Opinion: Road Builders Look at 2004
B>By William R. Buechner
I>Vice President of Economics and Research
merican Road & Transportation Builders Association
Some of this increase, however, may simply reflect higher construction costs, rather than expanded infrastructure. According to the Bureau of Labor Statistics, the cost of materials for highway and bridge construction is up 9.2% from last August, largely because of a 99% increase in steel prices, while the wage rates for highway construction workers are up 1.1%.
Overall, this suggests that one-third to one-half of the increase in value of transportation construction put in place reflects higher costs, but the rest still reflects increased construction activity.
Second, the value of new contract awards for transportation projects has recovered substantially in the past two months, after being very weak in the first half of the year. Because of improved highway and bridge contract lettings, the earlier shortfall appears to be vanishing. New contract awards for transportation projects are now down only 6% from last year’s pace and another good month or two could erase that deficit completely.
Looking forward to next year, there are a lot of positive developments. Many state budgets are in better shape than during the past couple years and budgets should continue to improve as the economy grows. This should be good news for highway and bridge construction.
Beyond that, the federal highway program should also be very supportive next year.
Before adjourning for the November elections, Congress enacted an eight-month extension of the Transportation Equity Act for the 21st Century that would authorize federal highway investment through May 31, 2005, at an annual rate of $34.6 billion. That represents $1 billion more than the amount enacted for the federal fiscal year that expired Sept. 30.
This extension of TEA-21 should give state transportation departments some financial stability and eliminate some of the funding uncertainty they labored under in fiscal 2004.
While Congress is moving to appropriate a $1 billion increase for highways in the fiscal year now under way, the real effect will be substantially larger.
The reason is that Congress held back about $1.9 billion of the $33.6 billion appropriated for fiscal 2004 as a reserve for earmarked projects and did not release the funds until Sept. 30, the last day of the fiscal year. This $1.9 billion will now be available for obligation in addition to the $34.6 billion or so Congress intends to appropriate for fiscal 2005.
The “real-world” effect of this is that only $31.7 billion of federal highway funds were available to spend in fiscal 2004, not $33.6 billion.
This was only a marginal increase from the $31.6 billion enacted in fiscal 2003, but it also means there will be a total of $36.5 billion available in fiscal 2005. The year-to-year increase isn’t just $1 billion, but rather $4.8 billion.
The net result is that this big increase in federal highway investment, combined with improved state budgets, should provide a big boost to highway construction next year — so long as Congress doesn’t hold funds back like it did in fiscal 2004. The last time federal highway funding grew $4.8 billion in a single year was fiscal 1999.
That spurred three straight years of 8% to 10% annual growth in the highway construction market.
Before adjourning, Congress also took action to boost Highway Trust Fund revenues and put the highway program on firmer financial footing. The TEA-21 extension legislation instructed the U.S. Treasury to credit the Highway Trust Fund with the revenue from 2.5 cents a gallon of the gasohol tax collected in fiscal 2004 that had been targeted for the general fund, adding about $900 million to the Highway account. (Gasohol is a blend of gasoline and ethyl alcohol, usually 90% to 10%, respectively.)
ARTBA was the first national organization to call for this action — in testimony presented before the Senate Environment and Public Works Committee in June 2000.
Congress also passed legislation before adjourning that would make this transfer permanent as well as changing the current gasohol incentive into a tax credit charged to the general fund. The combined effect of these two gasohol provisions will add about $3 billion annually to Highway Trust Fund revenues, making it easier for Congress to increase federal highway investment when it finally enacts a new long-term authorization bill.
All in all, it has been a much better year for transportation construction than anyone expected.
ARTBA is a national trade association based in Washington, D.C. These remarks were originally written for its members.
This story appeared in the Dec. 13 edition of Transport Topics. Subscribe today.
