Sale closes for $800 million in Rebuilding Michigan bonds

The Michigan Department of Transportation (MDOT) announced Thursday afternoon it has closed an $800 million bond issue.

The $800 million is the first installment in Gov. Gretchen Whitmer’s Rebuilding Michigan program.

The governor is seeking to raise $3.5 billion to repair and expand Michigan’s infrastructure after her plan to raise the state’s fuel tax by 45 cents a gallon became a legislative nonstarter and tremendously unpopular with voters.

According to an MDOT news release, “The bonds closed today will cover the cost of rebuilding some of Michigan’s most highly traveled freeways, including a $60 million project in progress on I-496 west of Lansing. When all of the $3.5 billion bonds are sold over the next few years, they will finance or help accelerate rebuilding or major rehabilitation of 122 major highways across the state.”

The bond sales were approved unanimously on Jan. 30 by the Michigan State Transportation Commission. The commission authorized MDOT to issue and sell $3.5 billion bonds backed by state trunkline revenues, according to MDOT’s press release.

“For too long, our freeways have been held together with patches and emergency repairs,” Michigan Gov. Gretchen Whitmer said in a statement. “The Rebuilding Michigan program assures Michiganders across the state that they can drive to work and drop their kids at school on safe and reliable roads for many decades to come. It has also allowed us to start moving dirt this year, without an increase at the gas pump.”

Moody’s Investor Services defended the bond sale during the COVID-19 pandemic, saying, “Michigan's state trunkline bonds are not susceptible to immediate material credit risks related to coronavirus because of strong coverage of debt service and limits on additional leverage. The longer-term impact will depend on both the severity and duration of the crisis."

According to the governor and MDOT, the $800 million will generate total proceeds of $1.017 billion, and all-in true interest costs are 2.727 percent.

“The maximum annual debt service maintains 6.4 times coverage against revenues, well above the four times coverage required by State Transportation Commission policy,” according to the governor’s office.

Not everyone is celebrating the selling of bonds to “fix the damned roads” in Michigan, however.

James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, for example, takes issue with the additional costs not mentioned in the governor’s news release.

“The governor signed the state up to pay over $500 million in interest costs on this debt that could otherwise have gone to road repairs,” Hohman told The Center Square. “It takes us further from the point where the state puts the roads together faster than they fall apart.”