Impact of Rising Construction Costs on State Highway Construction Programs

Transcription

1 Impact of Rising Construction Costs on State Highway Construction Programs Presentation to Florida Transportation Commission By William Buechner, PhD. VP for Economics and Research American Road & Transportation Builders Association ober 9, 2007

2 1982=100 Since 2003, Cost of Highway Construction Materials Has Risen 42% Source: Bureau of Labor Statistics, PPI for Highways and Streets

3 1982=100 Cost of Steel Started the Process, Almost Doubling in Price in Early Source: Bureau of Labor Statistics, PPI for Hot Rolled Bars, Plates & Structural Steel

4 1982=100 Then Prices for Core Highway Construction Materials Began to Rise, Including Crushed Stone (Up 31%) Source: Bureau of Labor Statistics, PPI for Construction Sand, Gravel and Crushed Stone

5 1982=100 Ready-Mix Concrete (Up37.3% Since 2003) Source: Bureau of Labor Statistics, PPI for Ready-Mix Concrete 2006

6 1982=100 And Asphalt Paving Mixtures (Up 53.6%) Source: Bureau of Labor Statistics, PPI for Asphalt Paving Mixtures & Blocks 2006

7 e Have Not Seen Such Inflation in Highway Construction Materials Since Late 1970s 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 3.6% 3.1%2.0% -0.9% 2.5% 7.8% 0.4% -2.4% 2.2% 8.5% 12.5% 10.8% 4.9% Source: Bureau of Labor Statistics. PPI for Highway and Street Construction

8 e Total Highway Construction Costs, inc. Labor and Overhead, Are Up 26 Percent Since % 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 0.3% -0.9%-0.6% 0.4% 2.6% 5.5% 1.3% -0.9% 7.7% 6.5% 5.5% 3.9% 2.4% Source: Bureau of Labor Statistics. PPI for Highway and Street Construction

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

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

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

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

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

14 Billions of dollars Unobligated Earmarks at End of Fiscal $10.0 Year $10.0 $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $ Source: Federal Highway Administration $2.6 $2.6 $2.5 $ $ /Aug Sect. 112 Corrid/Nat Sig Demos ST-LU HPP Trans. Proj. Sect 117 Sect 115 T-21 HPP

15 e Billions of dollars Value of Construction on Highways and Bridges Grew Rapidly in $80.0 $70.0 $60.0 $54.0 $59.9 $57.5 $57.2 $58.6 $64.1 $71.9 $75.1 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 Source: ARTBA, Value of Transportation Construction Put in Place

16 Billions of dollars Virtually All the Growth Was With State & Local Funds Up 40% Since 2004 $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

17 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

18 Billions of dollars Highway and Bridge Construction Slowing After Strong Spurt Last Year $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 Feb Mar May Jun Aug Sep Nov Dec Source: ARTBA, Value of Transportation Construction Put in Place

19 Billions of dollars New Awards/Starts for Highway & Bridges Tell A Different Story - Were Up $4 Billion in S07 $60.0 $50.0 $45.6 $42.4 $38.6 $43.5 $48.2 $52.7 $40.0 $30.0 $20.0 $10.0 $ Source: ARTBA analysis of New Starts data from McGraw-Hill Construction Economics

20 Millions of dollars But Increase Due to Two States New Contracts in California Up $2 Billion $7,000.0 $6,023.2 $6,000.0 $5,000.0 $4,000.0 $3,000.0 $4,906.5 $3,099.5 $2,545.7 $3,513.0 $4,045.8 $2,000.0 $1,000.0 $ Source: ARTBA analysis of New Starts data from McGraw-Hill Construction Economics

21 Millions of dollars And New Contract Awards in Georgia Up $1.5 Billion $3,000.0 $2,957.0 $2,500.0 $2,000.0 $1,500.0 $1,000.0 $1,210.2 $878.0 $909.0 $1,298.9 $1,433.8 $500.0 $ Source: ARTBA analysis of New Starts data from McGraw-Hill Construction Economics

22 Number of states And States Reducing Value of New Contracts Rose in States with increase States with decrease Source: ARTBA analysis of New Starts data from McGraw-Hill Construction Economics

23 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

24 Current Progress Both House and Senate have passed 2008 transportation appropriation bills that include the RABA bonus President has threatened to veto approps bills that exceed his request Will likely include new earmarks State DOTs will get no more, maybe less, formula funds than in 07

25 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

26 Billions of dollars New Projections Show -$4.3 Billion Highway Account Balance by 2009 $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 $1.3 -$ Projected End of Year Balance in Highway Account Source: FHWA estimates for Mid-Session Review of 2008 Budget

27 Billions of dollars Option 1: Cut $15.9 Billion in 2009 (40%) to Save $4.3 Billion of HA Outlays $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 $

28 Option 2: Senate Finance Proposal to Generate Needed New Revenues Reimburse HTF for emergency spending since 1998 Suspend fuel tax exemptions for six months Reduce fuel tax evasion Generates $5.7 billion through 09, included in FAA authorization bill

29 Billions of dollars Beyond 09, Projected Annual HTF Revenues $19 Billion Less than Needed Just to Maintain Conditions $65.0 $60.0 $55.0 $50.0 $45.0 $40.0 $35.0 $30.0 $25.0 Needs SAFETEA-LU HA Revenues Source: ARTBA analysis of USDOT 2006 Conditions and Performance Report; U.S. Treasury forecast

30 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 2009 will be below SAFETEA- LU