Change for the dollar

As TEA-21 comes to an end, money issues start to pile up

Article March 18, 2003
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It can be crinkled, ripped, folded and rolled. But the
minute you cut dollars there's a problem.

For over 10 years the Intermodal Surface Transportation and
Efficiency  Act (ISTEA) and the
Transportation Act for the 21st Century (TEA-21) have offered tremendous
financial relief to the road and bridge industry. There also has been a vibrant
economy, which in turn has produced vibrant sales and gas tax receipts.

But the celebration has been replaced by a recession just
when the highway and bridge industry is approaching another monumental turn.
TEA-21 expires this year, and with it comes growing uncertainty at the state
level. The system may continue to improve, but the real question is at what
pace?

Slow but effective

The fruits of TEA-21 have ripened slowly. The process is
normal, according to Greg Cohen, P.E., vice president of government affairs for
the American Highway Users Alliance.

"I think we're just beginning to see what TEA-21 has
accomplished because of the slow spend-out rate," he told Roads &
Bridges. "The budget offices in Washington have assumed about a seven-year
spend- out rate, with most of the money in TEA-21 going out in the second or third
year after it was programmed. It just takes time."

And since the primary focus of TEA-21 was to maintain the
current system, most are seeing the effects of the most powerful highway bill
when it comes to highway and bridge repair.

A new report issued by University of North Carolina at
Charlotte Prof. David Hartgen reflects an improvement on the maintenance end.
The study found that the state highway systems are improving in condition.
Since 1996, the percent of poor condition rural interstates has improved from
3.9 to 1.9%, while the percent of poor condition urban interstates has improved
from 8.8 to 5.5%. Less than 1% of rural major roads are currently in poor
condition, and the portion of deficient bridges has declined from 30.4 to
26.8%.

Breaking the numbers down further, Hartgen made the
following conclusions:

* The percent of poor condition rural interstate roads
varied from zero in 24 states to 29% in Arkansas;

* The percent of poor condition urban interstates ranged
from zero in nine states to 28% in Hawaii;

* The percent of poor condition rural major roads varied
from zero in seven states to 3.5% in South Dakota; and

* The percent of deficient bridges ranged from 5% in Arizona
to 54% in Rhode Island.

Hartgen also rated the cost effectiveness of each state's
highway system. The top 10 were: (1) North Dakota; (2) Wyoming; (3) South
Carolina; (4) Georgia; (5) Idaho; (6) Nevada; (7) Oregon; (8) Montana; (9)
Kentucky; and (10) Alabama. California (44); New York (45); Michigan (46);
Arkansas (47); Hawaii (48); Massachusetts (49); and New Jersey (50) were the
worst.

The Federal Highway Administration recently released a
positive stack of paperwork regarding the nation's infrastructure program.

Its Conditions and Performance Report, based on year 2000
data, found the increased investment in surface transportation by all levels of
government since the 1998 enactment of TEA-21 has greatly improved the
condition of existing highways and bridges. In 2000, 86% of total U.S. road
mileage was rated acceptable in condition terms, compared with 85.4% in 1999.

The funding delegation process, however, has been a bit
lopsided. During FY 1992-2001 states have obligated $27.6 billion, or 82.5% of
the available funding, toward the maintenance of the interstate system. The
bridge program did not receive quite as much attention during the same 10-year
period. States showed a 73% obligation rate for bridges, which means $7.9
billion was left on the table in favor of funding other programs.

Deficit caretakers

The downturn in the economy has thrown many states into the
black sea of debt. Alabama, California, Colorado, Idaho, Iowa, Kansas,
Kentucky, Maryland, Massachusetts, Minnesota, Missouri, New York, Oklahoma,
Texas, Virginia and Washington are among those suffering the worst crunch in
not years, but decades. Oklahoma is facing its worst budget crisis in its
history.

To help fill in fiscal losses, many governors are turning to
state DOT funding, which in some cases is already in dire straits. There were
about 36 measures related to transportation funding on state and local ballots
last November. Almost two-thirds of the money requests asked voters to approve
higher county, sales or property taxes to generate more funds for transportation
projects--11 passed and 11 failed.

Still, state legislatures insist on transferring whatever
possible over to the general fund account.

"That's just outrageous," said Cohen.
"Diverting money from their highway trust funds to the general funds to
fix budget problems this year is the wrong way to go. Unfortunately, people who
are doing these things are thinking in the short term."

The state of Washington suffered one of those November
losses when Referendum 51, a $7.8 billion statewide transportation tax package,
was convincingly rejected by voters.

"Our legislature right now is looking for alternative
funding packages for transportation," Amy Arnis, financial planner for
WDOT, told ROADS & BRIDGES. "The next step is for them to propose
another solution."

WDOT's money problems actually started back in 1999 with the
passage of initiative 695, which reduced car registration fees.

"So it basically took away our motor vehicle excise tax
and we had a significant funding dip for transportation," said Arnis.

The current budget WDOT is operating under is $1.3 billion,
but it's expected to fall to $1 billion a year from 2003-2005 and could be as
low as $700 million during 2005-2007.

"The legislature did appropriate a higher level of
bonding to bring us through the current biennium (2001-2003), but now as we
move to 2003-2005 the percent of our gas tax revenue is being dedicated to debt
services which are starting to climb," added Arnis.

A measure called Senate Bill 1 was supposed to transfer the
sales tax of motor vehicle related parts and accessories over to the Colorado
DOT. According to CDOT spokesperson Stacey Stegman, the department was
expecting about an additional $200 million a year. The extra money was supposed
to fuel what are called Strategic Transportation Projects, which are
high-priority corridors across the state. But the promise faded with the
recession, and STPs are currently on hold.

"In the current year we are budgeted at $794 million.
That's down over the last several years of being at over $1 billion," said
Stegman. "It means now we have to be as lean as possible. We've made cuts
in all of our operating expenses to maximize dollars going to
construction."

The Louisiana Department of Transportation has lost its
biggest lock and key. Last year a constitutional amendment was passed that
allowed the transfer of money over to the state's general fund.

"The state has been running such large general fund
deficits every year for the last few years, and more and more of the state
revenue has been getting tied up with dedicated funds," Ronnie Brewer,
budget director for LDOT, told ROADS & BRIDGES.

Making matters worse is the two-sided opinion of Louisiana
voters. In a telephone poll conducted late last year, 58% rated the road system
a "D" or an "F." However, asked if they would support an
8-cent-per-gallon gas tax increase as a funding measure 63% said no. Another
46% also opposed a 4-cent hike.

Brewer believes the DOT has done a better job in living up
to the focus of TEA-21, which is maintaining the system. The major
inconvenience, which hasn't been addressed, is road capacity.

"We're just losing ground there so fast," said
Brewer. "I think people get confused and when they get caught in traffic
jams they say the roads are bad."

Officials at the local level are trying to control their own
destiny. In a recent Surface Transportation Policy Program Progress newsletter,
Richard Mauro of the Denver Regional Council of Governments wrote about the
need for an equity funding platform for transportation dollars within the state
of Colorado that could have implications for local control in TEA-21
reauthorization. A request has been made to the Colorado legislature to set a
funding floor where 90.5 cents of every transportation dollar contributed by
the region is returned to the region. The thought is to establish a system
similar to the funding equity among the states established in TEA-21.

Mauro said the Denver region, which holds about two-thirds
of the state's population, contributes 53% of the state transportation funding
but receives just 36% of those funds in return. Equity funding would generate
an additional $2.7 billion in capital, operating and maintenance dollars over
the next 30 years to the city and county of Denver.

More TEA?

What figure is in? That's the question at the federal level
as the life of TEA-21 comes to an end this September.

President Bush recently signed a $397.4 billion spending
bill for FY 2003, which includes a $31.8 billion package for the highway
industry. The administration opposed such financing earlier in the year,
stating the money simply wasn't available.

In early February, the U.S. DOT said the Bush team was ready
to release a $247 billion transportation bill which would provide funding
through 2009. The yearly breakdown was as follows: $31.1 billion in 2004; $32.1
billion in '05; $33.2 billion in '06; $34.1 billion in '07; $35 billion in '08;
and $35.8 billion in '09.

Even though the administration claims it's a 19% increase
over the level guaranteed by TEA-21, it falls far short of what the system
needs.

The American Road & Transportation Builders Association
(ARTBA) released its plan, "Two Cents Make Sense," in late 2002. The
aim here is to add capacity to the nation's roadways.

Congestion is a growing inconvenience in the U.S. Hartgen's
study said urban interstate congestion has worsened, from 44.1% congested to
50.9%. A report from The Road Information Program, The Interstate Highway
System: Saving Lives, Time and Money, but Increasing Congestion Threatens
Benefits (See This is a stickup, February 2003, p 10), takes it a step further
by marking the proportion of urban interstate miles that are considered
significantly or severely congestion increased from 33% in 1996 to 41% in 2001.

The ARTBA plan would annually index the federal motor fuels
excise to the Consumer Price Index and then further adjust the federal highway
user fee rate, depending on incoming revenues to the Highway Trust Fund, by a
penny to a penny-and-a-half per gallon. At most the total annual adjustment, including
indexing, would be about two cents per gallon. This would increase the federal
highway investment in $5 billion per year increments from $35 billion in FY
2004 to $60 billion in FY 2009.

At press time, the Bush administration did not have a
comment on fuel indexing. A straight-up increase in the federal fuel tax also
seemed unlikely.

But there may be a way to fatten the money envelope without
the index or the tax increase. According to Cohen, the additional drawing down
of the cash balance in the Highway Trust Fund and additional bonding authority
for certain types of projects are just two ways to strengthen the cash flow to
$40-50 billion.

"You also can recapture several billion dollars by just
cracking down on fuel tax evasion, particularly in the southern U.S. where
aviation fuel is being used in diesel engines and sold at a much lower tax
rate," he said.

Whatever the new spending level turns out to be, the federal
government needs to shoot at the right targets. Cohen believes focus may be on
programs, like environmental streamlining and safety. If that is the case, he
warned, there may be a difference in definitions.

"I think the government tends to address things that
people do to endanger themselves, like drinking and driving and seat belts.
While we support that, I think they may have missed a great opportunity to
shine a little light on doing some physical changes."

About the author: 
Bill Wilson is editor of Roads & Bridges.
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