Executive Summary

Building on decades of generous environmental spending, Michigan voters in 1998 authorized the state to borrow $675 million for the Clean Michigan Initiative (CMI). Whether this most ambitious of all Michigan environmental bond programs is actually maximizing environmental quality is a legitimate — and vital — policy question.

Until now there has been little measurement of the program’s efficiency or effectiveness. The Clean Michigan Initiative Act requires a performance review every two years, but the auditor general has declined to conduct one.[1] Nor have the state agencies that administer the initiative evaluated the success or failure of its various components.

The Mackinac Center for Public Policy decided to examine how CMI funds have been spent, and to ascertain what has been achieved. Ultimately, the goal of this study is to enhance environmental quality for all Michigan citizens by assessing whether this environmental bond program constitutes efficient and effective policy and practice.

This study takes on added importance in this election season. Michigan voters will be asked on the November ballot to approve another major environment-related bond measure. This time the Legislature is seeking $1 billion, which would be used to upgrade sewer infrastructure. A well-reasoned vote will depend, in part, on knowing how well the state has managed other bond funds as well as understanding the consequences of Lansing’s increased reliance on borrowing to finance environmental programs.

The following questions formed the basis of our examination of the Clean Michigan Initiative:

  • What are the fiscal consequences of selling bonds to finance the initiative?

  • Is the distribution of funds based on environmental priorities?

  • Are CMI objectives realistic?

  • Have the funds allocated to date achieved CMI goals?

On the issue of fiscal consequences, our findings indicate that the sale of bonds to finance the Clean Michigan Initiative dramatically — and unnecessarily — inflates program costs.

The sale of general obligation bonds increases by 60 percent the total cost of the initiative. To date, three CMI bond series have been issued, raising $153,620,000. But in addition to repaying this $153 million in principal, taxpayers also owe bondholders an additional $91,234,136 in interest. Legal and other administrative services related to the three bond issues cost an additional $346,000. Thus, taxpayers will repay about $1.60 for every dollar spent on CMI projects.

This debt service is troubling considering that Michigan’s per-capita debt relative to other states has worsened in recent years.[2] The state ranked 36th nationally in state debt per-capita in both 1980 and 1990, but had jumped to 24th by 1997. (See Appendix A.) This debt load also has outpaced inflation. Between 1978 and 1998, inflation increased 115.8 percent, while state debt increased 550.2 percent.[3] And the ratio of general obligation bond debt to total General Fund expenditures doubled between 1991 and 2001.[4]

Such debt might be justified if the borrowed funds had been spent to counteract significant environmental threats. But our findings indicate that the CMI funding formula does not adequately distinguish among environmental priorities.

A substantial portion of the money is reserved for commercial, recreational and aesthetic improvements that will yield relatively minor environmental benefits. For example:

  • $48 million in CMI-funded recreation grants have been awarded to 214 various units of local government for swimming pools, roller rinks, tennis courts, ice arenas, and even renovation of a dairy barn and construction of a fish-cleaning station.

  • $47 million in CMI funding has been appropriated for 43 waterfront development projects, including $6.2 million for a cement “promenade” along the Detroit River and $85,000 to construct a parking lot in Mt. Pleasant.

  • $50 million in CMI funds have been allocated for state park renovations. Yet only eight years ago, voters approved an endowment fund for parks’ maintenance, the balance of which currently exceeds $96 million.

The largest portion of CMI funds — a minimum of $263 million — is reserved for decontaminating abandoned industrial sites, known as “brownfields.” The goal of these cleanups is to curb suburban “sprawl” by increasing the availability of unsoiled and unencumbered urban properties. State planners hope that once investment is redirected, cities will be revitalized, bringing a halt to further development of farmlands and forestlands.

Our research indicates that this expectation is unrealistic. Ground contamination is only one of myriad factors that dissuade urban redevelopment. Investors are also drawn to suburban development for many reasons other than the availability of uncontaminated property.

Moreover, our examination found little evidence that brownfield cleanups funded under the Clean Michigan Initiative are attracting private investment to urban areas.

  • Of the six completed brownfield cleanup projects initiated in 1999 and rated as having “excellent” redevelopment potential, none has been sold or transferred by a municipality to a private investor. No redevelopment has occurred on any of the parcels.

  • Information also was collected on 10 other brownfield cleanup projects initiated in 1999 and rated as having “excellent” prospects for redevelopment, but which the state has not yet listed as complete. The sale of one parcel reportedly is pending, but none of the other nine sites has attracted private investment.

  • Twelve of the 1999 brownfield cleanup projects rated as having “good” redevelopment potential are considered complete. One site now serves as a public parking lot, and a second site is privately owned. No private investment or redevelopment has occurred on the remaining 10 parcels.

More progress might have been achieved had the state evaluated prospects for brownfield redevelopment before funding decisions were made. Instead, the Michigan Department of Environmental Quality essentially guessed that tens of millions of dollars invested in specific brownfield cleanups would spur private investment and job creation.

The initiative does reserve $90 million for water quality programs, including grants totaling $4 million to 33 local units of government and nonprofit groups to expand monitoring of surface water quality. These programs, while somewhat duplicative of other state and federal efforts, are more defensible than subsidizing a skateboard platform in Huntington Woods or bathrooms for Clinton Township’s Historic Village.

Analyzing water and sediment chemistry, plant growth and the condition of fish are necessary both to protect public health and to guide resource management decisions. However, the CMI does not directly address other pressing water quality issues such as sewerage overflows, eradication of aquatic “nuisance species” such as zebra mussels or the 14 “areas of concern” designated by the U.S. Environmental Protection Agency as the worst Great Lakes contamination.

Smaller CMI appropriations have been designated for pollution prevention, sediment cleanup and lead abatement. These may return some marginal benefits, but at substantial cost.

In summary, the debt service on CMI bonds inflates program costs, and far more CMI funds are being spent on questionable economic development, recreation and beautification projects rather than upon tangible environmental improvements. Well-intentioned though they may be, CMI goals are largely unrealistic and unlikely to produce the desired results.