Busy roads

Michigan road funding analysis, part 2

Authored by Andy Campbell

“What about our roads?”  We keep hearing this question across the state from communities large and small. In response, we have talked with communities about the options available.  The answer usually comes down to one word, millage.  The money coming from the State of Michigan is not going to be enough to handle the problems that have accumulated over time.  Raising millage one way or another is the answer.

The next inevitable discussion amongst the community leaders is, “would our voters support a tax increase?”  That is the million-dollar question, and the only way to get an answer is to ask.  All across the state, communities of all sizes and types (cities, villages and townships) are voting road millages.  These millages have varied from less than 1.0 mill to 6.0 mills.  A funny thing is happening as well; many are passing (including the 6.0 mill plan).  Communities are finding out that now is the time to tackle the roads.  Even the new governor’s campaign slogan was all about roads.  The average voter does not understand why their community cannot afford to keep the roads in perfect condition.  People are fed up (maybe not at the right people) and they are voting ‘yes’ for many of their communities’ programs.   

“How do we keep our millage rate the lowest, while funding our needs?”  The answer may lie in a unit of government not often discussed in the municipal world; schools.  Schools have been voting bond series programs for many years.  A bond series program allows the community (or school) to keep the millage as low as possible, fund a capital improvement program for a long period of time (sometimes 30+ years), and only have one vote to do so.

For example, community X could vote their $15 million road program as one bond issue and they could issue a bond for $15 million and calculate the millage to pay back the bonds at 4.0 mills per year.  Under the bond series program, that same community could vote the same $15 million road program and issue two or three separate bonds throughout the course of the program and the millage required per year might only be 2.5 mills.  The only difference the voter sees in the voting booth is that their taxes would increase by 2.5 mills instead of 4.0 mills.  That difference in millage rate could be the difference between a ‘yes’ vote and a ‘no’ vote.

Not only do bond series programs allow for millage rate benefits, they also stage out the improvements over time to allow for better planning in the future.  If we paved every road in the state today and every road lasts twenty years, we would be creating the same problem twenty years from now that we have today.  In contrast, issuing two to three bond issues over a course of time can help stage out the improvements thus staging out the potential improvements needed in the future as well.

For more information on this topic, or to learn how Baker Tilly municipal specialists can help, contact our team.

Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and wholly-owned subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities.

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