Additional Public/Private Funding Options

Generally, Michigan has not used toll roads in the past because we pretty much would be tolling ourselves. That is because most Michigan road users are state citizens, unlike in Indiana and Ohio, where there is a high percentage of through users that are simply passing through the state. A similar situation exists in Florida, where many of the road users are from out of state. Given Michigan’s geography we simply don’t have that kind of out-of-state traffic. Tolls are also not a very efficient means of collecting road taxes, a cents/gallon fuel tax is in fact a very efficient means of collecting fees for road use. The more a person drives, the more they pay, and the more fuel efficient a car they use, the less they pay, therefore promoting fuel conservation.

After considerable study of the potential for selling some of our roads and/or allowing private firms to build new roads, and using the proceeds for investment in other key roads, we have concluded that this option is not viable for Michigan. Neighboring states and cities like Indiana and Chicago have however been pursuing this option. For instance, Indiana received $3.8 billion for a 75-year lease and Chicago has just received $1.83 billion for 99 years for the Chicago Skyway’s 7.8 miles.[132] A number of other states have also pursued this option or are considering it. But they either are building brand new roads, or had existing public toll roads they could sell. This is a critical difference because they don’t then have to pay back federal funds since there were no federal funds used.

In Michigan’s case, were we to sell existing roads, we would have to pay back the federal government because it paid up to 80 percent of the costs to begin with. In addition, if we were to convert entire existing roads to tolls, we would have to add actual toll booths at exits since there would be no way to require all users to have automated technology. Installing such toll booths would be very difficult given the space available at many exits. The changes in driving behavior and use or non-use of exits that would result, would also be extremely disruptive to businesses located at the exits and would likely bankrupt many such businesses.

The one possible opening in Michigan for selling or leasing an existing public road would be the Mackinac Bridge. While federal aid would have to be paid back to the feds – it would have to be paid back in 1950s value dollars so that cost might be manageable. However, the price that could be obtained would be limited by the modest traffic levels. The new lease holder or owner would also have to raise tolls by enough to pay back the cost of the bonding incurred to pay the state an upfront price. Another issue would be the fact that the bridge is the only connection between the two peninsulas of Michigan, and there is no other route. There would likely be a considerable outcry in the Upper Peninsula about the higher tolls, and placing the bridge in private hands. Two other possible options involve sale or lease of the Michigan-owned half of the Blue Water Bridge and/or the Detroit-owned half of the Detroit Windsor Auto Tunnel.

Should the sale of existing roads ever be considered, the level of tolls would of course have to be considered. Quite high toll levels can be necessary to cover the debt costs that private firms incur. For instance, in Indiana, the consortium that is leasing the Indiana tollway is paying the state $4.3 billion that they will have to recoup in tolls. And those tolls will be over and above the current toll rates that the state has charged to recoup construction and maintenance costs. Concerns about the level of the tolls that would be charged are not going unnoticed. For instance a 2005 Wall Street Journal article discussed the pros and cons of private toll roads, and the increases in tolls that would be necessary in the future.[133]

Sale of existing Michigan interstates is probably not a good idea. However, should there be a need to construct major new road segments, such as for a U.S. 23 expressway extension to the north, then private toll roads could be considered. Private toll roads are one more option for raising money to expand our road system. But generally speaking, Michigan is not in need of major new roadways. Instead, from an expansion standpoint, we are more in need of new interchanges and lane additions to address congestion.

And that is where one extremely viable toll option comes into play for Michigan. That option involves the possibility of adding additional lanes to existing southeast Michigan interstates under federal tolled “express” or “hot” lane programs. The fuel tax increases proposed above will make a significant contribution to bringing a number of our existing roads up to good condition. However the above funds cannot begin to make a dent in the need for major new lane capacity in southeast Michigan. With urban congestion in southeast Michigan forecast to rise by large percentages over the next 30 years, there is a critical need to address funding for additional lanes that will relieve congestion. These funding requirements are very large. For instance, six miles of reconstruction on I-94 has an estimated cost of $1.4 billion, with I-75 in Oakland County costing $1 billion. Coupled with the need for additional lanes on these and other roads such as U.S. 23 north of Ann Arbor, it is clear that existing funding sources cannot begin to meet the need.

The new federal tolling option allows for up to 15 demonstration projects where the public or private sector can add a lane to an existing Interstate and charge tolls to fund the investment.[134] Previously, tolls were not allowed on federal aid funded interstates unless all previous public investment was paid back to the federal government. These toll lanes are not allowed to use traditional toll booths and must instead use new transponder technology to automatically invoice customers for the tolls. Tolls can be fixed or variable for express lanes that do not require high occupancy vehicles but we would recommend that these tolls be variable and based on congestion levels at different times of the day. The new lanes do not have to require high occupancy vehicles and we would not suggest their use.

Overall, the automated tolling program is a tremendous opportunity for Michigan to address major congestion problems developing on these key routes, and could generate at least a billion dollars of additional highway revenue over time. Michigan needs to strongly consider this kind of tolling program. Minneapolis has already implemented a similar program on I-394. In fact, new federal grants may be available to support these kinds of programs. This year, the Bush Administration is proposing $130 million in grants for the FY 08 budget to help states pursue this option.[135] They will make 10 grants to states in FY 08 under this program, and are proposing an additional $175 million in FY 09 funding.

Using a somewhat different program, the U.S. DOT announced a new “Corridors of the Future” congestion reduction program, which will make available new financing options, and expedited permitting.[136] Michigan should seek to have the interstates around Detroit designated in the next round of this program’s projects in the summer of 2007. The Chicago area, with portions of I-80, I-90, and I-94 (including portions in Michigan), was just selected for this program. Michigan needs to be next, and such a designation might help Michigan’s odds of being picked for one of the express lane designations and grants.

It is time for Michigan to move forward with planning for southeast Michigan lane expansion – and these express/hot lane options with automated congestion tolling should be a key funding source. As part of this effort, Michigan should also enact comprehensive legislation outlining the way these toll programs would work in the state. This legislation should also address private toll roads. A number of other states have enacted such statutes.