State road construction industry seeks funding certainty

LANSING — Thirty years ago, Michigan’s road-building industry was flush with new gas tax money amid a construction boom that nearly tripled in size in as many years.

Today, lawmakers pay for road projects by scraping together general fund dollars on an annual basis, since gasoline taxes aren’t enough to meet current maintenance needs. The diversion of money from other state departments has been a bandage solution while the legislature negotiates a long-term revenue stream.

The cyclical nature of road funding could come back around to abundance, some in the industry say, depending on what the legislature decides on roads.

Top lawmakers are meeting with Gov. Rick Snyder to find a compromise on roads after the House and Senate put forth proposals relying on different amounts of current and new money, but they haven’t reached a deal.

The lack of a permanent funding fix has created uncertainty, to the point that contractors hesitate to hire or invest in equipment worth millions of dollars because they can’t count on projects beyond a single year, state transportation administrators and lobbyists for the road construction industry say.

A mid-80’s boom

On Sept. 23, 1985, Crain’s reported that increased federal and state gasoline taxes in 1982 directly contributed to new construction companies entering the road and bridge business, while other firms returned to Michigan after leaving to work on projects in other states during the recession of the early 1980s.

In the 1985 fiscal year, the Michigan Department of Transportation planned to award $410 million in contracts for road work eligible for federal funds — roughly $914 million in today’s dollars.

That was nearly three times more than the $146 million in road contracts MDOT awarded in 1982. The contracts followed a federal gas tax increase from 4 cents per gallon to 9 cents and a state tax hike of 4 cents per gallon that same year, according to Crain’s.

There are parallels, for sure. Then and now, Michigan was recovering from an economic recession that halted much construction activity, including on infrastructure. Some of that work resumed as the economy improved.

Even when adjusted for inflation, MDOT is spending more on roads today than it did 30 years ago, partly because the state has more roads today. The department says it awarded 871 contracts worth $1.3 billion on projects eligible for federal money in the 2014 fiscal year, with another 729 contracts worth $1.2 billion awarded this year to date.

But the state is struggling to keep up with the cost of upkeep. Michigan’s flat 19-cent gas tax hasn’t been raised since 1997, nor is it tied to inflation. As a result, the buying power of that revenue shrinks each year.

“If we are able to secure a long-term funding package, I think there will be lots of opportunities, and you’ll see what happened in 1985 all over again,” said Mike Nystrom, executive vice president of the Michigan Infrastructure and Transportation Association, a Lansing-based trade group representing the road building industry.

“Companies will expand, will invest and there will be new companies starting up.”
New interest

Road contractors, like other construction companies in Michigan, saw projects and funding dry up during the late-2000s recession. Many firms sought work in other states, while others downsized or went out of business.

In the last two years, Nystrom said, his roughly 600-member association gained at least 40 new members, in part because of a rebounding economy.

Settling the debate on road funding with a permanent revenue stream, though, will send that number higher as companies sense a more stable environment in which to invest, he said. He added that more companies bidding on public road projects also could drive prices lower.

“No one’s going into business when the industry’s flat on its back,” Nystrom said. “If you don’t know what the future is, you aren’t going to invest in training employees that you might not have the work for. And it limits them in buying capital.”

One-shot funding boosts — including annual state budget cycles and the 2009 federal stimulus — have created some work amid fiscal pressures, said Mark Van Port Fleet, MDOT’s current chief operations officer and chief engineer.

Yet the problem with one-time money, he said, is that it doesn’t give companies the type of security they need to make long-term investments in people or equipment that they’d have with a five-, 10- or 20-year funding strategy.

In 1985, Leet “Ed” Denton told Crain’s that his company, Denton Construction Co., took on its first Michigan road project after a seven-year absence in other states.

At the time, the Grosse Pointe Woods-based company was the low bidder on a repaving of the Lodge Freeway in Detroit in the 1980s, a project that initially was delayed due to bids that came in higher than expected.

Denton, now 82, is still in business, but on a smaller scale. He said he sold his family’s namesake construction business to Warren-based Angelo Iafrate Construction Co. about 15 years ago.

His St. Clair Shores-based Denton Enterprises Inc. now includes a concrete paving business in Lanexa, Va., and a small operation in North Carolina. Denton said he sold in part because of the uncertainty of work in Michigan.

His operations — totaling 350 employees and upward of $30 million in annual revenue in 1985 — have dropped to 75 to 100 workers and $12 million to $15 million in income.

“The amount of large concrete paving jobs was diminishing around the country, and it was increasingly difficult to make money,” Denton said. “What we’re doing in Virginia and North Carolina is principally repair and maintenance work because there’s not enough funding to really do a lot of new construction or complete reconstruction.

“The funding is totally inadequate, not only on a state level but also at the federal level.”

National logjam

Michigan’s funding stalemate is happening as Congress negotiates a long-term deal to keep the federal Highway Trust Fund from running out of money.

In July, Congress narrowly avoided a shutdown by passing a three-month extension of the fund, which allocates a portion of federal gas tax revenue to states for road projects. MDOT leaders say the short-term extensions help the state continue planning road projects, but the lack of stability means they can’t project very far.

Michigan receives about $1 billion yearly in federal transportation dollars, 75 percent of which goes to MDOT. The state must put up a 20 percent funding match to receive its full federal award, according to MDOT.

No permanent solution in Washington also could lead to project delays, which in turn could speed up construction schedules, affect timing of materials purchases and increase costs, Van Port Fleet said.

He added that the state is fast approaching the point at which road conditions will decline faster than revenue will increase to maintain them.

The state trunkline system alone would need $1 billion to get 90 percent of the roads to good condition, Van Port Fleet said. Yet MDOT will get just 39.1 percent of the estimated $1.2 billion in state dollars Snyder and state policymakers are looking for, with the rest split among cities and counties based on a funding formula.

Gas tax revenue has fallen from $846 million in 2009 to an estimated $820 million this year, according to MDOT figures. Lawmakers have had to shift some of the state’s general fund to roads because that amount has not been sufficient to match Michigan’s share of federal road money.

In the 2016 fiscal-year budget that starts Oct. 1, that means an additional $400 million for transportation.

“It is time that (new) revenue happens,” Van Port Fleet said. “How they do it is really not up to us.”

House and Senate leaders have said there appears to be consensus that some new revenue is necessary, but they haven’t been able to agree on a dollar figure. The House passed a proposal this spring relying mostly on existing spending, including diverting money from the Michigan Economic Development Corp. The Senate’s plan relied on some existing revenue and a gasoline tax increase tied to inflation.

Snyder favors a combination of higher fuel taxes and vehicle registration fees.

Voters in May rejected the Legislature’s proposal to raise the sales and fuel taxes in order to raise money for roads, along with schools and local governments.

“We can find a solution that takes care of itself year after year,” said Gideon D’Assandro, a spokesman for House Speaker Kevin Cotter. “The sticking point is finding a plan that can be a permanent solution where we don’t have to go back every year and take money and put it toward the problem.”

Meetings continue with Snyder and top legislative leaders, D’Assandro said. All parties have said the talks are productive, without offering details on potential compromises.

Facts matter. Trust matters. Journalism matters.

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Mon, 09/21/2015 - 8:51am
Can we please see this republican legislature finally do something realistic on this issue? With gas prices being so low right now, it seems a perfect time to add to the gas tax without hurting the economy. 100% of the needed additional funding needs to come from increased revenue and the gas tax seems to be the most painless way to do this. Just get it done!
Mon, 09/21/2015 - 9:08am
With the gas prices going up and down like a yo yo most people probably wouldn't even notice the difference. Enough of this silly polticial posturing just get it done.
Mon, 09/21/2015 - 11:22am
Why is it always about spending other people's money and nothing about what we are getting for that money? This has been true no matter who is in office, it has been going on for generations.
David Richards
Mon, 09/21/2015 - 12:26pm
Duane, In this instance it seems we are talking about our own money (not someone else's) and about what we are getting for our money. Failure to address our roads realistically costs us in repairs to our vehicles, shortening of the useful life of those vehicles, and loss of jobs and profits from businesses leaving or not moving here because they are not satisfied with the infrastructure in this state. Opponents are "penny wise and pound foolish" (an old expression meaning that they are losing a lot of money because they are afraid of spending a little).
Mon, 09/21/2015 - 7:21pm
David, How do you define 'penny wise and pound foolish'? Would you ask about value; design, construction, technology, etc., or would you simply talk about getting more money to spend? Who do you think is being 'penny wise, pound foolish' applies to, the ones spending it or the ones providing the money? Are "we are talking about our own money " and who is spending it, is it as dear to them as it is to us? Is 'dlb' talking about picking up the tab for the State road work or is it about colleting the moneys from the people across the State. When was the last time there was an article in which MDOT explain the means/methods they use for assessing the design needs, the construction methods, the quality of the contracting companies, analyzed the high use vs low use conditions, the latest technology of for repairs, the performance of repairs, etc.? When has MDOT or any of these discussion include talk about value for the money? Consider if the repairs were simply due to, the most often offered reason, weigh loading then why not change the design accordingly? It would seem in applying your 'penny wise, pound foolish' approach that spend a few more 'pennies' in design/construction you could save 'pounds' in maintenance [longevity]. If all that is talked about is money and spending it then all we will get is more spending. If you want better quality roads then we have to start talking about it. As best I can tell the idea of 'penny wise, pound foolish' is about getting value for you spending. How do propose we will get value for the money if it is never part of the conversation? How do you assure that simply wanting more and more money to spend is being 'penny wise, and pound foolish'?
Mon, 09/21/2015 - 11:22am
What is Snyder doing with all the extra money from the retirement tax? If he would quit giving tax cuts to his rich supporters you might have road money. Legalize marijuana and use that for the roads and other expenses as that would be a big addition to funding.
Mon, 09/21/2015 - 11:38am
Gas tax stays the same for decades, at the same time vehicles have significanly improved gas mileage. It is not difficult to understand why our roads are so bad. Couple that with Republicanism, term limits, and gerrymandering and it's easy to see the problem will not be fixed soon
Mon, 09/21/2015 - 11:39am
Wish I could find a creative way to tie a sex scandal to road funding. Republicans in Lansing would be all over that in a flash. Might even get something done! "Why Don't We Do It In the Road"?
Mon, 09/21/2015 - 12:32pm
Best comment on this thread. There are all kinds of jokes that could be made around that one in relation to how the politicians are treating the public on this issue. :)
Mon, 09/21/2015 - 11:48am
Love the sexy song title, maybe we can get the repubs to rally around that one! Gas tax may not be the ideal approach because it is regressive and because it is not a good long term solution due to improving gas millage, but it seems the simplest right now. As for the argument against any funding increase, this is clearly not a case of spending other people's money. This is all of us pitching in to pay for a joint benefit.
Mon, 09/21/2015 - 1:12pm
#1. Raise gas taxes. #2 raise registration fees, especially on trucks, and particularly on high weight trucks and those double bottom gravel haulers. Wheel loads on these trucks are dramatically higher than passenger vehicles, and they do 50 times the damage to the roads. They make the potholes, and we lose our tires and rims in them. #3. Don't attach a lot of right or left wing favorite causes to it. Just fix the roads. This will make voters happy - or at least happier.
Mon, 09/21/2015 - 1:24pm
"State road construction industry seeks funding certainty" Hmmm... What business or industry doesn't seek funding certainty? I'd sure like it. But to the real point of the article, we had this discussion already and the voters resoundingly said they'd rather not send the state any additional moneys verses spending more on the roads. Seems that some Lansing politicians along with writers for Bridge seem to have a hard time accepting it and going on from there.
Mon, 09/21/2015 - 2:39pm
We could easily solve the problem if we could dump all of the members in the state congress that signed the Norquist pledge and find new ones that would sign a pledge to spend the necessary funds to run state government even if it meant a tax increase.
Mon, 09/21/2015 - 6:28pm
As a former road commission manager I have seen gas tax dollars siphoned off for bike paths, street lights, park benches, economic development projects, bailing out the Secretafy of State shortfalls, and street scape beautification projects. Put the gas tax dollars back into roads and finance the other amenities through some other source. Limit the size and weight of trucks traveling the roads and enforce over weight penalties. Put the money back into roads where it belongs without adding extra taxes that will only be spent on non- road projects totaling millions.
The Reticulator
Thu, 09/24/2015 - 11:45pm
Where are the data comparing the amount of road maintenance per dollar in Michigan vs.other states? We're jumping to conclusions if we're talking about the need for additional revenues without having those data in hand. At the county level, our county now gets a lot more work done per dollar than it used to, and the difference is visible to me as I ride my bicycle along county roads. Much remains to be improved - the roads are still better in neighboring counties -- but the way the county work is managed makes a huge difference. I would expect it to matter at the state level as well. I live in a township that recently came up with a 7-year special tax assessment to fix our township roads, and a big reason that I support it is that the county now gives us a lot more roadwork for the money than it used to. When people start screaming for more revenue without analyzing things like this, my cynical self suspects it's just the usual Democrat corporate greed for more, more, more.
Tue, 01/12/2016 - 1:52pm
Ha ha ha ha ha