Impact of Rising Construction Costs on State Highway Construction Programs

Transcription

1 Impact of Rising Construction Costs on State Highway Construction Programs By William Buechner, PhD. VP for Economics and Research American Road & Transportation Builders Association September 11, 2007

2 After Decade of Modest Inflation, Cost of Highway Construction Materials Is Up 43 Percent Since % 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 3.6% 3.1%2.0% % % % % % % % % 10.8% % 2007e Source: Bureau of Labor Statistics. PPI for Highway and Street Construction

3 Total Highway Construction Costs, inc. Labor and Overhead, Are Up 27 Percent Since % 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 0.3% % -0.6% % % % % % % % 6.5% 5.5% 4.5% e Source: Bureau of Labor Statistics. PPI for Highway and Street Construction

4 Rising Highway Construction Costs Have Reduced Purchasing Power of Federal Gas Tax Source: ARTBA calculations from BLS data Cents per gallon, 1993$

5 Federal Gas Tax Would Have to Be 28.8 CpG in 2007 to Maintain 1993 Purchasing Power of 18.3 CpG Cents per gallon, 1993$ Source: ARTBA calculations from BLS data

6 Guaranteed Funding for Highways Under TEA-21 and SAFETEA-LU Billions of dollars Source: Federal Highway Administration TEA %/year STEA-LU- 4.4%/year

7 Billions of 2004 dollars Guaranteed Funding After Effects of TEA-21-6%/year Highway Cost Inflation Source: ARTBA calculations from FHWA and BLS data STEA-LU- 0%/year

8 * $2 billion transferred to 05 on last day of 04 Not All Federal Highway Funds are Getting into the Spending Stream $42.0 Billions of dollars $38.0 $34.0 $30.0 $26.0 $22.0 $ * 2005* e Obligations for Highways Guar. Funding

9 Unobligated Earmarks at End of Fiscal Year $12.0 $10.0 Billions of dollars $10.0 $8.0 $6.0 $4.0 $2.0 $ Source: Federal Highway Administration $2.5 $2.5 $2.5 $ $ /Jul Sect. 112 Corrid/Nat Sig Demos ST-LU HPP Trans. Proj. Sect 117 Sect 115 T-21 HPP

10 Value of Construction on Highways and Bridges Grew Rapidly in Billions of dollars $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 $54.0 $59.9 $57.5 $57.2 $58.6 $ Source: ARTBA, Value of Transportation Construction Put in Place $71.9 $ e

11 Virtually All the Growth Has Been With State & Local Funds Up 40% Since 2004 Billions of dollars $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 $42.1 $42.1 $32.1 $34.2 $27.6 $27.9 $29.9 $28.5 $25.5 $27.8 $29.9 $29.3 $28.7 $29.9 $29.8 $ E Federal State & Local Source: ARTBA, Value of Transportation Construction Put in Place, FHWA

12 Comments on State and Local Funding Rising cost of construction materials has strained highway budgets S&Ls had to stretch to start & continue planned projects Not much meat left on these bones State & local spending still running ahead of tax revenues budgets better but not good Capital spending already near peak percent of total spending

13 Highway and Bridge Construction Slowing After Strong Spurt Last Year Billions of dollars $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: ARTBA, Value of Transportation Construction Put in Place

14 Outlook for Federal Highway Funding in 2008 SAFETEA- LU President s Budget House Approps Senate Approps Highway $39.6 billion + RABA $39.6 billion, no RABA $40.2 billion, inc. $631 mill RABA $40.2 billion, inc. $631 mill RABA Transit $9.7 billion $9.4 billion $9.7 billion $9.56 billion Airport (AIP) $3.52 billion (07) $2.75 billion $3.6 billion $3.52 billion

15 Current Progress House passed 2008 transportation appropriation bill, , on July 24 Senate Appropriation Committee has reported its bill, awaiting floor action Will likely include new earmarks President has threatened to veto approps bills that exceed his request

16 Background for 2009 When enacting SAFETEA-LU, Congress refused to consider an increase in federal gas tax To fund SAFETEA-LU, Congress spent all Highway Trust Fund (Highway Account) revenues for plus all of the cash balance

17 New Projections Show -$4.3 Billion Highway Account Balance by 2009 Billions of dollars $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 -$2.0 -$4.0 -$6.0 $10.8 $10.6 $9.0 $6.8 $1.3 -$ Source: FHWA estimates for Mid-Session Review of 2008 Budget Projected End of Year Balance in Highway Account

18 Option 1: Cut $15.9 Billion in 2009 to Save $4.3 Billion of HA Outlays Billions of dollars $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 $15.9 $35.3 $35.9 $38.0 $41.9 $42.2 $

19 Option 2: Generate $4.3 Billion of New Revenues Charge cost of fuel tax exemptions to General Fund rather than HTF Reduce fuel tax evasion Credit gas guzzler taxes to HTF Repay HTF for foregone interest on balances Recapture HTF balance written off in 1998

20 Federal Funding of $55-$60 Billion in Needed to Maintain Conditions $65.0 $60.0 $55.0 $50.0 $45.0 $40.0 $35.0 $30.0 $ Billions of dollars Needs SAFETEA-LU HA Revenues

21 Conclusion Cost of constructing highways and bridges has skyrocketed since 2003 State and local highway budgets have been stretched to the limit Federal highway funding under SAFETEA-LU has barely covered higher costs, no real increase Without new revenues, federal highway funding after 2008 will be even lower