Font size:
Last year, Gov. John Engler proposed transferring the jurisdiction of about 23,000 miles of locally controlled roads to the Michigan Department of Transportation (MDOT), so the state could contract road maintenance either to public road agencies or private-sector firms. The governor’s proposal now involves some 9,000 miles, but MDOT and local road authorities continue to negotiate.
Recently, however, the state Senate Fiscal Agency released a report showing that the work of one private company maintaining roads for MDOT was costly. MDOT’s own work was expensive, too, when compared with county road agencies, the study indicated. The Senate Fiscal Agency report is widely viewed as an argument against the governor’s plan.
It isn’t.
Road maintenance involves fixing potholes, mowing grass, plowing snow and similar chores. MDOT crews or county road commissions traditionally provide such maintenance on MDOT-supervised roads, with private companies engaged only as subcontractors. But in 1994, MDOT let only private firms bid on the full maintenance of 20 miles of I-496 and U.S.-27 near Lansing. ABC Paving Co. of Trenton won the bid.
As for the privatization experiment, MDOT should either expand the area open to private contracting, so that more meaningful cost comparisons can be made, or nix the experiment once the contract runs out.
According to the Senate Fiscal Agency report, ABC’s costs are about $15,000 per "E-mile" (a standardized road measure). In contrast, costs per E-mile for roads maintained by the county and by MDOT in the same district are about $7,000 and $8,800, respectively.
But this shouldn’t be surprising. ABC’s capital investment, its "emergency" cost of carrying extra crew for heavy snowfalls and its learning costs are spread over a length of road that’s tiny compared with the stretches maintained by public departments. The company receives no economies of scale. Moreover, the roads under ABC’s care are heavily traveled compared with those in the rest of the district; the report in a recommendation glossed over by many, suggests that more appropriate benchmarks might be the district "near Grand Rapids" (about $8,400) or "in the Detroit metropolitan area" (about $17,200).
The smaller cost differences found in the report between the county road departments and MDOT itself may also be natural. MDOT crews generally maintain fewer, more dispersed roads, and according to Ron DeCooke of the County Road Association of Michigan, "we (counties) get more of the economies of scale." The report also noted that MDOT performs services the counties do not.
But even if the private sector and MDOT are wildly inefficient compared to county road departments, critics are wrong to say this argues against the governor’s plan. He proposes competitive bidding. If counties win all the contracts because they are lower cost, taxpayers benefit regardless.
In the meantime, MDOT should recognize that the Senate Fiscal Agency’s report, which is in fact carefully written, is the best available analysis only because MDOT doesn’t keep better cost figures – a sad failure in the Information Age.
As for the privatization experiment, MDOT should either expand the area open to private contracting, so that more meaningful cost comparisons can be made, or nix the experiment once the contract runs out.
