Transit Infrastructure Bank

Over the last decade, Michigan’s government––and the federal government––has deferred billions in investment on Michigan’s roads and bridges. The state’s annual investment of 6.4 percent of its budget on infrastructure falls dead last among neighboring states and four points below the national average of 10.2 percent. The result: Michigan’s infrastructure received a “D+” Grade from the American Society of Civil Engineers (ASCE) in 2018. Currently, 39 percent of Michigan’s public roads are in poor condition and 27 percent of bridges are structurally deficient.  Driving on deficient roads costs Michiganders $3.1 billion annually in lost time and fuel costs and $2.3 billion – approximately $540 per year per household – in vehicle maintenance.

The problem is not only roads in disrepair. Michigan also has famously bad public transportation. Our lack of affordable, reliable public transit has economic impacts. It interrupts labor markets, hurting the chances of economic upward mobility for those who can’t afford cars; it deters younger workers who want public transit, causes higher individual costs for transit; and it increases carbon emissions.

How the Transit Infrastructure Bank will work

1 Loan-loss Reserves

Road quality cannot be solved by throwing money at roads alone. One of the biggest problems with American road policy is the political economic incentives favor constructing new roads. This provides jobs and public approval initially, but it creates long term problems by diverting public money from maintenance and, ultimately, creating more congestion. Michigan needs a way, free from legislative deadlock, to ensure that the proper incentives are in place to concentrate funding on maintenance, rather than new construction. 

The Transportation Infrastructure Bank will be split into maintenance and construction branches. Funding will be split between the branches, with the maintenance bank dedicated solely to fixing Michigan’s failing roads and bridges and the construction bank dedicated to financing the transit projects we need to bring Michigan into the 21st century – including the building of a new Soo Lock. 

While each branch will have its own practices and considerations, there are overall policies that will help lead to the Transportation Bank’s success by lowering risk and encouraging investment. These include the following: 

Loan-loss reserves | Like the other component banks, the Transportation Bank will set capital aside to cover potential losses from individual and municipal borrower defaults, helping to reduce loan repayment risk and making investments more attractive for private and institutional investors. 
 

2 Public Insurance

This mechanism, run through the Pure Michigan Bank and the Michigan Treasury, will operate in tandem with loan-loss reserves to protect investments. Premiums and deductibles will be determined by actuaries, but will be low and accessible enough to supplement loan-loss reserves. 

3 Project Warehousing

The Pure Michigan Bank will aggregate smaller projects to package them together to not only lower transaction costs, but to ensure that whenever possible, projects are fulfilling multiple goals. Projects that replace lead pipes, for instance, can be paired with projects that lay fiber optic cable and provide broadband in rural communities. Because the public sector––rather than insurers or Wall Street––will be packaging these projects, incentives to package high risk projects in with low risk projects will be diminished.  Additionally, unlike traditional banks,  cross-funding will be encouraged and the staff of each bank will also be expected to collaborate and warehouse projects as often as possible. 
 

4 Anticipating the Future of Transit

The El-Sayed Administration will convene a statewide stakeholder group of industry, mayors, and administrators on the future of commuting as a part of the Pure Michigan Bank’s transit branches. Autonomous vehicles, electric vehicles, and mass transit are becoming an increasing presence on the transit landscape; cities and states that are best suited to take advantage of these trends plan far ahead to build infrastructure – like autonomous vehicle only lanes, bus rapid transit, and electrical vehicle charging stations – that accommodates these changes. 

The commission will examine the potential of congestion pricing to reduce congestion on Michigan’s roads, invest in mass transit projects, implement carpool only lanes, and coordinate other consumer-side transit innovations that meet the needs of Michiganders, now and in the future. The Administration will also convene a commission to draft of plan for how to finance and build a new Soo Lock, which will be the focus of the Transit Bank alongside repairing our roads and bridges. 

Cost and funding

We plan to provide roughly $1.5 billion to fund the Transit Infrastructure Bank in its first year, with roughly $1.4 billion in additional funding every year until Michigan receives an “A” grade from ASCE. 

Initial capital for the Transit Bank – approximately $60 million – will come from a 15 percent excise tax on adult use marijuana (not medical marijuana) and the road funding package passed by the Snyder administration. Spending $1.4 billion annually will require us to raise an additional $600 million than we currently raise through the gas tax.  This additional revenue will come from a combination of increased gas and diesel taxes, tolls, and increased registration fees for farm and log trucks. 

Next Section