Transportation department borrows another $800M for Michigan road repairs

Beth LeBlanc
The Detroit News

Lansing — The Michigan Department of Transportation closed on a second $800 million bond as part of the $3.5 billion in borrowed money Gov. Gretchen Whitmer plans to spend to fix Michigan roads. 

The state will need to pay back a little over $1 billion to repay the $800 million bond plus about 2.35% interest. The state closed on its first $800 million bond last fall. 

The total $3.5 billion in bonds are expected to pay for the repair and rehabilitation of 122 major highways, with the most recent $800 million installment helping to finance a $120 million in-progress project on Interstate 94 in Jackson County. 

Continuing construction on I-75 at John R in Hazel Park, Michigan on October 15, 2020.

A bond essentially is a loan secured against a government body's future tax revenue.

“The Rebuilding Michigan Plan puts Michigan drivers first by building up our economy stronger for communities and small businesses and helping families stay safe on the road as they drive to work, pick their kids up from school and run errands," Whitmer said in a Wednesday statement. "Investments in infrastructure are a priority for my administration, and I am proud that we are fixing the damn roads without an increase at the gas pump.” 

The state also refinanced, or refunded, about $68.2 million of separate road bonds, resulting in a savings of about $19.3 million, according to the state.

Patrick McCarthy, director of the department's Bureau of Finance, said in a podcast last week that the state resorted to bonds because it doesn't have the tax revenue necessary to make needed investments in the roads. The longer those investments are delayed, the more the roads deteriorate and the more costly the eventual repairs become, he said.

"When it is time to replace them, they're significantly more expensive than if we'd kept them in decent shape," McCarthy said. 

The bond sales, which received an AA+ rating from S&P Global Ratings, are being co-managed by Siebert Williams Shank & Co., LLC. Even with Michigan's decline in fuel tax revenue and registration fees during the pandemic, Moody's Investor Services said the bonds have "strong coverage" from dedicated funds.

"The state has shown the ability to raise taxes and fees charged for road use in recent years, helping improve infrastructure funding capacity and offsetting stagnant motor-fuel use trends," Moody's wrote. "Available revenue provides ample debt service coverage to accommodate planned new issuance as well as revenue fluctuations driven by changing economic conditions or other trends." 

After a failed attempt to raise Michigan's gas tax by 45 cents a gallon to fund road improvements, Whitmer unveiled the $3.5 billion in bonds during her 2020 state of the state address. The Michigan State Transportation Commission authorized the department's use of bonding the next day amid Republican opposition to the borrowing plan. 

The projected cost of the $3.5 billion program would be about $5.2 billion if the state makes annual debt service payments of $206.6 million for 25 years.