Last year, Gov. John Engler proposed transferring the jurisdiction of about 23,000
miles of locally controlled roads to the Michigan Department of Transportation (MDOT), so
the state could contract road maintenance either to public road agencies or private-sector
firms. The governors proposal now involves some 9,000 miles, but MDOT and local road
authorities continue to negotiate.
Recently, however, the state Senate Fiscal Agency released a report showing that the
work of one private company maintaining roads for MDOT was costly. MDOTs own work
was expensive, too, when compared with county road agencies, the study indicated. The
Senate Fiscal Agency report is widely viewed as an argument against the governors
Road maintenance involves fixing potholes, mowing grass, plowing snow and similar
chores. MDOT crews or county road commissions traditionally provide such maintenance on
MDOT-supervised roads, with private companies engaged only as subcontractors. But in 1994,
MDOT let only private firms bid on the full maintenance of 20 miles of I-496 and U.S.-27
near Lansing. ABC Paving Co. of Trenton won the bid.
As for the privatization experiment, MDOT should either expand the area open to
private contracting, so that more meaningful cost comparisons can be made, or nix the
experiment once the contract runs out.
According to the Senate Fiscal Agency report, ABCs costs are about $15,000 per
"E-mile" (a standardized road measure). In contrast, costs per E-mile for roads
maintained by the county and by MDOT in the same district are about $7,000 and $8,800,
But this shouldnt be surprising. ABCs capital investment, its
"emergency" cost of carrying extra crew for heavy snowfalls and its learning
costs are spread over a length of road thats tiny compared with the stretches
maintained by public departments. The company receives no economies of scale. Moreover,
the roads under ABCs care are heavily traveled compared with those in the rest of
the district; the report in a recommendation glossed over by many, suggests that more
appropriate benchmarks might be the district "near Grand Rapids" (about $8,400)
or "in the Detroit metropolitan area" (about $17,200).
The smaller cost differences found in the report between the county road departments
and MDOT itself may also be natural. MDOT crews generally maintain fewer, more dispersed
roads, and according to Ron DeCooke of the County Road Association of Michigan, "we
(counties) get more of the economies of scale." The report also noted that MDOT
performs services the counties do not.
But even if the private sector and MDOT are wildly inefficient compared to county road
departments, critics are wrong to say this argues against the governors plan. He
proposes competitive bidding. If counties win all the contracts because they are lower
cost, taxpayers benefit regardless.
In the meantime, MDOT should recognize that the Senate Fiscal Agencys report,
which is in fact carefully written, is the best available analysis only because MDOT
doesnt keep better cost figures a sad failure in the Information Age.
As for the privatization experiment, MDOT should either expand the area open to private
contracting, so that more meaningful cost comparisons can be made, or nix the experiment
once the contract runs out.