In a Nutshell

• Michigan stands to receive $4.3 billion under the new federal infrastructure act to address much-needed transportation, water, broadband, and electric vehicle charging infrastructure projects.
• This massive investment of federal dollars will also bring cost sharing requirements likely to amount to more than $1 billion for Michigan.
• However, a large surplus of federal and state revenue will help the state to meet any matching obligations.

After months of both inter-partisan and intra-partisan wrangling, Congress formally approved a massive federal infrastructure bill last month. The Infrastructure Investment and Jobs Act (IIJA), signed by President Biden on November 15, authorizes $550 billion over five years in new spending to address long-deferred infrastructure needs, including repairs to the nation’s roads and bridges; establishing an electric vehicle charging network; improving water and sewer systems; and expanding broadband internet capacity.

Our review of the act suggests Michigan could be in line to receive $4.3 billion in added federal funding over the next five years for these purposes. However, this massive injection of federal support often comes with matching requirements, an issue that could have proved difficult to Michigan in the recent past. But the state appears to be well-positioned financially to meet any match obligations thanks to an unprecedented surplus of available state and federal revenue.

Major Allocations to Michigan

The analysis below provides estimates for Michigan’s allocations within four major program areas contained in the act that account for a large portion of the legislation’s new funding to Michigan and other states. It’s important to note that the 2,702-page IIJA is enormous in scope, so this is not a comprehensive list of funding allocations.

Sources: Federal Funds Information for States, U.S. Senate Committee on Environment and Public Works, American Association for State Highway and Transportation Officials; White House Michigan IIJA Fact Sheet

Transportation ($2.6 billion)

Almost half of the new spending is allocated to address transportation infrastructure, and Michigan is in line to receive nearly $2.6 billion in additional funding under the IIJA. The act reauthorizes federal law guiding the provision of federal transportation dollars, providing an additional $284 billion in federal support nationally over the next five years (FY2022 to FY2026) above current baseline levels. 

For Michigan, federal highway apportionments under IIJA will grow by over $2 billion during this period; a 35 percent increase over allocations during the prior five years. Over a quarter of this new highway funding is attributable to a new Bridge Investment Program formula allocation. Under the program, Michigan is in line to receive $563 million to address a backlog of bridges in poor condition.

On top of this formula funding, Michigan will also be eligible to apply for new funding from a $12.5 billion competitive grant allocation for critical bridge repairs. If Michigan is awarded funding proportionate to its formula allocation (around two percent of the total), the state would receive another $250 million to supplement its Bridge Investment Program formula grant

Finally, state formula funding for public transit programs also increases significantly under the act, with funding during the next five years up by $308 million over the previous five-year period; an increase of over 43 percent.

Broadband Access ($850 million)

Expanding access to high-speed internet services to areas that are either unserved or are experiencing high costs for service is another major component of the IIJA funding. The act provides $42.5 billion nationally to states and territories with the goal of installing internet infrastructure to expand service into unserved or underserved areas and providing affordable internet-capable devices to end users. Each state receives a minimum allocation of $100 million with remaining funding (around $36.2 billion) distributed based on a state’s share of unserved locations.

No published estimates are yet available on the state-by-state distribution of these funds. Research from the organization BroadbandNow suggests that around 1.3 million Michiganders and 42 million Americans lack broadband access; that implies that roughly three percent of the unserved population currently live in Michigan. Using that three percent estimate as the basis of the formula distribution would result in Michigan receiving around $1.1 to $1.2 billion from this allocation. We incorporate a more conservative estimate in the accompanying table that assumes a two percent allocation for Michigan ($850 million).

Water System Improvements ($732 million)

The IIJA includes $48 billion in funding spread over the next five years for water infrastructure. Of that, $23.5 billion reflects the reauthorization of existing revolving loan fund grant programs to states; significantly greater than the $13.3 billion authorized for these programs between FY2017 and FY2021.

In addition, $15 billion is included for lead service line replacement projects, and another $10 billion is included to address emerging water contaminants such as PFAS and wastewater contamination (half of the latter allocation is earmarked for small and disadvantaged communities).

As with the broadband grants, specific state-level distributions are not yet available. But applying the traditional formula for state revolving loan fund allocations, Michigan would be in line to receive roughly $1.3 billion from the five-year overall allocation; more than double the amount received during the prior five year period, which included a special $100 million allocation to address the Flint water crisis.

Electric Vehicle Charging ($110 million)

The infrastructure act includes $7.5 billion nationwide over the next five years to build out both electric vehicle charging infrastructure and alternative fuel corridors along the nation’s highway system.  Of this amount, $5 billion is authorized for a grant program to provide direct funding to states to establish electric vehicle charging infrastructure within their borders. Michigan’s allocation from the grant program is estimated to be $110 million over this time period.

Matching Funds: Can Michigan Afford the New Dollars?

The great majority of the new federal infrastructure funding comes with matching requirements. Depending on the program, those matching funds are generally around a 20 percent state cost share, but can be as high as 50 percent in some instances.  The table below provides a rough estimate of state match costs by major program area. Our analysis suggests Michigan could need close to $1.1 billion over the five year period to fully utilize the available federal funding.

Source: Match rate information compiled from Federal Funds Information for States

Can Michigan afford that much? Short answer: Yes. As we’ve noted previously, the state will have a significant amount of unspent revenue available when the accounting books are formally closed for FY2021 in the coming months. That revenue comes from two sources. First, state revenues themselves were surprisingly strong during FY2021, helped out significantly by the impact of federal stimulus efforts such as enhanced unemployment benefits, stimulus checks, and the Paycheck Protection Program. That strong revenue growth combined with significant budget cuts implemented during FY2020 (when budget writers believed the sky was falling with regard to revenues) are going to result in a state revenue surplus of over $5 billion once the books are finally closed on FY2021.

Second, the state is still working on a spending plan for the remaining $5.7 billion in fiscal relief funding it received from the federal government under the American Rescue Plan Act (ARPA) last year. As we noted previously, U.S. Treasury rules allow those ARPA funds to be used to offset state revenue losses to the extent that state revenues grow at a rate below a 4.1 percent threshold established in the rules. 

This summer, we showed that relevant state revenues in Michigan were likely to fall well below this threshold. Effectively, that allows Michigan to replace General Fund revenue with ARPA dollars within the state budget. Those General Fund revenues can then be redirected to some other one-time purposes – like, for instance, matching federal infrastructure funding.

While unexpectedly strong revenue growth during the last half of 2021 has pushed Michigan closer to Treasury’s 4.1 percent growth threshold, Michigan still has significant room to use ARPA funding to free up state revenue if that is needed to meet these matching requirements. State policymakers should most certainly plan to leverage some of that ARPA funding for this purpose.

So, in short, this huge federal infrastructure investment is happening at a time that Michigan is uniquely well-positioned to finance its share of the related costs. Certainly, challenges lie ahead: for instance, can Michigan find enough contractors and workers to actually repair the roads, replace the pipes, and build the charging stations? Money, however, should not be a barrier. So, roll up your sleeves, Michigan. There’s a lot of work to be done in the next five years.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the Citizens Research Council of Michigan is properly cited.