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AGC Calls Highway Cost Increases Sudden, Extreme

Tue December 12, 2006 - National Edition
Construction Equipment Guide

Steve Massie, senior vice president of the Associated General Contractors of America (AGC) and chief executive officer of Jack Massie Contractor, Williamsburg, Va., testified at a hearing before the National Surface Transportation Policy and Revenue Study Commission in New York, N.Y. In his testimony, Massie declared that the current system is failing, the highway trust fund is in precarious financial shape, and the buying power of trust fund dollars is significantly eroded by inflation.

“According to AGC’s Chief Economist Ken Simonson, since early 2004, the financial viability of all types of construction projects has been jeopardized by sudden, steep, and generally unanticipated price spikes affecting numerous key materials,” said Massie. “No construction segment has been affected as much as highways.”

The Bureau of Labor Statistics (BLS) shows that the consumer price index for all urban consumers (CPI-U), the most widely used measure of inflation, has varied only moderately over the past three years. Meanwhile, highway construction materials costs, represented by the price index (PPI) for highway and street construction, have risen three to four times as fast each year. Furthermore, the data show the cumulative change in the CPI-U from September 2003 to September 2006 was 9.6 percent. The cumulative change from September 2003 to September 2006 was 35.9 percent, nearly quadruple the general rate of inflation over three years.

“We have material price inflation eating more than 30 cents of every dollar in just the last four years and the growing threat that the cost of labor, which has been relatively stagnant over the same four-year period, will begin to rise,” warned Massie. “We also have the danger that the highway trust fund could run a significant deficit in the near future. This convergence will exacerbate the funding gap and our ability to meet the needs of our already congested and deteriorating highway system.”

Therefore, Massie called for the creation of a revenue commission, similar to that of the postal rate commission, to fund surface transportation investment that would meet regularly, evaluate revenue options, and establish a levy for the coming year or two.

Massie also suggested the idea of creating state trust funds to be used for highway improvements. He said the funds should be fire walled like the federal highway trust fund so that revenues are only used for transportation purposes. He believes the federal government should establish an incentive or penalty provision that would withhold a portion of the state’s annual apportionment if they do not establish a dedicated fund.

“Any of these options will be a step towards meeting our looming national needs,” said Massie.

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