The head of Michigan’s Department of Transportation says the state can increase road spending by more than 50 percent without causing increases in the cost of materials and labor. But that’s unlikely, and state lawmakers should keep these costs in mind as they evaluate transportation spending.

In an interview with MIRS News, MDOT director Paul Ajeba said he’s not concerned about price spikes.

Causing a spike in materials, supplies and contractor fees is something the Department has been working on, according to Ajeba “to try to see how we sequence the work process so that prices don’t go up.”
That said, he’s not concerned and he points to the American Recovery Act which pushed $1 billion in projects in the state.
“They gave us some very strict criteria. You have to get this job done within a certain period of time,” he said. “And we did. We spent a $1 billion within that two- or three-year period and part of what we were really concerned about is . . . would this not drive up the cost, spike the cost of road construction?”

Labor costs affect the price of construction and the state’s labor market is much tighter now than it was during the recession. Michigan’s unemployment rate spiked above 14 percent back in 2009 as the federal stimulus of $1 billion rolled in. The proposal today is for a $2.5 billion increase in a year and a half — at a time with very low unemployment.

Indeed, Michigan is already seeing a spike in the cost of road building. Freeway construction costs have increased 80 percent since 2013. And documents from Oakland County show the cost to build roads increasing 33 to 60 percent over the past five years because of a lack of builders and materials.

Over a decade, Michigan is set to double state spending on roads – from $2 billion to $4 billion. The state does need to spend more on roads and bridges to counter a decade of flat spending in the 2000s. Doing so with a huge influx of spending, almost entirely from net tax increases, is not an efficient way to do so and lawmakers should consider other options.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.