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Sky Is The Limit For How Much Gov Could Bond For Roads

January 28, 2020

Gov. Gretchen Whitmer could go ahead and bond for $2.5 billion — or really, any amount she wanted – for new road revenue through the gubernatorial-appointed State Transportation Commission (STC), based on updated information from numerous sources.

Whitmer could, theoretically, bond against the revenues from future gas taxes and registration fees for any amount — there’s no constitutional or statutory limit on the actual size of the debt, according to numerous people with knowledge of the state’s bonding law speaking to MIRS both on and off the record.

The only limit spelled out in statute is how much can be paid on the debt in a given year. And the STC’s standard for how much it commits to debt service payments on an annual basis is even lower than that.

Senate Majority Leader Mike Shirkey (R-Clarklake) acknowledged this in an interview last week. He said he believes Whitmer could do as much as $6 billion a year in bonding, according to his calculation.

“There’s flexibility there, no question about it,” he said, adding there’s flexibility as to over what period of time this can be done. 

Shirkey told MIRS that Whitmer “can do more than what was originally proffered as $1 billion a year,” a reference to Citizens Research Council (CRC) saying Whitmer could bond up to $1 billion a year without legislative approval through the STC.

CRC President Eric Lupher said, “Yes, they could borrow more than a billion . . . I wouldn’t recommend it.”

Lupher was asked how CRC got to its $1 billion borrowing limit figure previously reported.

He explained the CRC crunched the numbers, looking at the annual debt service payment restrictions and the debt payments still on the books, and found it only allowed for about $60 million more in additional debt payments.

Add in paying the new bond off over a limited period of time and factoring in current interest rates, and the CRC arrived at its total $1 billion bonding number.

But when asked if the realm of possibility includes the state bonding for any amount it so chooses, Lupher said, “The essence of your question is yes, but it’s tempered by . . . the realities of bond issuers setting the terms and ongoing revenue streams to make those notes.” 

A recent bill intended to rein in the STC’s ability to bond — SB 0716, sponsored by Sen. Roger Victory (R-Hudsonville) — aims at restricting bonding at no more than $100 million in a year without the Legislature’s approval.

What the state is limited on when it comes to these road bonds is how much the state can pay back on the debt in a given year. 

State law restricts debt service payments to 50% of annual State Trunkline Fund revenues, or the portion of the Michigan Transportation Fund (MTF) constitutionally restricted for road funding. The STC’s policy is half that, or 25%.

According to current figures, about $1.2 billion of the MTF is constitutionally restricted to road funding. That means the state could only pay out $600 million each year on any sort of bond it issued against the revenue. The STC, under its current policy, would only pay out $300 million per year. 

The argument is that the requirement is to make sure annual road revenues aren’t eaten up entirely by debt service payments. Lupher said it’s a way for the state to live within its means.

But that still doesn’t actually restrict the administration from issuing a bond for any amount it desires.

Asked to confirm there’s no restriction on a bond issuance through the STC, neither the Governor’s office nor the Michigan Department of Transportation (MDOT) disputed that.

The Governor is expected to outline her intentions on how to address roads in her State of the State address Wednesday, and bonding has been suspected to be a part of her plan.

Shirkey reiterated in the interview with MIRS that bonding isn’t a funding source, but rather a financing source. There still needs to be funding to pay off the bond.

“If you don’t have that, then all you’re doing is acting like a millennial and pretending money is free,” he said.

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