PAVING MARKET ASSESSMENT FOR THE STATE OF NEW MEXICO

Transcription

1 PAVING MARKET ASSESSMENT FOR THE STATE OF NEW MEXICO June 2011 Market Intelligence Group Ed Sullivan David Zwicke David E. Czechowski Jared S. Sathaye V.P. & Chief Economist Sr. Economist Sr. Economist Market Analyst

2 Paving Market Assessment for the State of New Mexico Overview PCA s Market Intelligence Group (MIG) was tasked to provide an assessment of potential paving volumes in the state of New Mexico through The results of these assessments may yield guidance regarding the near-term allocation and potential geographic targets of regional PCA promotion assets, and those of its partners, regarding paving opportunities. In this report, PCA analyzes available data to develop cement volume estimates attached to New Mexico s highway system based on transportation districts designated by New Mexico s Department of Transportation (NMDOT). Once the size of the paving market is determined, PCA estimates the impact of an assumed 1% annual gain in market share attributed to successful promotion efforts. Using this approach, districts with the largest volume gains through the horizon yield the highest return on investment (ROI) for New Mexico s paving promotion assets. The report is divided into six sections. The first three sections establish a baseline from which the analysis assesses the ability of NMDOT to meet its paving needs. Sections four and five convert spending into paving opportunities for roadways and make a case for expected future market share gains. The final section of the report examines cement volumes resulting from a 1% annual gain in market share. NMDOT is aligned according to six districts which are responsible for their respective highway construction and maintenance operations. PCA aligns its analysis in this report according to those districts: District 1 SW quadrant population share 15%; District 2 SE quadrant population share 16%; District 3 central population share 32%; District 4 NE quadrant population share 3%; District 5 NW quadrant population share 19%; District 6 W quadrant population share 15%. NMDOT Transportation Districts

3 Key Findings New Mexico s need and current plan to expand and maintain the state s road systems can be adequately met according to PCA s analysis of expected revenue streams from federal and state sources. NMDOT s current four-year Statewide Transportation Improvement Plan (STIP) indicates a total expenditure of $1.68 billion or roughly $420 million per year. Four-year expenditure for road related projects in the plan total just over $600 million, which PCA views as conservative. With 36% of total STIP funding dedicated to paving projects, the remaining funds are allocated toward bridges, transit projects, safety programs, and debt service -- projects that carry low or no cement intensity. This suggests that surplus monies may be available to support additional paving projects, implying market opportunity may be larger than expected. In terms of absolute spending on paving projects, District 3 indicates the highest dollar volume ($172M) in the state, followed by District 2 ($149M) and District 1 ($92M), suggesting regional assets could view these districts as potential market opportunities. PCA believes that NMDOT, as reflected in its current STIP program, has taken a conservative and perhaps cautious position of paving project funding in the state. The challenge is to capture an increased share of that conservative position toward concrete. PCA analysis reveals District 2 and District 3 carry the highest cement potentials. Combined, these two districts receive roughly 54% of paving funds under the current STIP. District 3, which contains the largest urban center of the state, has 58% of the district s STIP allocated towards urban projects, which carry higher cement intensities. For this reason, combined with the state s allocated funding and expected demographic and congestion trends, District 3 appears as the single best candidate for targeted promotion. District 2, by comparison, is less attractive despite higher cement potential estimates due to weaker population density, coupled with long stretches of rural routes which would be less receptive to concrete promotion. District 2, however, is still the largest in terms of lane miles and receives a large STIP investment. District officials suggest this funding priority is due to the lack of road investment in previous STIP cycles and the high density of commercial/tourist traffic on these roads due to its proximity to Texas and Mexican transport routes, accelerating road deficiency conditions. Based on changes in the relative prices of concrete and asphalt, paving share gains could materialize over the next several years. New paving realities are now in place reflecting changes in global oil demand and new refining practices which reduce liquid asphalt production. The new paving realities shows that comparative life cycle and initial bid cost will increasingly favor concrete over asphalt in the foreseeable future and may lead to paving share gains in New Mexico. Econometric tests suggest the relationship between changes in relative prices and paving market share is insensitive. The relative price insensitivity of changes in concrete s market share to changes in relative prices is in part due to the lack of initial bid paving parity until 2008 and favored asphalt up until that time. Observed changes in relative prices, in essence, do not have a potential impact on market share gains until parity is reached. The asphalt-concrete competitive arena has just entered this era, which PCA believes will be sustained. More significant sensitivities to changes in the relative price of asphalt-concrete are anticipated during the years ahead. Comments from NMDOT district engineers suggests that alkali-silica reaction (ASR), the chemical reaction between cement alkalis and certain aggregates, is a concern regarding concrete placement in most of the state. This issue is less prevalent in the eastern quarter of the state. District engineers indicated an awareness of strategies for combating ASR including low-alkali cement, fly ash, and lithium. New Mexico is one of several states on the ASR Lead States team with extensive experience in tackling ASR. Nevertheless, PCA regional promotion assets should be aware of the ASR issue when approaching NMDOT officials and developing concrete paving market opportunities.

4 SECTION ONE Structure of New Mexico s Road Systems

5 Section One Structure of New Mexico s Road Systems Overview New Mexico s transportation agencies are not insulated from the public and political pressures of deteriorating road conditions and unmitigated congestion. Funding and project decisions are often made on the basis of those pressures. Important to PCA s goals of positioning market resources is an understanding of the material distribution in New Mexico s road systems and by NMDOT district. The current size, structure, and condition of New Mexico s road systems establish a baseline from which to begin an analysis of potential paving opportunities. Current NMDOT information indicates that New Mexico s interstate and non-interstate systems are heavily skewed toward asphalt. Difficult economic conditions have lead to challenging fiscal conditions at the state, county and municipal levels of government. As a result, these governments have been forced to prioritize spending initiatives often at the expense of maintaining and expanding existing roadways. Comments from NMDOT district engineers 1 suggests that alkali-silica reaction (ASR), the chemical reaction between cement alkalis and certain aggregates, is a concern to concrete placement in most of the state, but may be less prevalent in the eastern quarter. District engineers indicated an awareness of strategies for combating ASR including low-alkali cement, fly ash, and lithium. New Mexico is one of several states on the ASR Lead States team with extensive experience in tackling ASR. Nevertheless, PCA regional promotion assets should be aware of the ASR issue when approaching NMDOT officials and developing concrete paving market opportunities in New Mexico. NMDOT s principal concrete engineer 2 acknowledged the absence of nontraditional paving applications in New Mexico suggesting that budget tightness and comfort with proven technologies and materials does not lend itself to material and application sophistication versus NMDOT s comfort with a more traditional sledgehammer approach. He further referenced a potential opportunity for cement based applications in the form of inverted pavement where a cement base is topped with a compacted aggregate base, then overtopped with asphalt. This application, if embraced by NMDOT, could present an opportunity for regional promotion assets. Surface Analysis Interstate Roads New Mexico s 4,281 lane miles of interstate highways carry 30% of all vehicle travel in the state and is weighted toward asphalt in all six districts. NMDOT reports that there are only 340 total lane miles of concrete throughout New Mexico. Due to the limited data availability, PCA assumes that all roads that are not concrete are asphalt roads. Concrete captures some surface type share in District s 1, 3, and 4. PCA assumes all interstate concrete roads will remain concrete and offer minimal opportunity to expand paving penetration. High asphalt share in a district may reflect a comfort with asphalt paving and hinder promotional opportunities. Interstate System by Surface Type (Lane Miles) Interstate System by Surface Type (% Share) District Concrete Asphalt Total District Concrete Asphalt , , % 88.61% N/A N/A % 85.31% , , % 94.36% % 99.34% % % Total , , Total 7.06% 92.94% Source: NMDOT 1 Gary Schubert-District 2 Principle Engineer 2 Bryce Simons- NM Concrete Engineer

6 Surface Analysis Non-Interstate Roads New Mexico s non-interstate road system, consisting of 24,823 lane miles, is also heavily skewed toward asphalt. Overall, these non-interstate roads are close to 99% asphalt with only 0.2% concrete. Similar to the interstate materials mix, Districts 3, 4, and 1 reflect concrete lane miles with the notable inclusion of District 6. Non-Interstate System by Surface Type (Lane Miles) Non-Interstate System by Surface Type (% Share) District Concrete Asphalt Total District Concrete Asphalt , , % 99.82% , , % % % 17.47% , , % % , , % % , , % 89.40% Total , , Total 0.15% 99.85% Source: NMDOT Road Conditions Road deficiency often determines replacement or rehabilitation, reinforcing the need for investment. In the absence of historical data, PCA assumes that under the recent transportation budget stress, road conditions have deteriorated. NMDOT s most recent interstate assessment suggests that deficient pavement conditions are identified in 2% of interstate highways and 20% of non-interstate roadways. A deficient pavement in the interstate system, according to NMDOT, is the sum of fair, poor, and very poor ratings. Deficiency in the non-interstate system is the sum of the poor and very poor ratings. Pavement Condition- State of New Mexico Interstate 2010 Non-Interstate 2010 Very Good 71% Very Good 27% Good 27% Good 37% Fair 1% Fair 16% Poor 0% Poor 19% Very Poor 0% Very Poor 1% Deficient 2% Deficient 20% Source: NMDOT Interstate 98% of the interstate roadway system in New Mexico is non-deficient. Although Districts 4 and 6 have the highest deficiency rating at 3%, District 4 has more deficient lane miles. Total deficient lane mileage should also be taken into consideration when looking at the overall percentage of deficient roads. District 5 had the least amount of deficient lane mileage with a.02% rating. (Lane Miles) District Very Poor Poor Fair Good Very Good District Very Poor Poor Fair Good Very Good Deficient , % 0% 1% 19% 80% 1% % 1% 2% 46% 52% 2% , % 0% 2% 34% 63% 3% % 0% 0% 11% 89% 0% % 0% 3% 22% 75% 3% Source: NMDOT, PCA Projection Pavement Condition: Interstate System

7 Non-Interstate District 4 ranks highest with 33% of its non-interstate roads deficient. Although District 1 has a 25% non-interstate deficiency, it only translates into 892 lane miles. This is compared to District 2 (16% deficiency) with 1,321 lane miles deficient. District Very Poor Poor Fair Good Very Good District Very Poor Poor Fair Good Very Good Deficient , % 25% 18% 37% 20% 25% ,152 1,082 2,780 3, % 14% 13% 33% 39% 16% % 13% 9% 52% 26% 13% 4 4 1, , % 33% 17% 31% 19% 33% ,066 1, % 21% 23% 37% 18% 21% , % 6% 15% 56% 23% 6% Source: NMDOT, PCA Projection Pavement Condition: Non-Interstate System (Lane Miles) Congestion Analysis Daily vehicle miles traveled (DVMT) is a useful indicator for understanding road usage. District 3, the most populous of the six districts, ranks first in overall DVMT. District 4 has the least usage in terms of overall DVMT, and also happens to be the least populated district. PCA s analysis suggests that District s 3, 5, and 1 reflect high congestion ratings. Daily Vehicle Miles Traveled (DVMT) by Physical Jurisdiction (Thousands) District Total Interstate Primary Secondary Streets and Local 1 12,008 4,544 2,915 1,212 3, , ,900 1,545 2, ,442 7,455 8,515 2,505 1, ,485 3, ,333 1,855 7,429 1,772 1, ,375 2,874 2, Total 67,119 19,929 28,756 8,606 9,828 Source: New Mexico Department of Transportation 2009 Annual Traffic Report Congestion (DVMT/Lane Mile) District Interstate Primary Secondary Streets and Local 2010 Rank 1 3,176 2, , , , ,777 22,466 8, , , ,663 2, , ,642 1, ,911 4 Total 4,655 2, ,878 Source: PCA Estimates A more meaningful measure of road congestion is DVMT per lane mile. Based on existing road characteristics and usage, PCA measured congestion on this basis in each of the six districts. Congestion metrics suggest that Districts 3, 5, and 1 rank high in current and projected congestion and could be high regional targets for mitigation investment. Moving forward, it is essential to take this congestion metric into account when assessing opportunities within each district.

8 SECTION TWO Demographics Impact on New Mexico s Road Systems

9 Section Two - Demographics Impact on New Mexico s Road Systems Overview PCA attempts to reconcile current and future paving needs in the context of prevailing budgetary pressures. Future needs are largely dictated by demographics. Demographic changes during the next twenty years could result in significant changes in road usage in New Mexico. As a result, the road safety and congestion levels of New Mexico s roadways could change depending on the level and focus of NMDOT spending initiatives. PCA derives road usage projections arising from changes in demographics by integrating Bureau of Business and Economic Research population growth estimates for New Mexico and PCA estimates for population growth among each NMDOT district. These estimates are then expanded to account for licensed drivers, vehicles on the road, and vehicle miles travelled. PCA combines road usage projections with the existing structure of road miles and assumes no growth during a twenty-year horizon. Combining these factors yields estimates regarding future road congestion and road quality levels over the longerterm horizon. These estimates provide a basis for identifying NMDOT districts in most need of expansion (congestion estimates) and maintenance (deficient road paving conditions). It is assumed that similar analysis is performed by NMDOT and county decision makers to determine where to spend paving funds. Population Growth in New Mexico Population growth in New Mexico will translate into substantial demand to maintain and expand New Mexico s road systems. According to the Bureau of Business and Economic Research, New Mexico s population is expected to grow from 2.0 million persons in 2010 to 2.5 million persons in 2020 to 2.9 million persons in This translates into an increase in population of a half million persons in the next ten years and three-quarters of a million persons in the next twenty years. Growth in the driving age segment (16-65 year old) implies a 1.1% increase in licensed drivers by 2020 and a 1.4% increase by 2030 over existing levels. This roughly translates into an additional 91,000 drivers on New Mexico roads by 2020 and an additional 117,000 drivers by Such increases roughly translate into an increase in registered vehicles on the road of 106,034 by 2020 and 136,574 by As a result of these increases, PCA estimates DVMT on New Mexico s roads will increase from a current 67.1 million miles to 77.8 million miles in 2015, 83.6 million in 2020, and 93.7 million miles in This translates into a 40% increase in total DVMT by New Mexico Population by NMDOT District District % Change % Change , , , , , , % 11.8% 2 314, , , , , , % 4.4% 3 557, , , , ,650 1,080, % 19.3% 4 68,987 63,774 75,862 78,362 80,051 81, % 3.8% 5 350, , , , , , % 5.9% 6 261, , , , , , % 15.9% Total 1,820,802 2,033,875 2,356,236 2,540,145 2,707,757 2,864, % 12.8% Source: Burea of Business and Economic Research District population rates are essential in revealing leading or lagging markets. Since 2000, District 3 grew 16.3% in population size. PCA projects that District 3 will continue this growth into 2020 (39.6% increase) and again into 2030 (19.3% increase). Decision makers may choose to focus more resources in areas with a growing population density -- Districts 3, 6, and 4 for the short-term ( ) and Districts 3, 6, and 1 in the long term ( ).

10 Congestion Growth in New Mexico The 326,658 person growth increase in driving age population during the next ten years translates into nearly a 91,000 increase in licensed drivers, as well as an increase of 106,034 registered vehicles, and a 25% increase in daily vehicle miles travelled. For this analysis, lane miles by NMDOT district are held constant at current levels. By holding current lane miles constant throughout the forecast horizon, pressures on the need to expand lane miles can be clearly identified. Congestion Projections (DVMT/Lane Miles) District % Change % Change ,317 2,613 2,798 2,967 3, % 11.8% 2 1,431 1,514 1,563 1,600 1, % 4.4% 3 17,912 22,419 25,002 27,439 29, % 19.3% ,061 1,096 1,120 1, % 3.8% 5 2,387 2,644 2,760 2,852 2, % 5.9% 6 1,537 1,779 1,949 2,111 2, % 15.9% Total 2,306 2,672 2,880 3,070 3, % 12.8% Source: PCA Estimates With no expansion in lane miles, congestion levels will increase 25% by 2020 and an additional 13% by The largest increases in congestion through 2020 are projected to occur in Districts 3, 6, and 4. District 1 also reflects double-digit increases. More modest increases are expected to materialize in Districts 2 and 5. Implied Expansion of Lane Miles To Maintain Current Congestion Levels District , Statewide --- 3, , , ,352.3 Source: PCA Projections To maintain existing levels of congestion, New Mexico must expand existing lane miles in each NMDOT district by the expected increase in congestion. Combining projected congestion increases with existing lane miles results in an estimate of lane mile increases by NMDOT district. The NMDOT districts with the largest need to expand due to congestion changes suggest a likelihood of increased highway spending in that district. From this analysis, District 6 represents the NMDOT district most in need of expansion requiring nearly a 400 lane mile expansion by 2030.

11 Ride Quality Threat in New Mexico NMDOT s most recent interstate system assessment (2009) suggests a deterioration in ride quality on 2% of interstate highways and 20% of non-interstate roadways. Population growth will lead to greater road usage, raising DVMT on New Mexico s roadways. PCA has calculated a historical relationship between DVMT per lane mile (congestion proxy) and the percentage of roads rated as deficient according to NMDOT s ride quality rating system. A deficient pavement in the interstate system, according to NMDOT, is the sum of fair, poor, and very poor ratings. Deficiency in the non-interstate system is the sum of the poor and very poor ratings. Projected Road Quality: Interstate System Percentage of Roads "Rated Deficient" District % 1% 1% 1% 1% 3 2% 3% 3% 3% 3% 4 3% 4% 5% 5% 6% 5 0% 0% 0% 0% 0% 6 3% 4% 4% 4% 4% Source: NMDOT, PCA Estimates Projected Road Quality: Non-Interstate System Percentage of Roads "Rated Deficient" District % 28% 30% 32% 34% 2 16% 16% 17% 17% 18% 3 13% 17% 18% 20% 22% 4 33% 40% 41% 42% 43% 5 21% 23% 24% 25% 26% 6 6% 7% 8% 9% 9% Source: NMDOT, PCA Estimates Based on the projected increases in future DVMT, PCA estimates the percentage of deficient roads in each district for the short and long term. Assuming lane mileage stays constant, and no changes are made to the roadway systems, PCA s analysis suggests that interstate roads in District 3 and District 4 will continue to reflect increased deficiency. For non-interstate roads, Districts 1, 3, and 4 will reflect notable increases in deficiency. If no changes are made to the roads in District 4, it s possible that deficiency of the district s non-interstate roads could go from a 33% share in 2010 to a 41% share within a ten year period.

12 Projected Lane Miles Required for Rehabilitation 100% "Rated Poor or Worse" (Lane Miles) District ,034 1,107 1,174 1, ,321 1,398 1,443 1,477 1, ,472 1,840 1,908 1,957 1, ,075 1,122 1,159 1, Statewide 4,122 4,801 5,008 5,174 5,185 Source: NMDOT, PCA Estimates Projected Lane Miles Required for Rehabilitation No Improvement from Current Levels (Lane Miles) District , , Statewide 4, Source: NMDOT, PCA Estimates Given projected deficiency levels based on current lane miles and projected road usage, PCA can estimate both the level of lane miles that must be rehabilitated for full road adequacy (all roads fair or better), and the level of NMDOT district lane miles potentially requiring rehabilitation if current levels of road deficiency are maintained. The combination of these assessments, for current and projected levels of deficiency, can shed light on potential NMDOT rehabilitation spending priorities. Implications of Future Demographic Changes on New Mexico s Road Systems Paving activity results from either the need to expand roadways or the need to rehabilitate existing roadways. Demographic change during the next twenty years is a key factor in determining the level of future paving activity. Assessment of future congestion and rehabilitation levels can reveal the level of paving activity that NMDOT must initiate, as well as where those priorities lay among NMDOT districts. PCA assumes that similar demographic analysis is also performed by NMDOT and county decision makers to determine where to spend paving funds. If past levels of road funding are maintained, demographic analysis reveals congestion and rehabilitation priorities faced by NMDOT. Presumably, these spending priorities are either currently, or will be, reflected in NMDOTs Statewide Transportation Improvement Plan (STIP). To maintain existing road conditions, demographic analysis suggests that 178 lane miles of New Mexico roadways will be in need of rehabilitation by 2015, more than 250 lane miles by 2020 and approximately 370 lane miles by Districts 4, 1, and 6, account for roughly 76% of this road rehabilitation need. These needs must be compared against anticipated funding levels under PCA s financing analysis. To maintain existing road congestion levels, demographic analysis suggests that nearly 3,750 lane miles of New Mexico roadways will be in need of rehabilitation by 2015, nearly 1,800 lane miles by 2020 and about 1,350 lane miles by District 4, District 1, and District 6 account for roughly 65% of this road expansion demand.

13 Paving Requirements By NMDOT District To Maintain Current Congestion/Ride Quality Levels (Lane Miles) Rank Rank 2015 Statewide --- 3,925 2,031 1, Statewide --- 3,925 2,031 1, Rehabilitation Rehabilitation Expansion --- 3,747 1,779 1, Expansion --- 3,747 1,779 1, High Priority NMDOT Districts Low Priority NMDOT Districts Rank Rank 2015 District District Rehabilitation Rehabilitation Expansion Expansion District , District Rehabilitation Rehabilitation Expansion --- 1, Expansion District District Rehabilitation Rehabilitation Expansion Expansion Source: PCA Estimates These estimates are based only on increased road usage arising from demographic changes and assume historical road spending levels are maintained. It is important to recognize that recent and current fiscal duress, and reduced NMDOT budgets, may influence funding timing and magnify these rehabilitation and expansion needs. Demographic analysis, for example, suggests NMDOT priorities should be increasingly pushed toward expansion and congestion concerns. However, during times of tight budget conditions, NMDOT spending actions could differ from these long-term priorities and force available dollars toward rehabilitation projects. Keep in mind, these estimates focus on future needs beyond 2015 and may not be seen as an immediate need by NMDOT. Final recommendations reflect near-term funding under the present Statewide Transportation Improvement Program (STIP) while the above information best aides decision makers on long-term positioning.

14 SECTION THREE New Mexico s Ability to Meet Paving Needs

15 Section Three New Mexico s Ability to Meet Paving Needs Overview Based on the current road system structure, condition, and congestion levels facing New Mexico, there is a need to rehabilitate and expand New Mexico s roadways. This dependency is based on current and expected future congestion levels and road quality. The need to spend on roadways must be combined with the ability to respond to current and expected future paving needs. To assess this, PCA analyzes the funding conditions facing NMDOT and compares these levels against NMDOT s planned spending levels in the current Statewide Transportation Improvement Plan (STIP). Comparing expected revenues against planned expenditures reveals upside and/or downside risk to NMDOT spending in the years ahead. To properly assess the potential risk or opportunity in NMDOT spending, this section is divided into three parts including: (1) an assessment of future funding sources, (2) an overview of NMDOT expenditures, and (3) a conclusion regarding funding ability. PCA details its financial analysis by assessing the funding that supports state transportation spending. The four sources of funding include, (1) state transportation fund revenues, (2) federal SAFETEA-LU and its successor, (3) ARRA stimulus spending, (4) bonds. I. New Mexico s Transportation Funding State Revenues State transportation revenue in the State Road Fund (SRF) are primarily the gasoline tax, special fuel tax, the weight/distance tax (a tax based on vehicle weight and miles traveled on New Mexico roads), and the motor vehicles registration fee. PCA calculates the relationship between employment and vehicle miles traveled (VMT). Projected employment levels result in projections for VMT. A modest annual improvement in fuel consumption efficiency is assumed to project total gasoline gallons consumed annually. The state gasoline tax of 17.0 cents per gallon is applied to projected fuel consumption to arrive at gasoline tax receipt projections. Typically, gas tax receipts account for approximately 30% of SRF revenues. PCA assumes this ratio will hold throughout the forecast horizon thereby leading to a total state transportation revenue estimate. While total fuel tax revenues (gasoline and special fuel) account for slightly more than half of SRF revenues, other factors that contribute to total transportation revenues are tied directly, or indirectly, to employment levels. As employment declines, VMT declines and receipts are reduced. Similarly, reduced employment levels result in fewer vehicle sales and the associated tax revenue. The estimation process is admittedly rough, but for the purposes of this report, deemed appropriate. VMT is highly correlated to employment levels. A high proportion of VMT is due to drivers commuting to work. Alternatively, the unemployed are likely to reduce all expenses, including those associated with travel. A decline in employment results in a decline in VMT and, hence, motor fuel tax revenues. With the onset of the recession, New Mexico s employment declined from 910,000 in 2008 to 873,000 in 2010 or a decline of 4.1%. Mirroring the decline in employment, during that same period, VMT also reflected a moderate decline. SRF revenue has declined from a peak of $394 million in FY07 to $363 million in FY10. PCA expects a modest recovery in New Mexico s employment levels during , followed by more accelerated growth in 2013 and beyond. SRF revenues are expected to remain below 2008 levels through 2012 according to PCA estimates. Once New Mexico s economic growth gains traction (2013), employment, VMT, and transportation revenues will increase at a steady rate. In the meantime, New Mexico s state transportation revenues will remain pressured. According to PCA estimates, SRF revenues will remain near $360-$375 million annually through This represents roughly a $20 to $30 million decline compared to 2007 levels. With an employment recovery, past peak revenue levels are not expected to be reached until 2014 and beyond. A stronger revenue recovery does not materialize due to PCA s MPG improvement assumptions.

16 New Mexico Road Fund Revenue Projections (000$) State Road Fund Revenues 382, , , , , , , ,141 - Percent Change 3.4% -3.5% -1.8% 3.5% 1.5% 2.0% 1.9% 1.8% Fundamentals Employment (000) Unemployment Rate (%) 4.5% 7.0% 8.4% 7.7% 6.4% 5.6% 5.5% 5.2% Vehicle Miles Trav (Mil) 11,305 11,290 11,288 11,402 11,578 11,818 12,057 12,274 Average MPG Gallons Consumed (Mil) State Tax ($/Gallon) $0.17 $0.17 $0.17 $0.17 $0.17 $0.17 $0.17 $0.17 Fuel Taxes 108, , , , , , , ,554 Fuel Tax Share of Total (%) 28.4% 29.4% 30.1% 29.3% 29.3% 29.2% 29.2% 29.2% Other Revenues* 274, , , , , , , ,587 Source: NMDOT, PCA * Special Fuel Tax,Weight Distance Tax, Vehicle Registrations Tax, other income SAFETEA-LU and its Successor Under the federal SAFETEA-LU highway program, New Mexico was apportioned, on average, approximately $368 million annually. PCA assumes that a new highway bill will be passed in fiscal year The size of the new highway bill is not expected to be as large as the $500 billion program initially discussed by Congressman Oberstar (Chairman of the Transportation and Industry Committee). For this assessment, PCA assumes a more modest bill reflecting a 20% increase over its predecessor. This level is calculated as the minimum nominal increase in the highway bill that equates real spending in the end year of the program with the same level as This level could be larger in light of potential inflationary concerns in the out years. To some, however, this increase may seem too optimistic, since funding of the new highway bill remains the key obstacle for any increase in spending. For this analysis, PCA projects New Mexico s allocation of the new highway bill over the next four years at roughly $434 million annually. Impact of Highway Bill Delays on Expected STIP Highway Revenues SAFETEA-LU expired and funding was renewed at existing levels on a year-to-year basis. The funding renewal has not been an automatic process. Congress often debates the level of funding for an extension of SAFETEA-LU and the duration of the extension. This causes uncertainty in NMDOT with regard to highway project commitment. Major construction projects require years of funding commitment. These projects are not guaranteed in the context of SAFETEA-LU extensions particularly in light of new concerns regarding the level of the federal deficit. As a result, major projects which now carry longer term funding risks are potentially postponed, and NMDOT may choose to allocate more of its spending toward smaller projects. This strategy typically works to the detriment of cement consumption. ARRA Funding Congress passed the American Recovery and Reinvestment Act (ARRA) in February 2009, and New Mexico was awarded $253 million for road projects. All of the states funds have been completely obligated and through the first five months of 2011, just over 85% of the funds have been paid out. For this analysis, PCA assume all ARRA funds will be paid out by the end of The majority of these projects appear to have focused on pavement preservation and rehabilitation or complementing existing projects pursued through the previous Statewide Transportation Improvement Program (STIP).

17 Other State Funding 3 NMDOT revenues are supplemented by five separate state funds including the Highway Infrastructure Fund, the State Infrastructure Bank, the Local Government Road Fund, the Aviation Fund, and the Transportation Fund. Each fund has separate source revenues such as special fuel assessments and fees that are separate from the SRF. These sources of funds represent roughly $40 million annually or roughly 10% total state transportation fund revenues. PCA projects the growth in revenue for these sources by correlating past fund revenues to demographic changes using the United States Census Bureau s projection for New Mexico population growth. PCA s projections suggest that these sources of funds will continue to account for roughly 10-11% of state revenues throughout the forecast horizon. Employment District Job loss Job Loss % of Trough 2015 Projected Job Growth From Trough Recovered % From Trough 1 125, , ,867-1, % 9, % 2 147, , ,921-4, % 8, % 3 302, , ,710-15, % 9, % 4 69,281 66,818 72,631-2, % 3, % 5 183, , ,802-10, % 4, % 6 81,306 78,331 85,146-2, % 3, % Total 909, , ,078-36, % 39, % Source: NM Department of Workforce Solutions Bond Funding Transportation funding can also be supported by bond actions which are often used for large county or municipal projects. Standard and Poor s recently raised its rating on New Mexico Finance Authority's bonds to 'AAA' from 'AA+' and its rating on public project revolving fund revenue bonds to 'AA' from 'AA-'. The strength of bond ratings among counties and municipalities within each NMDOT district is presumed to be influenced by past and expected future employment conditions within each district. PCA assumes all NMDOT districts had favorable bond ratings going into the recession. Job loss analysis from New Mexico s recessionary peak suggests that District 1 and District 2 reflected the least job losses. This suggests that these areas probably suffered the least impairment to their bond ratings and, hence, have maintained their ability to generate transportation funding through debt. In contrast, District 3 and District 5 were hit harder with job losses during the recession. This suggests the possibility of greater impairment of their bond ratings and, hence, the potential of diminished ability to generate transportation revenues via debt. Bond ratings are also influenced by expected future employment conditions among districts. Those districts which lost the least amount of jobs during the recession are expected to be the regions of growth. This suggests that counties and municipalities within these districts will maintain a strong bond rating adding to the potential of bond funding opportunities. In contrast, districts that suffered the most during the recession are also expected to be among the slowest in job recovery. This suggests generally less ability of counties and municipalities within these districts to generate funds for transportation projects via debt. These potential local bond actions are separate from NMDOT funding assessments, but represent additional funding/spending actions. 3 Local Government Road Fund (LGRF). The New Mexico State Transportation Commission recently approved more than $20 million in Local Government Road Fund monies to improve city and county roads, school bus routes and public school parking lots. Local governments and school districts are required to match 25 percent of the state money. About $2.9 million will go toward area public schools for parking lot improvements, construction of additional bus lanes and general road reconstruction. Also included is more than $10 million toward roadway rehabilitation and improvements and drainage improvements in county/municipal programs. The New Mexico State Infrastructure Bank (NMSIB) is empowered to issue loans for highway projects eligible to local government entities in New Mexico and to private sector corporate entities. Total program funds available are variable and are competitive statewide. All projects must be fully described in the State Transportation Improvement Program (STIP).

18 Local bond initiatives are not considered in PCA s final assessment of New Mexico s ability to finance its transportation plans. In addition to local bond actions, the Legislature increased transportation-related taxes and fees to support the state road fund and authorized the New Mexico Finance Authority (NMFA) to issue $1.585 billion in bonds over an eight-year period to fund 37 transportation projects. This state bond action is referred to as the Governor Richardson s Investment Partnership, or GRIP bonds. In 2007, the Legislature identified 116 specific local government highways and road construction projects totaling $180.4 million that would compete for a limited amount of state funding. To date, $110.4 million in both general fund and severance tax bonds were authorized. Funding is prioritized by NMDOT based on the availability of a required match and the readiness of the locality to proceed to bid. NMDOT certified 86 projects as funded and ready to proceed with completion by January Approximately $75.2 million has been expended. GRIP bond initiatives are considered in PCA s final assessment of New Mexico s ability to finance its transportation plans. Total NMDOT Transportation Funding Outlook State transportation spending is supported by five sources of funding including, (1) state transportation fund revenues, (2) federal SAFETEA-LU support, (3) ARRA stimulus spending, (4) other state revenues and (5) bonds. In the following analysis, PCA has assessed the outlook for each of NMDOT s funding sources. PCA does not include in its calculations, local bond revenues although the potential for raising funds via this mechanism seems favorable. The New Mexico Legislative Finance Committee is currently recommending a 2012 total NMDOT budget level of $827.9 million, a 3.1% increase over the FY11 operating budget. New Mexico Total Transportation Revenue Projections (000$) State Road Fund Revenues 382, , , , , , , ,141 SAFETEA-LU Apportionment 368, , , , , , , ,371 ARRA 0 119,528 99,219 33, Other State Revenues* 42,331 40,876 44,801 40,389 41,761 42,596 43,448 44,317 GRIP Bonds Total Revenues 793, , , , , , , ,839 Source: NMDOT, PCA Estimates * State Infrastructure Bank,Aviation Fund, Local Government Road Fund, Highway Infrastructure Fund The sum of this analysis suggests that current revenue sources for New Mexico s transportation systems are expected to be weaker than past performance. This is due to diminished contribution from ARRA, flat contribution from SAFETEA-LU, and slightly weakened expected revenue from other state sources. As the current business cycle plays itself out, the state appears to be poised for an increase in transportation spending during the next several years. PCA expects State Road Fund revenues will exceed $380 million annually reaching an estimated $403 million by The transitory effects of ARRA will have dissipated by the end of this year and stronger employment growth is expected to add to the state transportation revenue stream. This organic growth is likely to be supplemented by a new highway bill. This assessment suggests that total NMDOT revenues will reach a trough in 2011, followed by successive gains during the forecast horizon, and will reach close to $892 million in total transportation program revenue by 2015.

19 II. New Mexico s Statewide Transportation Expenditure Outlook New Mexico s Department of Transportation (NMDOT) is responsible for the state s transportation network which includes building, maintaining and operating the state s roads, bridges and tunnels. To accomplish this task, NMDOT develops its Statewide Transportation Improvement Program (STIP). New Mexico s four-year STIP attempts to address the multimodal transportation needs in the state. The STIP uses federal, state, and local government transportation revenue to fund the program and includes projects in the national parks and Indian reservations. An analysis of this current NMDOT STIP suggests that project inventory and debt service levels were incomplete, particularly in FY2014 and FY2015, and were, therefore, estimated by PCA. New Mexico s STIP is updated every two years with the final product a representation of project scheduling and funding. The projects are identified through various transportation management systems and planning processes involving local and regional governments, Metropolitan Planning Organizations (MPO), Regional Planning Organizations (RPO), other State and transportation agencies, and the public. Through the STIP, NMDOT allocates resources to those projects assigned the highest priority through these planning and programming processes. To determine paving requirements, the STIP takes into consideration statewide and regional plans that identify future needs and an analysis of projected traffic volumes as well as population, business, and residential growth. Regional assets should view these local governmental agencies as targets for implementing cement based applications. Various types of transportation programs and projects for moving people and freight are funded through the STIP. Typical projects range from preserving pavements and bridge repair to screening overpasses or rock-slide areas, installing remote video cameras, or funding public transportation for the elderly. Projects approved specifically to improve air quality are also funded through the STIP as are projects that increase capacity either by bidding more lanes, providing funds for bicycle, pedestrian and equestrian facilities, and transportation demand management programs. Although the STIP is fairly comprehensive in its potential project inventory, programs receiving the majority of funding are generally related to Pavement Preservation, Pavement Rehabilitation and Reconstruction, Bridge Replacement and Rehabilitation, and Railroad Safety. In recent years, the STIP plan has been incrementally altered through amendments by the State Transportation Commission (STC). This has significantly hindered efforts to prioritize funding needs. NMDOT s Statewide Transportation Improvement Program: Priority Setting Adopted in May, 2011, NMDOT s STIP for fiscal years focuses on four main principles: 1) funding deficits for projects under way, 2) maximizing the use of federal funds, 3) funding projects already under way and those with new phases starting in fiscal year 2012, and 4) funding deficient bridges and pavements. STIP funding, for this analysis, is partitioned into several categories: 1) new roadway construction; 2) roadway reconstruction (projects where additional capacity may or may not be added), roadway resurfacing (placement of additional surface over the existing roadway to improve serviceability or strength), roadway restoration and rehabilitation (return an existing pavement to a condition of adequate structural support); 3) bridge construction, replacement, and rehabilitation (whether or not new capacity is added); (4) transit; (5) other (i.e. pedestrian facilities, rail crossings, scenic or historic preservation); and (6) debt service on eligible bond issues.

20 New Mexico STIP (000$) NMDOT STIP Budget Items 457, , , , , , , ,375 Road Construction and Maintenance 133, , , , , , , ,636 (new construction, reconstruction, resurfacing, restoration, and rehabilitation) Bridge Constuction and Maintenance 46,601 53,489 52,586 50,190 35,149 51,192 55,010 56,820 (bridge construction, replacement, and rehabilitation) Transit 46,932 53,868 52,959 50,546 35,588 43,771 45,842 47,350 Other 82,626 94,838 93,238 88,990 66,094 43,406 64,179 66,291 (pedestrian facilities, rail crossings, scenic or historic preservation) Debt Service 148, , , , , , , ,278 Source: NM DOT, PCA This analysis of STIP budget projections for the highway program reflect relatively weak revenue stream expectations when averaging STIP investment in the latest four year period to the next four years. Road construction and maintenance which averaged approximately $155 million during , declines 6% to an average $145 million in the period. Transit projects and other non-paving related construction reflect double-digit declines with transit spending down an average 16% and other category spending down 33% in the next four years. Bridge construction and maintenance suffers the least in this outlook, declining only 2% on the same average period basis. Excluding statewide initiatives, a review of projects and their value in the current NMDOT STIP database reveals that over the next four year period, District 3 will capture the largest share of project funding with over $468 million or roughly $117 million per year. A decline in funding levels from FY2012 to FY2013 in Districts 1 and 2 is also noted STIP (000$) Total District 1 $57,828 $32,939 $40,248 $48,890 $179,905 District 2 $66,233 $31,379 $32,665 $36,580 $166,858 District 3 $107,696 $115,091 $120,234 $125,195 $468,216 District 4 $21,862 $21,862 $23,862 $26,862 $94,448 District 5 $47,346 $40,529 $45,937 $49,900 $183,712 District 6 $17,703 $17,703 $19,703 $23,703 $78,811 Statewide $129,541 $119,071 $128,578 $134,245 $511,435 Total $448,209 $378,574 $411,227 $445,375 $1,683,385 Source: NMDOT/PCA

21 III. New Mexico s Ability to Fund Road Systems Needs Comparing expected transportation funds against expected NMDOT expenditures reveals whether funding shortfalls or surpluses are expected to materialize during the forecast horizon. The sum of PCA s analysis concludes that funding sources for spending on New Mexico s transportation systems, as defined by its most recent STIP, will adequately support the current spending plans. With roughly 36% of total STIP funding allocated to paving projects, the remaining funds are allocated toward bridge repair and maintenance, transit projects, safety programs, and debt service, projects that carry low or no cement intensity. From a paving opportunity perspective, this analysis suggests that, in the context of expected revenue surplus and a conservative STIP, NMDOT revenue streams could be diverted toward paving projects, implying that market opportunity may be larger than current expectations. PCA s assessment of NMDOT s current STIP program and the expected revenue to support that program suggests that sustained surpluses will materialize through These surpluses average $174 million annually, or roughly 23% above planned expenditures. This reinforces the assessment that NMDOT has taken a very conservative project and funding approach in its current STIP transportation plan, an aspect that regional assets should be aware of when positioning and promoting concrete applications. Transportation Revenues & Expenditure Balance (000$) Total Revenues 793, , , , , , , ,839 Non-STIP Expenditures 324, , , , , , , ,739 STIP Expenditures 457, , , , , , , ,375 Total 782, , , , , , , ,114 Net Balance 10,735-20,585-25,068-29, , , , ,725 Source: NMDOT, PCA

22 SECTION FOUR Converting Spending Into Lane Mile Paving Opportunity

23 Section Four: Converting Spending Into Lane Mile Paving Opportunity Overview To reach an assessment regarding New Mexico s paving opportunities, paving dollars spent must be translated into lane miles paved. This section of the report parses out non-paving items from total NMDOT spending to yield an estimate of the potential paving expenditures. Once paving expenditures are estimated, these estimates are translated into potential lane mile paving. Paving Funding PCA expects total NMDOT total revenues will average more than $840 million through 2013 and $887 million thereafter. It would be a mistake, however, to assume that New Mexico s revenue flow equates to the amount available for STIP highway and road spending. A notable portion of New Mexico s transportation funds do not go to potential paving spending. PCA parsed out non-paving items from total NMDOT spending to yield an estimate of the potential paving expenditures. These non-paving categories include bridge construction, replacement, rehabilitation, and maintenance; transit projects; other projects (safety, rail, pedestrian facilities, scenic programs, traffic management, etc.); and debt service. These items are subtracted from the total future STIP expenditures potentially available for paving. The following table identifies these items and excludes these dollars from this paving analysis. New Mexico Exclusion of Non-Paving STIP Items (000$) Total NMDOT Revenues 793, , , , , , , ,839 Total STIP 457, , , , , , , ,375 STIP Road Construction & Maintenance 133, , , , , , , ,636 STIP Non-Paving Related 324, , , , , , , ,739 Bridge Construction (Code 8-14) 46,601 53,489 52,586 50,190 35,149 51,192 55,010 56,820 Transit (Code 23) 46,932 53,868 52,959 50,546 35,588 43,771 45,842 47,350 Other (Code 24-44) 82,626 94,838 93,238 88,990 66,094 43,406 64,179 66,291 Debt Service (Code 45) 148, , , , , , , ,278 Note: Items not contributing directly to paving funding and are excluded from PCA's paving analysis. Source: NMDOT, PCA In this context, NMDOT s STIP suggests that anticipated spending streams will be somewhat depressed through 2013, yet anticipated revenue streams advance at a more pronounced pace. This position may add upside market potential favoring all transportation expenditures including paving initiatives. Keep in mind, a portion of these available funds may still be targeted at spending other than paving activities and could distort the subsequent analysis. According to the Federal Highway Administration (FHWA), roughly 60% of highway spending during the past five years has targeted system preservation or paving. Capacity expansion and new routes account for the remaining balance. PCA applies this share to arrive at funds available for paving. Translating Paving Funds into Lane Miles To arrive at an estimate of the promotional paving opportunities, potential paving funds must be translated into lane miles. For this translation, PCA uses Florida Department of Transportation benchmark estimates regarding the spending cost-per-road mile by type of road construction system. The average cost-per-road mile is as follows: $1.916 million per interstate mile; $1.440 million per primary mile; $1.039 million per secondary mile; and $1.524 million per urban mile. These costs are modeled based on STIP analysis which estimates 60% of paving spending is resurfacing and 40% is new construction/route widening.

24 In addition, the costs are estimated by urban/rural designations of 43% rural and 57% urban based on FHWA lane mile figures for New Mexico. Keep in mind, the above figures represent state averages, whereas individual district detail was used in the model. Finally, lane mile conversions per road type extrapolated from the Florida DOT figures were used to convert road miles to lane miles. Based on the cost assumptions, PCA estimates paving opportunity lane miles in the following table. Comparing PCA s estimates for New Mexico s need to pave roads against its ability to pave roads during suggests roughly 56% of New Mexico s need to be paved will be satisfied. Statewide Paving Opportunity (Lane Miles) State of New Mexico Interstate Primary Secondary Urban Source: PCA FDR Assessment PCA estimates that the approximately 5,126 lane miles of secondary roads could be under the jurisdiction of NMDOT for FDR paving. A further assumption regarding the amount of paving that actually occurs yields an estimate (based on lane miles) of the total potential FDR cement market size of approximately 352,000 metric tons over the next five years. PCA assumed an initial share of this market at 1% yielding an estimate of approximately 3,500 metric tons of FDR cement potential over the next five years. PCA also assessed the impact of a 1% market share gain over the next five years which yielded an estimate of 10,650 metric tons of FDR cement potential through The strength of the nontraditional paving applications (SC/RCC/FDR) is that these technologies should appeal to district decision makers in New Mexico particularly when return on budget investment is a priority. However, consultation with field engineers 4 suggests there is a lack of field and decision maker awareness toward nontraditional applications. This inexperience, combined with a cautious risk/reward mentality across NMDOT engineers and more importantly, project designers, are potential market development obstacles. It was further commented that although NMDOT may not be actively involved with nontraditional paving technology, private sector contractors may actually be engaged in nontraditional applications (SC/RCC); however, measurement of that market is difficult. As revealed in other markets that have furthered nontraditional paving applications, the use of excess DOT or local municipal discretionary splash monies surfaces as a prime funding target for the cost and sustainable benefits of nontraditional applications and should be considered as a tactical target for furthering the market. 4 Frank Kozelisk- P.E. Gallup Sand and Gravel & Matt Singel- SC/RCC Engineer (CCT)

25 STIP Paving Priority Assessment To further reveal the states paving priorities, PCA assessed the two latest NMDOT STIP s in terms of paving spending. Projects were allocated to their respective districts then classified to an appropriate transportation category. Bridge work, transit, other projects, and statewide projects listed in the STIP were excluded from this concrete opportunity analysis. The comparison revealed an 11% decline in overall project funding during the four-year plan horizon. District 2 and District 4 rank high in terms of highway funding share over the four year program; however, District 3, which includes Albuquerque, reflects the highest dollar investment level. District 1 indicates a higher portion of funds (51%) allocated to highway projects than in the previous STIP (32%). Overall, highway related projects captured a similar share in both STIP s (roughly 36%), further validating NMDOT s conservative program approach. This suggests perhaps that NMDOT has not taken a significant position either way in reallocating road project funds other than what it is accustomed to. In terms of source funding in the 2012 STIP, 80% of the funds of the $1.68 billion STIP are scheduled to originate from Federal sources with 12% from state sources and 7% from local sources. This suggests, perhaps, a high reliance on SAFETEA-LU reauthorization. In terms of absolute spending on paving projects over the four year program, District 3 indicates the highest dollar volume ($172M), followed by District 2 ($149M), and District 1 ($92M). This suggests regional assets could view these districts as potential market opportunities. Paving dollars as a percent of total STIP dollars is observed in most districts to decline somewhat in the period versus the prior two years. That evidence further supports PCA s conclusion that NMDOT, has taken a slightly weaker position toward paving project funding in the state. This will further challenge regional assets in capturing an increased share of that position toward concrete STIP (000$) Total District 1 Total $57,828 $32,939 $40,248 $48,890 $179,905 Paving Related $34,337 $12,692 $20,888 $24,390 $92, Share 59.4% 38.5% 51.9% 49.9% 51.3% 2010 Share 41.7% 31.8% 32.1% District 2 Total $66,233 $31,379 $32,665 $36,580 $166,858 Paving Related $63,809 $28,391 $26,285 $30,800 $149, Share 96.3% 90.5% 80.5% 84.2% 89.5% 2010 Share 92.1% 90.9% 85.1% District 3 Total $107,696 $115,091 $120,234 $125,195 $468,216 Paving Related $46,135 $50,278 $32,719 $42,957 $172, Share 42.8% 43.7% 27.2% 34.3% 36.8% 2010 Share 29.0% 19.0% 45.7% District 4 Total $21,862 $21,862 $23,862 $26,862 $94,448 Paving Related $17,728 $17,228 $16,728 $17,228 $68, Share 81.1% 78.8% 70.1% 64.1% 73.0% 2010 Share 78.3% 78.3% 78.9% District 5 Total $47,346 $40,529 $45,937 $49,900 $183,712 Paving Related $24,004 $16,125 $17,800 $20,350 $78, Share 50.7% 39.8% 38.7% 40.8% 42.6% 2010 Share 26.6% 40.1% 39.3% District 6 Total $17,703 $17,703 $19,703 $23,703 $78,811 Paving Related $12,028 $7,960 $7,701 $11,645 $39, Share 67.9% 45.0% 39.1% 49.1% 49.9% 2010 Share 71.5% 44.0% 56.0% Statewide Total $129,541 $119,071 $128,578 $134,245 $511,435 Paving Related $0 $0 $0 $0 $ Share 0.0% 0.0% 0.0% 0.0% 0.0% 2010 Share 1.7% 0.0% 0.4% Total $448,209 $378,574 $411,227 $445,375 $1,683,385 Paving Related $198,040 $132,674 $122,121 $147,369 $600, Share 44.2% 35.0% 29.7% 33.1% 35.7% 2010 Share 28.6% 26.9% 36.2% Source: NMDOT/PCA

26 SECTION FIVE Making the Case for Future Paving Share Gains

27 Section Five Making the Case for Future Paving Share Gains Overview In the past, paving cost estimates favored asphalt resulting in the extremely high share of asphalt paved roads within the New Mexico road system. New Mexico is an asphalt state. Asphalt comprises 93% of the stock of interstate roads and 99% in non-interstate roads. If these shares are maintained during , very little improvement in concrete paving volumes will materialize. New paving realities, however, are now in place reflecting changes in global oil demand and new refining practices which reduce liquid asphalt production. The new paving realities shows that comparative life cycle and initial bid cost assessments will increasingly favor concrete over asphalt in the foreseeable future. In this context, PCA believes it is unlikely that a constant paving share will materialize over the next several years. This implies potential gains in every paving sector concrete competes directly with asphalt paving materials including urban and rural streets, interstates, parking lots, and residential driveways. Consider the following assessments regarding the potentially new competitive realities which are just beginning to unfold. Oil Prices and the Competitive Paving Environment Asphalt bitumen is a byproduct of oil refining processes, and represents around 2.5% of all refining output in the U.S. 5 Currently, there are 126 refineries in 28 states that produce asphalt. These refineries have an estimated annual capacity of 840,000 barrels of asphalt per stream day, or roughly a capacity of 308 million barrels per year. Oil prices have a direct impact on asphalt s cost structure. Future oil price changes are expected to be brought about by both cyclical and structural factors. Cyclical variations in oil prices are brought about by unsustainable short-term movements in world demand or supply. Cyclical variations in oil prices are often short lived and explain the volatility in oil prices. Structural variations in oil prices are brought about by sustainable long-term movements in world demand or supply. PCA believes the structural nature of world demand has changed so dramatically and rapidly that it has resulted in a sustained acceleration in oil prices, aside from cyclical volatility. Selected Developing Country's Share of Oil Consumption (1990) Selected Developing Country's Share of Oil Consumption (2009) 12% 24% 88% 76% Rest of World India, China, Brazil Rest of World India, China, Brazil World economic growth is expected to become synchronized with all regions recording strength. Global growth is expected to be characterized by high rates of growth among emerging and developing economies. This is expected to result in strong increases in consumption among the emerging middle class populations driving up commodity prices, including oil. 5 EIA petroleum and other liquids Refinery Yield Average 2010