More bond sales fuel Rebuilding Michigan

A year after the Michigan Department of Transportation (MDOT) sold the first group, or tranche, of bonds in Gov. Gretchen Whitmer's $3.5 billion Rebuilding Michigan plan, the finance team is preparing to sell another $800 million worth in August.

First, Patrick McCarthy, director of MDOT's Bureau of Finance, explains why the market has reacted so favorably to the sale of bonds to repair the state's crumbling roads and bridges. In a second segment, Brad Wieferich, director of MDOT's Bureau of Development, talks about the favorable bids for many of the projects and how the construction industry has reacted.

After the Michigan State Transportation Commission authorized the bond sale in January 2020, Gov. Whitmer joined the podcast to talk about the Rebuilding Michigan plan and the decision to sell the bonds.

In this week's first segment, McCarthy said a second round of $800 million in bonds will go on the market in August and independent analysts are projecting they will sell at a premium, just as the first round did a year earlier. The Bond Buyer reported on that first bond sale in August 2020, observing that while the pandemic diminished recent collections of pledged revenues, the state's sturdy coverage ratios provided a cushion to endure the fiscal storm.

"Michigan's state trunkline bonds are not susceptible to immediate material credit risks related to coronavirus because of strong coverage of debt service and limits on additional leverage," Moody's said at the time. "The longer-term impact will depend on both the severity and duration of the crisis."

Moody's also underscored that the lack of investment has taken a severe toll on the state's transportation assets.

A March 2021 Government Finance Officers Association primer outlined the role tax-exempt bonds play in infrastructure financings and as an investment product.

For those reasons and because of MDOT's solid track record managing finances, both bond offerings are generating a premium, meaning they are very attractive to investors, McCarthy says.

He also talks about the department's successful refunding of $68 million in 2011 State Trunkline Fund bonds, which saved the state nearly $20 million. 

In the second segment, Wieferich talks about the opportunities the Rebuilding Michigan plan offered to accelerate a number of projects that could not be supported financially for several more years. 

He also explains the design process, what's involved in preparing projects for contractor bids, and why, so far, most projects have come in under engineers' estimates.

As Wieferich notes, having more investment up front allows for rebuilding roads and bridges that would otherwise be resurfaced or repaired as stop-gap measures. In the long run, rebuilding rather than repairing, saves taxpayers money in ongoing maintenance. It also saves drivers time and money in commuting and commercial carriers who rely on the freeways to get goods to market on tight schedules.