Public Bonding and Tolls

Long term public bonding can also be an appropriate source of funds for capital projects with a 30 year plus expected life. However, bonds have to be repaid with interest, and absent toll roads, funding must come from general funds or other user taxes. At the end of 1993, Michigan had $605.5 million in outstanding debt obligations.51 This total included some $200 million in "Build Michigan" bonds issued since 1992. MDOT's current plans call for $60 million per year of the need identified above to be funded from the issuance of state bonds. This would increase Michigan's level of bond funding to the level found in many other states. For instance, in 1993 ten states had indebtedness over $1 billion. However, many of these states use toll roads to repay bonds.

Obviously, bonding increases the total costs because of the interest charges which must be paid over time. However, inflation can reduce the costs of repayments in real dollars, and it makes some sense to match funding to the life of the project. This allows future users to contribute to the payments for the project. Ultimately, bonding makes more sense if tolls are to be collected to back the bonds. While this is an option, Michigan has a long history of avoiding tolls, so it is doubtful that the public would accept such a system. Tolls make more sense in states with large numbers of through or tourist vehicles, such as in Illinois, Ohio, or Florida.