declining amount of outstanding debt from State Trunkline Fund bonds and federal grant anticipation notes. Some are arguing that the declining amount of debt could provide an opportunity for new bonds to boost Michigan's roads.

A November 2000 report from the Senate Fiscal Agency examined the benefits and risks of bonding for improvements.

"One could argue that the simple fact that the State borrows to fund any transportation projects indicates that the 'pay-as-you-go' method of transportation financing generates insufficient resources to meet the needs of the state’s transportation system," the Senate Fiscal report said. "Others might contend that borrowing is required, from time to time, to meet specific transportation demands, particularly large-scale projects."

The debate continues to play out in Lansing.

While past bond sales temporarily improved the state's roads, the roads later deteriorated without continual sources of new revenue. A February 2019 House Fiscal Agency report said with the help of the bond program, 90% of Michigan's state highways were in "good" condition by 2007.

But the state had to continue paying debt on past bonds, reducing the dollars available for road projects. And state highway pavement conditions fell below the 90% good condition measure in 2011. Conditions have "declined each year since," according to the House Fiscal Agency report.

Declining debt presents opening

Supporters of issuing new bonds argue that the state's declining debt payments provide an opportunity to fix roads if the Legislature and Whitmer can't reach a compromise. The bonds could also pressure lawmakers to create a new revenue source to help pay off the debt.

Gov. Gretchen Whitmer

The state's debt service payment for bonds against revenue for state highways for 2020 will be $118 million, the lowest total in about a decade.

Victory said he wants to see the state continue to take care of the "legacy bonds" to free up money that's currently going to debt service for additional road improvements. He said the state is still paying debt from road projects that now need new repairs.

Pledging current transportation revenue to make debt payments years from now is a bad idea because the state could see less revenue from gasoline taxes as cars start to rely more on other power sources, such as electricity, Victory said. The State Trunkline Fund is primarily supported by gasoline taxes and registration fees.

Asked what Whitmer should do to improve the roads if lawmakers won't approve tax increases while also blocking the sale of bonds, Victory said he would be willing to discuss creating new revenue for roads.

"I’d be willing to have a conversation, a mature conversation on the issue," he said.

Senate Majority Leader Mike Shirkey, R-Clarklake, also said issuing bonds would be one of the last options he'd want to consider.

"Bonding is not necessarily bad, but I am not sure it's the right solution for roads. But I am not going to take anything off the table at this point in time," Shirkey added in an interview last Wednesday with reporters.

Supporters argue that bonding could allow the state to pay off projects during the life of the improved infrastructure instead of having to pay everything upfront.

"You’re financing long-term assets," said Wayne Workman, a former deputy state treasurer who was a financial adviser to the state from 1985 until 2013. "If they're borrowing money just to spend on current year appropriations, that wouldn’t be such a good deal."

The state's transportation-related debt obligations have decreased, and the state could probably sell bonds without creating a large amount of debt service, Workman said. The approach would allow the state to put money in the bank to work on infrastructure, he added.

Without taking on any debt, Workman compared the state's situation to trying to buy a house and a car with cash.

"The math doesn't work," he said.

Borrowing money to pay for road repairs could be a responsible way to tackle the problem if majority Republicans aren't willing to reach a compromise, said Senate Minority Leader Jim Ananich, D-Flint.

"I don’t think you can look at the roads in Michigan and think that doing nothing is acceptable," Ananich added.

But Patrick Anderson, CEO of the East Lansing-based Anderson Economic Group, disagreed. Although it can be smart to borrow money to buy a house, Anderson said it's imprudent to go into further debt when you don’t have enough money to pay your current obligations.

Transportation officials and Whitmer herself have said the state needs more than $2 billion in additional revenue each year to improve the state's road conditions.

"We need every dollar of our current gas tax and registration revenue to pay for the current repairs on the roads," Anderson argued.