General contractors and subcontractors across the United States have good reason to feel hopeful as 2008 expires. A new year brings a new president, a new Congress and a new sense of urgency about the need to undertake massive public works projects. What is there not to feel hopeful about?
Well, this: Even as consensus grows about upgrading the nation’s infrastructure, two stubborn questions remain. The first is of direct significance to contractors: Where will the money come from to pay for the work? The second is more glancing in its impact on the industry: Will taxpayers get their money’s worth this time?
Some would argue that the latter concern is not the industry’s problem. After all, political leaders choose projects and set spending priorities. General contractors, engineers and project architects are out of the decision-making loop. But that perspective assumes American taxpayers have limitless patience with bridges to nowhere and earmarked goodies for favored districts.
Janet Kavinoky, who among others is involved in lobbying Congress for new capital investment in roads and bridges, believes taxpayer patience has about evaporated. “I don’t believe you are going to get real change in transportation funding,” said Kavinoky, a director of the U.S. Chamber of Commerce, “I don’t think you are going to get a real increase in investment, unless the American people really believe their dollars are going to real transportation priorities. Reform must be a necessary part of increased funding.”
But the first consideration is money. Where will billions of dollars be found to tackle the huge backlog of infrastructure work? Industry lobbyists in everyday contact with federal officials believe two funding sources will be tapped for separate phases of the public works surge.
General revenues will be spent — or borrowed against — to pay for fast-track projects to quickly stimulate hiring, thereby hacking away at recessionary pressures that seem to be engulfing the economy. These appropriations will be found in the same place $700 billion was found in response to the banking emergency. The new Congress is expected to appropriate the money without worrying about increasing the federal deficit, having concluded that stimulating the economy overrides any other consideration.
“There are three phases of funding in this,” said John Horsley, executive director of the American Association of State Highway and Transportation Officials (AASHTO). “In January, the president and Congress will look at a stimulus bill, an economic recovery bill. It might include billions of dollars for highway and transit projects. We have submitted a list of $64 billion of projects that are ready to go. We think the stimulus bill will mean a boost in highway spending.
“But the federal highway program [SAFETEA-LU] may run out of money before October next year. It ran out in September this year. So that underlying highway funding problem will be there for Congress to fund as well.”
Finally, Horsley concluded, SAFETEA-LU expires on Oct. 1 and Congress will need to approve a six-year successor program. It is relevant to note that the expiring program, which authorized projects for years 2004-09, was not passed until August 2005, one year late; ongoing projects relied on stopgap funding in the interim.
This need to pass two new transportation-funding measures in pretty quick succession concerns some industry leaders. They fear that the first surge of spending, welcome as it is, will be deemed sufficient by lawmakers.
“Budgets are very tight,” said Richard Juliano, a vice president of American Road and Transportation Builders Association (ARTBA). “State highway programs are not in good shape in most states. We do hope there will be stimulus legislation that will improve the situation. We will have to see what the legislation looks like.
“But,” he added, “we don’t want the stimulus legislation to be in lieu of the next piece of legislation, the highway bill. One comes right after the other. We don’t want members of Congress to come back later and say, ’We have done our part for transportation.’ The two pieces of legislation need to be connected in a way, both of them kept in mind as they are being worked on.”
Juliano said he is “optimistic” that the separate legislative measures will complement one another.
Paying for authorized projects in the next transportation bill is another matter. Everyone contacted by Construction Equipment Guide seemed to agree that a more stable and sufficient funding source needs to be found — raising the fuel tax, perhaps, or indexing it, creating a new method of taxing vehicles using public roadways, and/or expanding the reach of toll roads.
“It is fascinating that you ask that question today,” Horsley said in early December, “because the Washington Post this morning said that now that gas prices are down, the time has come to raise fuel prices. We clearly do need additional revenue. The question is how this is going to jibe with the stimulus bill. After all, when the current bill expires is when it will be especially important to add revenue.”
ARTBA previously has been a proponent of a 10-cent raise in the federal gas tax, which currently is 18.3 cents per gallon. The association now wants a 13-cent increase, which is a fairly conservative jump among those who propose fuel tax boosts. “It is all about where we want to go with this,” Juliano said. “What is our objective? Do we want to keep funding levels for construction and maintenance where they are or go ahead and improve the situation? All of that goes into the calculus of how much to raise the tax.”
The U.S. Chamber of Commerce also backs raising the federal fuel tax, according to Kavinoky. “The chamber recently approved a policy stating that every option should be considered and we specifically said that included an increase in the fuel tax — if there is accompanying policy reform. Clearly with gas prices lower, a fuel tax could be more easily absorbed.”
“Here is the thing: It would be one thing if what you are trying to do is get general funds, limited discretionary dollars. If we want increased transportation funding, we are going to have to make a very public decision about raising revenue for it.”
The Chamber has been pushing its Let’s Rebuild America campaign since early this year. It convened a summit in Washington the second week of December to promote its agenda of addressing “the nation’s ailing infrastructure system.” Coincidentally, across town another summit addressed the same subject. The International Bridge, Tunnel and Turnpike Association held a “transportation finance summit” and Juliano was there moderating one session.
“There were a number of speakers talking about raising the fuel tax,” he said. “I talked about our group’s priorities, which include a higher fuel tax. We have to talk about revenues now, but in the long term we also have to look at other options.”
More user fees — toll roads — are one option that, naturally, came up repeatedly at the tunnel and turnpike summit. U.S. Secretary of Transportation Mary Peters led the charge, noting that the fuel tax mechanism is deeply flawed.
“This past year has dramatically highlighted the contradictions inherent in relying on gas taxes to fund surface transportation,” Peters told summit participants. “September marked the 11th straight month that Americans have put fewer miles on their cars and trucks than the month before. And consistent with our national objective to reduce fossil-based fuel consumption, our vehicles are becoming more fuel-efficient than ever.
“But with Americans filling up at the pump less often, federal fuel tax revenues — the primary source of the Highway Trust Fund — have plummeted. The Trust Fund took in $3 billion less in fiscal year 2008 than in the previous year.”
The secretary went on to promote such alternate funding sources as state infrastructure banks and more reliance upon new investment dollars available through public-private partnerships. And tolls.
“I would like to issue a challenge to the toll road operators here today,” she declared. “You hold the key to speeding the transition to open-road tolling, the key to attracting more investment, and the key to unlocking gridlock through dynamic pricing. Open-road tolling equipment can be installed quickly and easily, and I am asking you to commit to making tollbooths obsolete in the United States of America by the time the next surface transportation authorization expires. Let’s send these relics the way of the horse-and-buggy.”
On Capitol Hill, the ranking minority member of the House Committee on Transportation and Infrastructure said all of the above are in the mix of conversations on the eve of a new session of Congress. Rep. John Mica, R-Fla., believes there are “a host of options. There may be some attempts to alter the current gas tax, maybe some efforts to change the way fees are charged for vehicles (congestion pricing and distance-traveled pricing), maybe some indexing.
“What will come out, I don’t know,” he said, “My committee won’t be making all those decisions. Some of it will come out of House Ways and Means.”
In the longer term, Mica said he believes discussions indeed will turn to such revenue producing mechanisms as tolls — including states charging motorists for use of federal interstate highways, which raises unresolved questions — and public-private partnerships.
“And our building process needs to be done in a better manner,” the congressman said.
He related how he stood up at a banquet last summer and held up a sign with a numerical message: “437.” That was how many days were required to replace the Minneapolis, Minn., bridge on Interstate 35, which collapsed in August 2007. Normally, projects of that magnitude require years to design and build. Mica and others want the process sped up through more efficient regulation and management practices.
One of the bedeviling factors in any talk of raising the fuel tax is the impact a higher tax will have on consumption. In fact, at least half of proponents pushing an increase want it to force people to conserve gasoline by driving less or buying more fuel-efficient cars. That obviously creates a quandary: Are the goals of conserving petroleum use and increasing fuel tax revenue mutually exclusive? Can we have it both ways?
“It could work against each other,” Mica conceded. “I walked into the building a day or two ago and the car at the end of the line was plugged into the building, recharging its batteries. That’s a car from which we will receive no fuel tax revenue. More efficient cars are driving farther and paying less in taxes.
“The system is broken. Even if you increase the fuel tax $5, you have a problem,” said the Florida congressman. “Again, at this juncture, I can’t predict what the committee is going to do, but we have to end up with more net revenues.”
AASHTO’s John Horsley is aware of the dichotomy in wishing for more fuel-efficient cars and more fuel tax revenue. “We are in consultation with the environmental community on just that issue. Some people are first for global climate change and energy security, some for sustaining fuel at a higher price to fund construction. It is an interesting situation to be coordinated.”
Coordination is precisely how Juliano sees the issue being resolved. “There is continued talk about federal alignment of energy priorities with transportation funding policies,” said the Road and Transportation Builders executive. “There needs to be better alignment. If we are promoting conservation, which we should, and alternative fuels, which we should, that should not come at the detriment of transportation funding.”
In the end, if all the revenue-producing issues are resolved, the question of reform remains. Juliano said at the summit there was “a lot of talk about reform, of setting better priorities and having better vision.”
The same conversation is heard in Capitol hallways, according to Congressman Mica. “Yes, that is part of the discussion. We have to address that issue, have to clean up the earmark process. We have to make sure projects are part of a national infrastructure plan, not just scattered plans. We have an obligation to do that.”
Horsley said that State Highway and Transportation Officials are behind reform completely. “We believe that it is absolutely essential that the next transportation bill feature top-to-bottom reform. People have had it with bridges to nowhere. We are proposing that taxpayers be given top value for their tax dollars and that the planning process reflect local community priorities.”
Still, with so much evidence arguing that efficient and necessary infrastructure projects receive top priority in appropriations, the temptation to lard bills with favorite, relatively low priority projects continues to be felt. The Wall Street Journal notes that in early December the U.S. Conference of Mayors presented Congress with a $73 billion list of more than 11,000 “infrastructure projects.” The Journal noted that infrastructure is defined by Dictionary.com as “fundamental facilities and systems serving a country, city or area,” and questioned how “fundamental” some projects on the list really are. The newspaper cited $2.5 million for a “waterfront park duck pond” in California, a $4 million tennis center in Texas and a $9.5 million “sports complex” in Mississippi.
Such special interest projects as those might well continue to poison the well of taxpayer goodwill, from which government ultimately must pull its revenue. Yet Kavinoky at the Chamber office believes both funding reform and new levels of investment in transportation are possible. She said she remains “very hopeful.”
“Changing things in Washington is like turning a pretty big ship,” she says. “Change that comes is going to be incremental, but we have to move it.”
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