The collapse of the I-35 Bridge over the Mississippi River in Minneapolis last August underscored the nation's pressing need for updated transportation infrastructure. According to the American Society of Civil Engineers (ASCE), Reston, Va., more than 70,000 American bridges fall into the same “structurally deficient” category as the I-35 Bridge, and the price tag for repairing them would cost at least $9.4 billion a year for the next 20 years. In the meantime, the Federal Highway Administration (FHWA), Washington, D.C., reports that travel has grown upwards of 72% over the last 20 years while lane-miles of highways have risen less than 5%.
Despite these alarming numbers, several top U.S. construction information providers anticipate only moderate increases in infrastructure spending for 2008. In its “Construction Outlook 2008,” New York-based McGraw Hill Construction expects highway and bridge construction to rise 5% to $56.9 billion — a slower rate of increase than compared to 2006 and 2007. Moreover, FMI Corp., a management consulting and investment banking firm headquartered in Raleigh, N.C., believes that yearly highway and street construction growth will steadily decline from 9% to 3% between 2006 and 2010.
“Neither Congress nor any state that I know of has voted to raise taxes that go into transportation trust funds,” says Kenneth Simonson, chief economist for the Associated General Contractors of America (AGCA), Arlington, Va. “Voters in the Seattle-Tacoma area trounced a local sales tax increase for transit and highways there. So, despite a lot of rhetoric about needing to spend more to fix crumbling infrastructure and expand capacity, there are very few states where it is happening.”
One exception to the rule is California. According to McGraw Hill Construction, the Golden State was the leader in terms of dollar volume of activity during the first nine months of 2007, soaring 53% with a majority attributed to the $1.4 billion start of the suspension span of the San Francisco-Oakland Bay Bridge. Double-digit gains were also observed in Florida, New York, and Georgia. “Indiana has gotten a lot more money for highways by leasing out the Indiana Toll Road for 75 years,” notes Simonson. “And they are also getting more improvements to that road than if it had stayed in state hands. But, to my surprise, no other deal like that has been signed in the last 18 months. In fact, several governors and legislators have backed off after showing interest initially.”
A main reason for this lack of investment in American transportation infrastructure can be attributed to insufficient funding allocations under the current federal transportation bill, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users (SAFETEA-LU). SAFETEA-LU is a $286.4 billion measure that contains various stipulations designed to improve and maintain the U.S. transportation infrastructure, particularly the highway and interstate road system. Enacted into law by President George Bush on August 10, 2005, it will expire at the end of 2009. In its report, “The Nation's Highway and Transit Investment Needs through 2015,” the American Road & Transportation Builders Association (ARTBA), Washington, D.C., calculates that in order to maintain physical conditions and operating performance, federal highway funding in the next surface transportation bill would have to be a minimum of $54.5 billion in fiscal year 2010 and grow to $61.5 billion by 2015. Improving conditions would necessitate even greater federal investment.
Compounding the problem is the forthcoming solvency of the Highway Trust Fund (HTF), which traditionally has funded federal transportation. In the past, federal gasoline tax revenues have been sufficient to fund a majority of necessary U.S. highway and street construction. However, tax revenue funding will not be enough to support the HTF beyond 2009. FMI Corp. reports that without additional funding, basic maintenance of the highway system will cause the HTF deficit to reach $500 billion by 2015. That figure tops $1.1 trillion when needed large-scale improvements are considered.
Furthermore, highway work is being delayed by the flat sales of fuel, measured by gallons and not dollars, which is keeping the growth in highway trust funds well below the rise in project costs.
“Record-high oil and diesel prices mean the cost of highway construction is rising and also mean that motorists are easing off their driving, which reduces the growth of gas tax receipts for highway trust funds,” says Simonson. “I expect that the federal highway account will have an even bigger shortfall in fiscal 2009 than the $4 billion that the Office of Mangement and Budget and the Congressional Budget Office projected last summer.”