2013 Highway Funding Maintains Status Quo

Wed December 19, 2012 - National Edition
Pete Sigmund


MAP-21 (Moving Ahead for Progress in the 21st Century), the 27-month, $101.3-billion transportation bill that President Obama signed into law on July 6, 2012, is a two-year reauthorization of federal surface transportation programs.
MAP-21 (Moving Ahead for Progress in the 21st Century), the 27-month, $101.3-billion transportation bill that President Obama signed into law on July 6, 2012, is a two-year reauthorization of federal surface transportation programs.

(A growing, vibrant highway and bridge program is one of the keys to economic recovery. The American Road and Transportation Builders Association (ARTBA) addressed important topics and questions pertaining to the infrastructure construction market in a recent “Webinar” forecast for Wall Street analysts and construction industry executives. Following are highlights of this presentation by David Bauer, ARTBA’s senior vice president, government affairs, and Dr. Alison Premo Black, ARTBA’s chief economist.)

A recent “Webinar” by the American Road and Transportation Builders Association (ARTBA) in Washington, D.C., addressed a “status quo” stalemate in highway and bridge funding and highlighted the urgent need for shoring up Highway Trust Fund (HTF) revenues to stimulate activity, and spotlighted a broad range of infrastructure activity and needs.

The ARTBA officials pointed out that MAP-21 (Moving Ahead for Progress in the 21st Century), the 27-month, $101.3-billion transportation bill that President Obama signed into law on July 6, 2012, is a two-year reauthorization of federal surface transportation programs. In this environment, they predicted only a modest three percent growth in the U.S. transportation construction infrastructure market in 2013.

“MAP-21 is basically a status quo investment measure, which maintains federal highway investment at about $40 billion a year in 2014 and 2015, and transit programs at $10.6 billion in 2014 and $10.7 billion in 2015,” Bauer said. “There’s no major increase in investment in either program, but also not a significant drop off.

“MAP-21 took three years, and 10 temporary extensions, to pass. The main reason for the delay was the fiscal cliff facing the Highway Trust Fund, which urgently needs new revenue to replace that which has expired. MAP-21 preserved previous levels of HTF investment through temporary extensions and an infusion of $21-billion from other sources in the general fund. The situation is somewhat stabilized but will be back into the same dynamic of multiple extensions when MAP- 21 expires in two years. MAP-21 also cut federal highway investment from $41.1 billion in 2011 to $39.1 billion in 2012.”

Highway Trust Fund at Critical Stage

The report noted a general downward trend in federal highway and bridge contracts since the 2009 American Recovery Act (ARA) stimulus. Bauer declared that Congress and the President must bolster HTF investment as soon as possible.

“The Highway Trust Fund has a short-term life in preserving MAP-21 levels of investment,” he said. “Congress will again be in a very difficult position in terms of increasing revenues or cutting deficits. If nothing is done to increase HTF revenue, highway investment will drop 57 percent — from $40.4 billion in 2014 to $17.3 billion in 2015. The insolvency crisis looming in 2014 and 2015 threatens thousands of jobs in the construction industry.

“Most of the same people will control the House and Senate in 2014, when we could be facing the same short-term solutions as in 2009. A wholesale rewrite of MAP-21 is pretty unlikely. Some things in MAP-21 will take four to six years to accomplish. Past guarantees of investment levels have been stripped away, so there will be annual discussions on whether to adhere to levels agreed upon.”

Bauer pointed out that in the past 30 years, all HTF enhancements have been part of a broad tax/budget legislation deal, rather than coming from a transportation bill, and that solutions that alleviate or eliminate the HTF burden on the general fund will contribute to deficit reduction.

Majorities in Congress Support Funding

Bauer said MAP-21 made a number of policy reforms that Congress has sought for at least 10 years, including streamlining the environmental review process, eliminating earmarks, and providing greater accountability and transparency.

“Cleaning up such concerns may make it easier to generate future revenues for more growth,” he added. “Despite the incredibly hostile political environment in the 2012 election year, MAP-21 received unparalleled levels of bipartisan support compared to other legislation, reinforcing transportation investment. It passed the House with 373 votes, almost half from Republicans. Almost half the Republicans and all the Democrats in the Senate voted for it. This showed that some of the people who wanted to highjack the process through massive investment cuts couldn’t do it.”

Fiscal Cliff

Bauer said the “fiscal cliff,” the prospect of automatic spending cuts and tax increases if the deficit was not reduced, “has provided the opportunity to discuss HTF expansions, and try to do something proactive in this area.”

He said that “there will probably be no answer [to the HTF crisis] by the end of 2012” adding:

“HTF advances on the fiscal cliff will take until 2013 if not beyond. Most surface transportation programs would be exempt from the forced cuts under the sequestration program, which was to begin in January 2013. The eight percent fee on other programs would not apply to core highway programs, which are Trust Fund-supported.”

Dr. Black, ARTBA’s chief economist, commented as follows on the “cliff,” which she said had been “a major wild card in the forecast:”

“Although the fiscal cliff would not directly impact federal highway investment to the states, it could affect state and local finances, and thereby cause governments to pull back or delay projects. Such action in turn would have negative consequences on the highway construction market.”

She said individual businesses also could delay capital and hiring decisions amid the uncertainty.

Modest Growth in Infrastructure Work

Black said the U.S. transportation construction infrastructure market is expected to show “modest growth” in 2013, increasing three percent from $126.5 billion to $130.3 billion. This growth would be in highway and bridge pavement, airport and terminal runways, railroads, and ports and waterways. She predicted that the bridge market, which has shown substantial growth over the past 10 years, will remain flat in 2013.

Bridge and tunnel construction reached a record $28.5 billion in 2012 but will cool off in 2013, likely remaining flat at about $28.2 billion, she said, but rebounding smartly in 2014. The ARTBA forecast shows projects in eight states continuing to account for about half of U.S. market activity in this sector. The states are California, Florida, Illinois, New Jersey, New York, Pennsylvania, Texas and Washington.

Bridge work accounts for about 14 percent of state DOT outlays and the market is expected to remain healthy, with continued growth, over the next five years. Major projects include work on the Tappan Zee Bridge in New York, the Ohio River Bridge, the “floating SR29 bridge” in Washington State, the Detroit River Bridge, three major projects on the George Washington Bridge, and $500 million in Brooklyn Bridge projects. Black said about 60 percent of federal obligations goes toward bridge work.

Black added that the pavements market will be sluggish in 2013, growing 2.8 percent to $58.4 billion. This includes $47.7 billion in public and private investment in highways, roads and streets and $10.7 billion in largely private investments in parking lots, driveways and related structures. Pavement work is predicted to be down in 25 states and to grow above five percent in 19 states.

Two developments relating to MAP-21 could lead to additional market activity in the short term and strengthen the market in 2013 and 2014, Black said. One, the law’s restructuring of the federal highway program offers state transportation departments more flexibility in their use of federal funds, which could lead to slightly increased investment in highway, bridge and pavement work. Two, MAP-21’s expanded federal Transportation Infrastructure Finance & Innovation Act (TIFIA) loan program should also increase construction activity in some states.

She also noted the boost from major reconstruction work along the East Coast in states hit by Hurricane Sandy.

Driving the Market

Black pointed out that the major drivers of the transportation construction market are the federal aid program and state and local financing.

“Looking at capital outlays, reimbursements to state governments drive about 44 percent of the market,” she said, adding: “When you consider that part of that money goes to match the federal program, federal investment accounts for about half of the transportation construction market. State and local revenues are largely driven by their own motor fuel and general revenues. The more revenues are coming in, the more they can put into transportation construction.

“Federal obligation levels for specific projects show what they can pass on to state and local projects. MAP-21 didn’t provide new money. Project costs are designed to be in line with inflation, but often remain above it, so in essence we’re looking at a status quo federal aid investment, which is not a major driver of growth.

“MAP-21 does make some positive changes that eliminate some of the former bottlenecks. In the past, federal aid money was not subject to annual obligation limits, and so some states carried over unobligated balances. Now the money has to be obligated in the federal fiscal year so that money can get into the funding stream sooner.”

State, Local Projects

Black said some recovery of lost revenues is taking place on the state and local level. She said this is a positive sign for construction.

“A quarter of those revenues come from the federal aid program and this funding must go to capital expenditures like highway construction, rather than for operations or administrative costs,” she added. “User fees account for about 41 percent of revenues, but these are impacted by the overall economy, including whether less people are driving. Some states also have other fees. Bonds account for about 14 percent of revenues.

“Over the long run, overall tax revenues are one on the best indicators of what will be spent on highways and bridges. We expect these revenues to be back where they were in 2008, which is very positive. However, there is usually a lag between when these funds come in and when additional capital expenditures take place in transportation. States still have to spend more in other areas, including 2.5 million more students in public colleges and universities and 4.8 million more people eligible for health insurance coverage. There’s still a $55-billion gap between this revenue and expenditures.”

The outlook for public/private partnerships, meanwhile, has been improving, Black said, “and they are a very important market tool for many states.”

Other Forecast Areas

Bond issues from state and local governments have been a significant investment. A big $3.2 billion uptick occurred in state and local bond issues in September 2012, but this is nowhere near the level of bond issues several years ago. Though state and local spending is starting to improve, ARTBA does not expect significant investment, which would really drive overall growth in highway and bridge construction, or any large jump in spending in 2013.

Material prices aren’t expected to be a big issue in 2013 and 2014, but will be an issue in the longer run, with an uptick expected as demand increases in general construction. The world economy also is a factor in making supply more difficult in a few years. The materials market is pretty much back where it was before the market crashed in 2008. Inflation is expected to remain in the two percent to three percent range, with prices for highway and bridge materials increasing about three percent.

U. S. ports and waterway construction are expected to skyrocket nearly 25 percent, to $2.65 billion in 2013. This growth will be driven by expanded sea trade expected with completion of the Panama Canal expansion in 2015.

Construction of airport runways and terminals is expected to grow in 28 states, with overall growth of 4.5 percent, to $12.5 billion in 2013. Funding is expected to increase over the next five years as passengers increase, larger aircraft arrive, and privatization proceeds. Fourteen airports in eight metropolitan areas need upgrading.

Five airports now accommodate the larger aircraft now arriving on the scene, and 12 more airports are expected to handle them in 2013 after upgrade construction.

Construction of light rail and subways is expected to decrease eight percent largely due to the 33-month delay in passing MAP-21.

In surveys, 57 percent of contractors expect sluggish growth. ARTBA said that, because contractors are working below capacity level, they have the ability to handle new projects in an expanded public works program vitally boosting the economy.”

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State of the Nation’s Highway Funding

(In the following interview, Beth McGinn, director of public affairs of the American Road & Transportation Builders Association (ARTBA), answers questions about the status of the nation’s highway and bridge construction program.)

CEG: Highway and bridge construction is one of the keys to sustaining our economic recovery. Are we moving ahead?

McGinn: ARTBA President Pete Ruane and 2012 ARTBA Chair Paul Yarossi were present when President Obama signed the new surface transportation bill, MAP-21, into law this past July. Immediately after leaving the White House, Yarossi announced the formation of an ARTBA task force that will spearhead the association’s efforts to secure additional federal investment for MAP-21, work with federal, state and local agencies on the implementation of the new law, and look ahead toward the next reauthorization process.

When you consider what MAP-21 was up against, that it took almost three years to get done, and that it will expire in two years, you can see how important it is to start preparing now.

CEG: Would the task force recommend steps that Congress should take?

McGinn: MAP-21 provided needed market funding and stability over the short term, but the long-term revenue challenges facing the Highway Trust Fund remain. We must get Congress to step up and fund the federal transportation capital investment program properly with a sustainable and robust dedicated revenue stream.

CEG: In ARTBA’s estimation, how much should we be spending on our highways and how would this funding affect our economy?

McGinn: According to the U.S. DOT there is currently a $20 billion annual shortfall at the federal level just to maintain status quo road conditions. So that’s not even to improve our transportation network for the millions of new drivers and commuters expected to come onto the system over the next several years — that’s just to maintain the existing network.

CEG: What’s the outlook on how many years would be funded by the next bill?

McGinn: If I could predict what Congress will do, I’d be a very wealthy woman. I can tell you that infrastructure projects like those our members help build take years to complete. So, multi-year spending authorization is needed to give states the certainty hey need to move forward on projects.

The last highway bill, SAFETEA LU, basically funded six years of work. After it expired in 2009, it was extended 10 times until the present transportation bill was passed and signed into law. The time that the next bill will cover depends on Congress coming up with a long term revenue stream.

CEG: Could efforts to avoid automatic cuts under the “fiscal cliff” crisis result in cutting funds for highway work?

McGinn: The “fiscal cliff” is a combination of roughly 8 percent across-the-board spending cuts (sequestration) and tax increases due to the expiration of tax cuts mostly enacted in 2001 and 2003. The HTF is largely exempt.

CEG: Does ARTBA still favor raising the federal fuel tax to increase funding of the Highway Trust Fund?

McGinn: Let’s not get hung up on one method. We are focusing on all user-based means to strengthen the Highway Trust Fund, as well as ensuring that Congress and the President fully understand the dire consequences of inaction.

CEG: Is there any evidence that MAP-21 is creating more jobs?

McGinn: The measure basically continues current funding levels for the highway program. Our economists say MAP-21 is providing some measure of stability to the transportation construction industry, but no new money means no new growth.