Stimulus Is Boosting Projects Throughout the Country
Between nearly $50 billion in federal stimulus money and massive bond programs moving ahead in several states, funding for the transportation sector has been flying high this year. But the realities of the recession, coupled with heated debate over future funding streams, could bring the market back to earth in the coming years.
Transportation was given high priority in the American Recovery and Reinvestment Act, which devoted $49.3 billion to the sector out of nearly $140 billion in total construction dollars. The Obama administration’s intention was to get work started soon after the bill was signed in February, but much of the funding will continue to flow in 2010. Under ARRA, states were required to designate half of their highway and bridge funding by June 30 and the remaining half by March 2010. The General Accounting Office estimates that $18 billion of $27.5 billion for highways and bridges had been obligated by Sept. 1.
Robert Murray, vice president of economic affairs at McGraw-Hill Construction, of which ENR is a unit, says transportation is among the few sectors “guaranteed for growth in 2010.” After seeing spending on new starts in highway and bridge projects rise from $52.9 billion in 2008 to $57.3 billion in 2009, Murray estimates spending could reach $64.7 billion in 2010, a whopping 13% increase.
The stimulus transportation spike belies the financial realities of many states. Revenues have eroded during the recession, as many states rely on fuel taxes and fees on items such as car sales and vehicle registration, all of which have dipped nationwide. Although states have been moving forward on long-range capital plans, many are starting to trim them back. Fifteen states cut their programs in 2009, and another 19 expect cuts in 2010, according to the American Road & Transportation Builders Association (ARTBA), Washington, D.C.
Even more worrisome for state departments of transportation is the fate of the next highway authorization bill. Serious debate over the successor for the Safe, Accountable, Flexible, Efficient Transportation Equity Act (SAFETEA-LU) has been tabled as Congress addresses other priorities such as health-care reform and cap-and-trade programs to control air emissions, says Jeff Solsby, ARTBA public affairs director. “We’re headed for a funding cliff at the end of 2010, and it has yet to be determined how we deal with that when there’s no authorization bill,” he says.
Without a bill, the situation could be similar to 2002 and 2003 when the nation was also pulling out of an economic slump and funding was kept moving through extensions rather than long-term authorization legislation. Says Solsby, “Back then, we saw states put off long-term decisions because they didn’t have clear direction from the federal government. If we don’t get a bill, that could happen again.”
In recent months, federal highway funding has been on life support. In August, Congress approved an infusion of an additional $7 billion into the highway trust fund, the second such measure in less than a year. The House Transportation and Infrastructure Committee began discussion of a reauthorization bill over the summer, with Chairman James Oberstar (D-Minn.) pushing a six-year, $500-billion plan, nearly double the current level of funding. However, the bill has failed to make significant progress. Funding was to expire on Sept. 30, but Congress resorted to a one-month continuing resolution to keep money moving. On Oct. 29, Congress approved another stop-gap measure to extend funding through Dec. 18.
For many state DOTs, short-term stopgap measures make long-term planning nearly impossible. Following the 30-day stopgap passed by Congress in September, Oklahoma put new lettings on hold. Oklahoma DOT Director Gary Ridley says the state couldn’t effectively plan without a long-term bill in place. As a result, $53 million worth of projects scheduled to be bid in November were put on hold.
“We have bond payments due at the start of the fiscal year and those payments have to come off the top,” Ridley says. “We’re holding off on any projects that weren’t stimulus or done entirely with state fund. Normally, we don’t have a December letting, so it could be January before we have another one depending on what Congress does.”
Susan Martinovich, Nevada DOT director, says her department is forced to take a similar approach. In September, the state decided to pull back on major new awards until the federal picture becomes clearer. “We’ve got a big project that we’re holding because I can’t put my state in jeopardy of carrying the loan if we can’t be sure we’ll be reimbursed,” she says. “All we can do is get projects in the queue, but not release them until we get a better idea of where things are headed.”
Both Martinovich and Ridley speculate that a new transportation bill is unlikely in the near future. Given the level of increase in the Oberstar proposal, they expect extensive debate over how to fund a program that is already...
..losing money. In the meantime, both back a proposal being pushed on Capitol Hill for an 18-month extension that would provide funding on par with current levels. “I’d like a multiyear bill, but I know that takes a lot of time to do,” Martinovich says. “An 18-month extension gives us time to do this right and gets us past the next big election cycle.”
In addition to concerns over federal funds, many state DOTs are dealing with faltering revenue. In Missouri, funds gleaned from sales taxes on vehicles were down 22% and fuel-tax revenue dipped 4.8% by early October, dropping revenue below $1 billion for the first time in several years. The state also is in the final year of a program that funneled half of a vehicle sales tax to the state road bond fund. Since it began in 2004, nearly $2 billion in projects have been completed through that funding source.
“What we’re looking at is our program going from $1.3 billion in FY2009 to $600 million in FY2010,” says Pete Rahn, director of Missouri DOT. “Within two years, we’ll be under $500 million. That puts us on a course where we will not be able to maintain the current condition of our system.”
Despite taking a hit to its capital improvement plan, Rahn says the state will be able to continue its Safe and Sound Bridge Improvement Plan, which is funded through Garvee bonds. One hundred bridges had been completed by October out of 802 targeted by the $700-million program. In May, a team called KTU Constructors was selected to replace 554 bridges under a single design-build contract. The KTU team includes Kiewit Western Company, Omaha; Traylor Bros. Inc., Evansville, Ind.; United Contractors, Great Falls, S.C.; HNTB Corp., Kansas City, Mo.; and The LPA Group, Columbia, S.C.
Other states face similar circumstances as strong multiyear construction initiatives begin to expire in the coming years. Despite major state budget deficits, California has continued to push projects, thanks to the federal stimulus and nearly $20 billion in bonds from Proposition 1B, which passed in November 2006. By October, more than $13 billion of Prop 1B money had been committed. Nearly $475 million in stimulus projects are expected to be awarded by the end of November, says Matt Rocco, a California Dept. of Transportation spokesperson. A combination of Prop 1B and stimulus funds has been put to use on the four-phase $800-million Interstate 215 widening project through downtown San Bernardino. A $172.7-million contract to the joint-venture of Skanska USA Civil West, Riverside, Calif., and Steve P. Rados Inc., Santa Ana, Calif., to build Phase 3 includes $128 million in stimulus funds.
After delivering 334 projects valued at $3.7 billion in 2008, the state this year is on track to complete 329 projects for $3.5 billion. Rocco says the funding picture gets fuzzy after that. “We’re heading for a post-stimulus, post-Prop 1B world,” he says. “I couldn’t say where that leaves us.”
Since 2003, Washington state has benefited from a 10-year program that adds revenue gained from a fuel tax to specific projects statewide. At $5.8 billion, The Washington Dept. of Transportation’s 2009-2011 program is the largest in its history. Megaprojects include the $2.4-billion Alaskan Way Viaduct replacement in Seattle; major work will begin at the south section in 2010. Also in the plan is the $4.6-billion State Route 520 Bridge replacement, scheduled to begin next year, and the $595-million I-90/Snoqualmie Pass East project, which broke ground in August.
The program now is at a peak, but a drop in available funding could be precipitous. WSDOT estimates that its 2015-17 program will be at roughly half of current funding levels, and the 2017-19 program is forecast to dip below $1 billion.
Pennsylvania was one of the top recipients of stimulus funds for transportation with $1.026 billion appropriated, but Pennsylvania Transportation Secretary Allen D. Biehler says even at those levels the amount still is a band-aid. The state classifies roughly 6,800 miles out of its 40,000 miles as being in poor condition and around 5,900 of 25,000 bridges are structurally deficient. “It’s been like Mount Everest to get that number under control,” he says.
The state still faces considerable challenges. Biehler says the Pennsylvania’s current transportation budget is dedicated almost entirely to maintenance, with just 5% going to capacity needs. In 2007, the state Legislature passed Act 44, which provided $900 million for highway and transit needs this year. The program is scheduled to increase by 2.5% over the next four to six years, but only if the U.S. Dept. of Transportation approves a plan for the state to toll Interstate 80. That application was denied in 2008, and Biehler says without tolling, Act 44 funds will drop to $450 million.
“Between the state situation and the uncertainty of the reauthorization we’re in the same position as a lot of states of not knowing what tomorrow looks like,” he says. “We’re trying to be optimistic that something will happen, but we just don’t know.”
