More spending on Michigan roads blunted by rising costs
Lansing — Michigan generated a record $2.7 billion in road repair funding from fuel taxes and vehicle registration fees in 2018, but experts say the state is still spending too little to stop aging infrastructure from continuing to crumble.
A new report points to one likely culprit in what Gov. Gretchen Whitmer calls a road funding crisis: The rising cost of road building materials, which has doubled over the past two decades, according to an analysis of national data by the non-partisan Michigan Senate Fiscal Agency.
State and local road agencies are spending more, but they’re getting less bang for their buck as material and labor costs outpace inflation. It is also significantly more expensive to replace a terrible road than to maintain a decent one, making it difficult to reverse the state's downward trend.
“It means fewer road projects, because the individual projects cost more,” said Craig Bryson of the Road Commission for Oakland County, who described rising prices for contract work and standalone gravel purchases. “We had to reject several bids this year, but we’ll go out and rebid those projects next year and hope we get a better price.”
The Senate agency analyzed spending through the lens of producer price indexes from the U.S. Bureau of Labor and Statistics, which records national cost trends for materials like cement, steel, asphalt, rebar and sand that are commonly used in highway construction.
Those costs rose 100% over the past two decades, according to the Senate agency analysis, increasing by more than twice the rate of general consumer price inflation. As a result, while total state spending is up, raw material purchasing power decreased $611 million between 1998 and 2018.
Michigan lawmakers raised fuel taxes and registration fees under a 2015 law, but rising prices have limited the ability of some road agencies to pursue a more aggressive repair schedule. The law generated $321 million for roads in 2017 and is expected to dedicate $1.2 billion annually by 2022.
In Mackinac County, just north of the bridge in the Upper Peninsula, the installation cost of hot-mix asphalt blacktop has gone up 20% to 30% in the last year or two alone, including materials and labor, said road commission engineer and manager Dirk Heckman.
"So if we normally pave 10 miles a year, if costs go up 20% or 30%, now we can only afford to do seven or eight miles," Heckman said.
Road construction labor costs are also rising faster than inflation, but not as fast as raw materials. The national highway material indexes climbed 88% between 2002 and 2018, compared with 51% for employment costs and 30% for inflation, according to the Senate analysis.
Rising contractor prices may reflect higher demand because of the 2015 road funding law, Bryson said. Oakland County’s price for gravel — which it uses for shoulders and gravel roads — has nearly doubled over the past four years from $11.13 a ton in 2015 to $21.13 a ton.
“We are doing record amounts of road improvements this year, so we’re addressing a lot of roads,” Bryson said. “However, it’s still not enough to fully address the problem. Even with this additional funding … our modeling is telling us by 2025 the system is going to begin deteriorating again.”
On state trunk lines overseen by the Michigan Department of Transportation, the cost of asphalt projects has jumped 85% since 2006, according to tallies that include materials, equipment, trucking and labor expenses. Concrete project prices have increased 73% over that same span, while steel costs have climbed 40%.
Costs can fluctuate depending on the number and size of projects, along with material specifications that can vary from year to year, said MDOT spokesman Jeff Cranson. Contractors also base their bids on risk and often charge more if the state requires night construction or an accelerated timeline.
Restoration costs have increased at a “reasonable rate” over the last decade given expected increases in labor and raw materials, said Denise Donohue, director of the County Roads Association of Michigan.
“That said, fixes to the roads have become more cost-intensive as the road conditions have continued to deteriorate,” Donohue said. “What was once a simple preservation-type repair may now be much more involved and more costly.”
The 2015 law approved by Republican former Gov. Rick Snyder raised the gas tax 7.3 cents per gallon to 26.3 cents per gallon and increased vehicle registration fees by roughly 20%.
Recent state funding bumps have allowed agencies to “invest more into the more extensive fix, the proper fix according to asset management principles, rather than short-term repair to just get by,” Donahue said.
Macomb County Department of Roads Director Bryan E. Santo said his agency's price for hot-mix asphalt has risen roughly 20% in the past five years, from $80 a ton to $100 a ton.
The 2015 road funding has “helped matters” but is “not a fix-all,” he said, noting Macomb estimates it would need $2.3 billion to rebuild all of its roads and bridges currently rated in poor condition.
Michigan has traditionally spent less on roads per driver than most other states. As of 2016, Michigan ranked 48th for total state and local highway spending per capita, according to the Senate Fiscal Agency.
“We’ve fallen behind for a decade, and our roads show that,” Santo said. “We’re trying to play catch-up.”
Total gas tax revenue is down 1.6% over the past 20 years when adjusted for inflation, according to the Senate Fiscal Agency report. Registration fees are up 40%, however, and combined revenues rose 12% over inflation between 1998 and 2018.
Democratic Gov. Gretchen Whitmer in March proposed fixing the roads through a 45-cents-per-gallon fuel tax hike, which would give Michigan the highest rate in the nation and generate $2.5 billion a year once fully implemented in 2021.
Republicans have balked at the plan, and the two sides remain at loggerheads with little over a month to agree on a budget and avoid a potential government shutdown. The state also gets about $1.3 billion annually in federal transportation funding.
While Republicans are wary to raise taxes again in the wake of the 2015 law, the rising cost of highway materials have made state spending on roads less efficient.
And those costs continue to climb nationwide, according to Ken Simonson, chief economist for the Associated General Contractors of America.
Prices for ready-mix concrete rose 3.5% from July 2018 to July 2019, he said. The cost of paving blocks and mixtures, including asphalt, went up 3.4% which was actually some relief to contractors who had seen costs rise more than 10% from December 2017 to 2018.
“The fact is it’s still an increase, and contractors are trying to make up for when they were really stung by the big increase by raising their bid prices,” Simonson said.
Supply and demand
Doug Needham of the Michigan Aggregates Association attributed rising material costs across the state, in part, to supply squeezes exacerbated by efforts to limit new gravel mining operations in local communities with underground resources.
“More important than that, though, is trucking costs. … That’s what we’ve seen probably a bigger increase in,” he said. “There’s not a lot of truck drivers on the road. We’re having trouble filling those seats, but we’re also moving our material farther away.”
The tiny Lapeer County town of Metamora, with a population of around 565 residents, has emerged as a big player in a Lansing fight over aggregate mining.
Locals there have blocked plans for a massive new gravel mine and are battling state legislation that would stop communities from prohibiting mining operations unless they pose “very serious” consequences to public health, safety or welfare.
The proposed 497-acre mine in Metamora, nearly as big as the town, would extract 30 million tons of sand and gravel over 30 years, according to the proposal, which could be used in the construction of homes and roads.
Victor Dzenowagis, owner of the White Horse Inn and director of the non-profit Metamora Land Preservation Alliance, said there's only one haul route for all that gravel -- Dryden Road.
"It goes right through the village of Metamora. That’s a truck every three minutes.”
Dzenowagis argues the pro-mining legislation would strip local control from communities across the state without any guarantee it would produce significant cost reductions by the mining industry.
Similar debates have unfolded in areas like Grass Lake Township, where a Jackson County Circuit Court judge recently ruled in favor of locals who sued to stop plans for a gravel mine on an 80-acre property, citing safety, environmental and noise concerns.
Debate over local aggregate mining regulations has been clouded by controversy amid reviews of potential industry influence over a 2016 market report commissioned by the Michigan Department of Transportation.
But Mark Schlegel, owner of the Lansing-area Schlegel Sand & Gravel, said the supply shortage is real. Schlegel said he is fielding an growing number of purchase inquiries from road contractors in west and southeast Michigan who would typically rely on closer mines for cheaper costs.
Shipping material across the state can be prohibitively expensive, he said, sometimes costing more than the gravel or sand itself. Hauling to a full load to Detroit would cost about $675, adding about $13.50 per ton to the cost of the material.
“It just become a crazy price that you don’t even want to give somebody,” Schlegel said.