In the words of Satchel Paige: “Don’t look back. Something might be gaining on you.” For the construction industry, that something is many billions of dollars in overdue highway, bridge and transit funding, and an approaching deadline, which is critical for continued activity.
Congress is now two years behind in reauthorizing a new six-year highway and surface transportation bill to replace the $286-billion SAFETEA-LU act, which expired Sept. 30, 2009.
It also must reauthorize the federal gasoline tax, which supports the Highway Trust Fund (HTF), the main federal funding source for highway and bridge construction. This tax, last authorized in 2005, also expires Sept. 30. Without it, highway, bridge and surface transportation work would be largely unfunded, with much work grinding to a halt and more construction jobs lost.
President Obama began his “national crisis” jobs speech to a joint session of Congress on Sept. 8 by spotlighting the critical situation, saying his $447-billion jobs bill “will provide new jobs for construction workers … and provide a jolt to an economy in trouble.”
“Everyone here knows we have badly decaying highways and bridges all over the country,” he said, asking: “How can we expect our kids to do their part in a country which is falling apart?”
Neither the Senate nor House of Representatives have introduced legislation to reauthorize a new six-year bill.
Industry sources doubt that Congress can reauthorize a multi-year highway bill this September after it returns from its August recess. Instead, they expect another in a series of short-term extensions that have funded the program since 2009.
“Sen. Barbara Boxer (D., Calif.) is pushing a four-month extension at current levels until January 30, which could get past the debt ceiling super committee and past expiration of the appropriations bill at the end of September,” said Christian Klein, vice president of government affairs in Washington, D.C., of the Associated Equipment Distributors (AED). “It would also get us through the construction season and give us enough time to hopefully agree on a longer-term bill.”
Boxer is chairman of the Senate Environment and Public Works Committee.
Action on Gas Tax Imperative
The gas tax extension will be included in the same bill that extends the spending authority, Klein said, adding, “Obviously, we’d prefer to see that tax extended for a much longer term, but in the current environment a parallel four-month extension is the more likely scenario.”
Commented Brian Turmail, senior director of public affairs for the Associated General Contractors of America (AGC) in Arlington, Va.: “The federal government is obligated to reimburse states for transportation projects. Without the gas tax, it would have to pay out of the general fund as opposed to the Highway Trust Fund. If you are interested in reducing the deficit, that would be the exact wrong thing to do. We support doubling the gas tax. The purchasing power of the tax, based on the producer price index for construction services, has actually come down from when the 18.4-cents-per-gallon tax began in 1993. If you want to get back to where we were in 1993, you have to double it.”
The stakes, in terms of the U.S. economy, are staggering.
“What’s at stake is $100-million a day in revenues from the gas tax for a program which is already in dire economic straits,” Klein said. “Since about 6.4 cents on each dollar spent on roads makes its way into the hands of equipment distributors, this means losing $6.4-million a day in equipment market opportunities.”
In recent years, annual federal highway appropriations have exceeded highway user fee revenues in the HTF. As a result, $35 billion was transferred from the general fund to the HTF over the life of SAFETEA-LU.
Republican leaders want to limit annual highway spending to the level that the HTF can support. A budget resolution passed by the House mandates that the transportation program cannot spend more than what comes into the HTF. This would reduce the highway program from the present $41 billion per year to $27 billion next year. Democrats, on the other hand, say the House plan would result in the loss of 500,000 jobs in the highway program in fiscal year 2012.
Almost all construction industry organizations support raising the gas tax. Proposals also call for toll charges on all interstate highways.
Sen. Boxer and Sen. James Inhofe (R., Okla.) have proposed a two-year $109-billion reauthorization bill, which would maintain existing funding levels on transportation projects, and would also target $12 billion in additional revenue for the HTF.
Republicans in the House of Representatives, meanwhile, have proposed a six-year $230-billion highway and mass transit bill that would rely entirely on funds generated by the gasoline tax, which provides about $34 billion a year for infrastructure projects.
The Senate bill would continue transportation funding at about current levels. The House proposal, relying solely on gas tax revenues, would cut funding by about one third.
Alison Black, vice president of policy and senior economist of the American Road & Transportation Builders Association (ARTBA) in Washington, D.C., told CEG that both proposals fail to fully address needs, which means, ”we will continue to face our current problems in terms of congestion and the conditions of roads and bridges.”
“We actually need a $500-billion bill over six years,” said AGC’s Turmail. “We support the 2008 Department of Transportation report, which called for doubling the local and federal investment in transportation infrastructure. One of the big problems is that we have an East-West interstate system, which was designed when the concerns were moving people, arms and materials from one coast to the other. Now we have an enormous amount of North-South traffic due to The North American Free Trade Agreement (NAFTA), growing needs between ports, and a pretty mature highway system, which needs a lot of maintenance and repairs.”
“Reauthorizing the highway and gas tax programs is a vital piece of legislation because the state of our infrastructure is crucial to our economic vitality as a nation,” Turmail added. “Our highway system allows U.S. businesses to redefine their business models through hyper-efficient transportation. If you’re building motorcycles in Wisconsin, or Caterpillar tractors in Minnesota, the components arrive the morning you use them. When you allow highways to deteriorate physically, or become congested, you undermine the efficiency, which U.S. businesses have built into their systems over the past 50 years. Construction is particularly sensitive to highway infrastructure.”
ARTBA President Pete Ruane told the Mobility 21 transportation conference on Sept. 6 that both the House and Senate reauthorization proposals need a “significant boost” in their investment levels to address the nation’s transportation challenges.
Ruane said the 2009 Recovery Act road and bridge initiative was a setback to the long-term movement because it allowed leaders to “take a pass” on surface transportation legislation, which is now two years overdue. He also said the “shovel-ready” description of this stimulus “misplaced the focus of these investments on temporary results instead of long-term value.”
Ruane declared that political dysfunction and intractable views of government spending of any kind are major obstacles impeding passage of a “long-term, robust” highway and transit bill.
“We commend President Obama for underscoring the urgent need to improve the nation’s transportation network to boost long-term economic competitiveness and create new jobs,” he said. “Most immediately, Congress should pass robust, multi-year highway, transit, and aviation reauthorization investment bills that have been languishing for years.”
The Road Information Program (TRIP), a national transportation research group in Washington, D.C. , said 32 percent of major roads in the United States are in poor or mediocre condition, 24 percent of bridges are structurally deficient or functionally obsolete, and 44 percent of major urban highways are congested, with an estimated cost to motorists of $67 billion per year.
The congressionally mandated DOT report in 2008 called for investments of at least $225 billion annually over the next 50 years at all levels of government to bring existing transportation infrastructure to a good state of repair. The United States currently spends approximately 2 percent of gross domestic product on infrastructure.
Uncertainty Hangs Over Market
Failure to pass a six-year reauthorization has hurt construction.
“It’s a frustrating mess,” Klein said. “Our members are facing historic uncertainty when it comes to what the bills will look like, what regulatory environment they will work in, and the overall economic situation they will deal with. Congress makes it worse by adding all this uncertainty about the infrastructure program. It’s not the highway program, but also areas like water infrastructure. Congress is failing to act and dealers and contractors therefore can’t plan. From the standpoint of the health of infrastructure programs, things have never been this bad before. There has never been so much uncertainty. We have to grow ourselves out of our $14.3-trillion debt. We can’t do that without a sound infrastructure.”
Klein said the uncertainty “has depressed new equipment sales because contractors have no idea how much work they will have.”
ARTBA’s Alison Black said the value of highways and bridges completed in 2011 could fall 10 to 12 percent this year because of the delay in reauthorization while stimulus money has run out and state and local governments have cut spending. She agreed that contractors are holding up projects until they know the six-year funding levels.
Jobs, Jobs, Jobs
Unemployment in general construction was more than 20 percent, higher than any other sector of the economy, in 2010, though it improved significantly to 13.5 percent this August. The AED Web site said that the industry “remains mired in a depression.”
According to the Bureau of Labor Statistics (BLS), construction employment totaled 5,524,000 in August. This was 2.2 million (29 percent) below the peak set in April 2006.
The number of unemployed workers who previously worked in construction, meanwhile, shrank by 329,000. AGC’s monthly Data Digest said this drop “suggests they are leaving the industry, perhaps permanently, making future expansion harder to achieve.”
BLS said public construction slumped 8.8 percent compared with August 2010, with decreases in the four largest public segments: highways and streets (minus 3.8 percent), educational (minus 13 percent), transportation (minus 13 percent), and sewage and waste disposal (minus 14 percent).
A Federal Highway Administration study said each $1 billion of federal spending on highway construction generates 30,000 jobs, including 10,300 in the construction sector, 4,675 in industries supporting construction, and about 15,000 other jobs in non-construction sectors of the economy.
President Obama said on Aug. 30 that 4,000 workers would be immediately furloughed without pay and one million workers would be out of a job over the next year if the Surface Transportation Bill is not extended. “It’s inexcusable to put more jobs at risk in an industry that is one of the hardest hit over the last decade,” he said.
Brendan Buck, a spokesperson of House Majority Leader John Boehner (R., Ohio), countered: “Aside from the President today, no one has suggested the highway bill would be allowed to expire. These types of scare tactics are irresponsible, transparently political, and needlessly add uncertainty to our economy.”
ARTBA Chairman William Cox, president of Corman Construction in Annapolis-Junction, Md., said: “We share President Obama’s view that members of Congress should pass a clean extension of the highway and transit programs and we urge them to do so well in advance of the September 30 expiration date. Taking such action will allow them to focus on the real issue at hand: passage of the nearly two-year-delayed (multi-year) highway and transit reauthorization bill.”
In his Sept. 6 speech, ARTBA’s Pete Ruane said the $27.5-billion road and bridge stimulus was only 3.5 percent of total Recovery Act outlays, and was “more of a job saver than creator,” but was not wasted.
“At peak spending in 2010, about 320,000 American jobs throughout the economy — 108,000 on construction sites — were fully supported by the initiative,” he said, adding that the Recovery Act did not create significant new jobs as hoped because it did not result in significant market growth as many states, reeling from the recession, simply substituted the federal stimulus dollars for their own investments.
“Unlike short-term stimulus, the multi-year federal surface transportation program requires states to provide matching funds in order to use federal dollars and helps drive investment in their own infrastructure,” Ruane said.
The unemployment rate at the end of August remained at 9.1 percent. The private sector added 17,000 jobs. This was offset by a loss of 17,000 government jobs, for a net job change of zero. There were about 14 million unemployed.
Jobless rates in the overall economy increased in 28 states and the District of Columbia in July. Nevada had the highest rate: 12.9 percent, almost four points above the national rate of 9.1 percent. California’s rate increased 0.2 percent, to 12 percent. North Dakota had the lowest rate, 3.3 percent, followed by Nebraska at 4.1 percent. Joblessness rose by 0.4 percentage points in Illinois, Michigan, Minnesota, South Carolina and the District of Columbia, while the rate rose 0.2 points in Maryland, Ohio, Pennsylvania and Texas.
Sen. Boxer said the budget blueprint laid out by Congressman Paul Ryan, chairman of the House Budget Committee, would cut highway funding by 36 percent, with “overwhelming job losses.” The largest job losses, she said, would be in California (43,489), Texas (36,051), Florida (21,352), New York (20,384), Pennsylvania (19,738), Illinois (16,738), Ohio (15,409), Georgia (14,707), Michigan (12,537), New Jersey (11,841) and Virginia (11,636).
Rep. John Mica (R., FL), chairman of the House Transportation Committee, who is drafting the House bill, said his top priority is passing a six-year bill. He has stressed fiscal responsibility, continuing critical infrastructure work without increasing the deficit.
Both the Democrat and Republican proposals would expand funding of the Transportation Infrastructure and Innovative Finance Act (TIFIA) tenfold to $1 billion per year. This act provides low-cost loans and loan guarantees to states, cities, regional transit agencies and private companies to carry out infrastructure projects.
A White House source said the Obama Administration views the TIFIA program as a bridge to national infrastructure banks, which would pool tax dollars with private investment from institutional investors to fund highway and other infrastructure projects. Under some proposals the banks would be part of the U.S. Treasury.
Critics of the infrastructure bank approach say it would take several years to begin financing projects while a road construction bill would create jobs sooner.
“An infrastructure bank as mentioned by the President is a critical tool to advance large-scale intermodal projects, and is certainly part of the solution,” he said, “but it will take many months to establish and have little instant impact of job creation or in fixing crumbling roads, bridges and transit systems.”
President Obama reportedly now backs fast action on the Highway Bill as a priority over the infrastructure bank. His jobs bill reportedly proposes $50 billion for road and bridge projects.
Both the Senate and House proposals would consolidate highway programs to save money. The House measure also would cut the operating subsidy for Amtrak by 25 percent in 2012 and 2013.
The Federal Transit Administration estimated last year that it would take $77.7 billion to bring U.S. transit systems into a state of good repair. CEG