On December 5, 2016, Michigan’s 21st Century Infrastructure Commission released its report which outlines a need for as much as $60-80 billion in funding from various sources over the next 20 years ($4 billion per year). The entire report can be viewed at the link below. This entry serves only to highlight certain aspects of the report and some of the various funding sources contemplated.
The report clearly demonstrates that “infrastructure” means a lot more today that it did only a few years ago. While the power grid, water lines and roads are crucially important to all of us, the report emphasized that a successful infrastructure includes a well-documented, maintained, collaborative effort among four broad categories: Communications (broadband, satellite, mobile, and the “internet of things”), Energy (all forms including clean, adequacy, cost effectiveness, storage, etc.), Transportation (roads, rails, bridges, ports, automated and intelligent vehicles, etc.) and Water (drinking, disposal and treatment, protection, etc.).
Within each category, the report assesses where Michigan is today, where the Commission envisions Michigan in 20 years, and describes plans to achieve each vision. Those plans include legislative action, executive orders, new advisory and oversight bodies, and new and revised funding mechanisms.
Within each infrastructure category, the report emphasized the need for collaboration among experts at the state level, among neighboring municipalities, and certainly among categories. Also contemplated was the inclusion of private parties—experts in their field who could lend such expertise or provide services on behalf of public bodies.
This would all be accomplished with improved monitoring, data collection and information sharing. According to the report, that would necessitate some form of state-level oversight for planning and directional decision making. The report called for the creation of the Michigan Infrastructure Council, “a body that would coordinate infrastructure-related goals.” “The Council, authorized by legislative statute, should have three main functions, with the overarching goal of improving the level of service to the public at the lowest annual cost:
- Leverage the development of the pilot for implementation and maintenance of a common statewide asset management process and database;
- Develop a long-term, integrated infrastructure strategy for the state, and communicate relevant project information to decision-making bodies; and
- Design, oversee, and coordinate the distribution of incentives and funding and financing opportunities, with an eye toward ensuring that funding cycles and processes promote cooperation between asset owners and reward projects that address multiple infrastructure needs with a single project.”
Technology and data collection are envisioned as what will allow holistic planning among infrastructures, and allow efficient management of the systems to maintain them and improve them before failures or the need for repairs arise. Improved technology is also seen as a necessity for environmentally friendly progress.
Needed Funding and Investment Gaps:
Chapter 8 of the report makes it clear that such endeavors will have a cost, and that achieving the 20-year goal is, obviously, a significant task. The report considered many financing mechanisms, emphasizing the need to avoid reactive, corrective spending, and instead to focus on leveraging the most out of each dollar invested. For example, the report suggests that spending $1 on road pavement preservation between years 13 and 15 eliminates or delays spending $6 -$14 on rehabilitation or reconstruction in year 22.
A significant part of the report focuses on funding improved infrastructure, but first on funding and investment needed to bring Michigan infrastructure to a sustainable and “growable” level and ensuring “1) public health and safety, 2) quality of life, and 3) sustainable economic growth for all Michigan residents.”
Funding generally falls into 4 categories:
- Maximizing the utilization of user fees in alignment with supply and demand principles. This includes the usage of tolls, of gps-based user fees, as well as increased emphasis and taxes on commodities such as fuel.
- Leveraging federal funding, taking full advantage of all funding match opportunities. This includes programs such as the Federal Communications Commission’s Universal Service Fund Programs that have provided Michigan with hundreds of millions of dollars already, and the Federal Highway Administration’s Interstate System Reconstruction and Rehabilitation Pilot program.
- Identify and prioritize efficiency and coordination through asset management. This includes an initial investment of $2 million for the development or adaptation of collective asset management technology.
- Finance long-term investments to capitalize on the time value of money—This includes bonds and other obligations to secure long-term financing at economically advantageous rates.
The report contemplates the inclusion of many of Michigan’s departments and agencies, including Treasury, the Departments of Environmental Quality; Natural Resources; Transportation; Technology, Management and Budget; Health and Human Services; Licensing and Regulatory Affairs; the Michigan Strategic Fund, the Michigan Economic Development Corporation.
The Commission’s Four Categories of Infrastructure:
The estimated investment gap is $618.6 million over 5 to 10 years. This includes projects aimed at smart technology, wider access to all residents, security, and technology aimed at allowing communication among goods—the “internet of things”.
This includes modernization of the electric grid to incorporate newer technologies, incorporation of alternative energy sources, modernization of natural gas pipelines, etc.
An annual investment gap was not developed given the existing infrastructure and funding framework in existence, and the high level of regulation in place in this field.
Act 51 (Transportation) review—the report suggests that repeated amendments to Act 51 have made it overly complicated, and that it relies on a system of fuel usage when the industry constantly works to reduce fuel demands. A GPS-based per-mile fee, and bridge user fees are suggested. Tolls are suggested where possible in Michigan, along with legislation authorizing toll finance to make Federal Highway Administration programs available.
Additionally, increased and broader vehicle registration fees are suggested.
Investment needs are for roads and bridges, multimodal transportation, new project development including for intelligent vehicle technology. Here, an annual investment gap of $2.63 billion was identified for roads, bridges and multimodal transportation. Further, a $40.2 billion gap was identified with a duration of 15 years, for other transportation infrastructure investment that includes reconstruction, but also includes more multimodal investment and intelligent vehicle technology investment.
As with other categories, investment is needed in asset management planning. The annual investment gap is estimated at $800 million, but the accuracy of that estimate is uncertain, given the lack of information available.
It is suggested that the State expand its Storm water, Asset Management, and Wastewater (SAW) program to include drinking water. Additional bond financing is suggested relying on $290 million of available capacity from the Great Lakes Water Quality Bond of 2002, along with a suggested $460 million in “general obligation debt” to fund storm water, wastewater and drinking water asset management planning, with a goal of truly aligning rates with the actual costs of maintaining a system.
In all, the total investment gap is stated to be $19 billion, to account for cleanup, testing, reparations, technology, etc.
Addressing the Funding Gap:
Along with leveraging federal funding and private investment including P3 opportunities, and the overhaul of Act 51 (transportation), the report contemplates other funding sources to account for the very large perceived funding and investment gaps.
Of course, bonds and other obligations as permitted by state and federal law are suggested for projects with longer useful lives supporting longer-term outstanding debt. This is especially true for roads and water, where successful programs and statutory authority already exist.
Other unique funding options, some of which are acknowledged within this entry, are on page 133, Exhibit 21 of the report, shown below:
Please click here to view table.
A state-owned infrastructure bank was also suggested, that could provide for borrowing by public and private entities to fund public projects. It appears that such a bank could offer more lenient terms or act as a follow-on source of security with other lenders.