Funding uncertainty dominates road ahead

Feb. 17, 2004

The road and bridge construction industry started 2004 more unsettled than at any time in the recent past, and the reason can be summed up in one word that everyone is probably tired of hearing by now: reauthorization. As of mid-January, Congress had still not finished a bill that would provide the blueprint for highway and transit funding for the six-year continuation of the Transportation Equity Act for the 21st Century (TEA-21) which expired on Sept. 30, 2003.

The road and bridge construction industry started 2004 more unsettled than at any time in the recent past, and the reason can be summed up in one word that everyone is probably tired of hearing by now: reauthorization. As of mid-January, Congress had still not finished a bill that would provide the blueprint for highway and transit funding for the six-year continuation of the Transportation Equity Act for the 21st Century (TEA-21) which expired on Sept. 30, 2003.

Congress was reportedly planning to consider reauthorization this month, with the House’s $375 billion six-year Transportation Equity Act: A Legacy for Users scheduled for mark-up in the second week of February and reaching the House floor in the last week of the month. A House staffer said they hoped to have the bill in a House-Senate conference committee by the end of the month, thus requiring only another short extension to reconcile it with the Senate’s $311 billion bill. On the Senate side, two weeks of debate were reportedly scheduled to start on Feb. 2.

Of course, the demands of election-year politics could provide distractions. Unfortunately, transportation infrastructure does not seem to be an issue for any of the presidential candidates.

Another hurdle for a reauthorization bill is the White House’s insistence that the president will not allow any increase in highway revenue. Transportation Secretary Norm Mineta reportedly told the U.S. Conference of Mayors recently that the Bush administration “will oppose virtually all of the plans floated to finance a bigger [TEA-21 reauthorization] bill.” CongressDaily reported that Mineta told the group the Bush administration’s $247 billion, six-year SAFE-TEA proposal, already submitted to Congress, was the “largest investment in highway and transit in the history of this great country.”

Mineta reportedly said the president would oppose any increase in or indexing of gasoline taxes. The president also would oppose long-term bonding and any measure that would affect the deficit in the general fund.

When the federal government refuses to provide funding, the states have to pick up the slack. Numerous states have already raised their gasoline taxes to fund highway construction and maintenance, or they are considering such moves.

The American Road & Transportation Builders Association (ARTBA) was forced to look at more than one scenario to forecast what the industry will do in the next year, depending on which federal funding plan is enacted.

Choices, choices

If Congress passes the House Transportation & Infrastructure Committee’s bill, which includes $375 billion in highway funding over six years, there would be an average 7% annual growth in the highway construction market, according to ARTBA. The plan of the Senate Environment & Public Works Committee, which grants $311 billion, would generate 4.8% annual growth.

All things considered, Dr. William Buechner, ARTBA’s Harvard-trained vice president of economics and research, is betting the U.S. highway construction market will grow 4.2% in 2004, based on continued increases in federal funding and renewed economic growth.

In support of his 4.2% growth prediction, Buechner cites the 8.2% annual growth rate in gross domestic product in third-quarter 2003 and the expected 3.9% economic growth rate for 2004.

He projects, “Renewed economic growth should ease the dire state and local budget situation and permit renewed growth of investment in highways and bridges.” On Jan. 22, the Senate passed a gigantic annual appropriations bill that combined seven spending bills, including transportation, of the 13 needed to fund the federal government. The bill grants $33.5 billion for highway funding, which is $2 billion more than in 2003. The bill also provides $3.4 billion for airport construction and $7.3 billion for transit.

In addition to the $33.5 billion obligation limitation for 2004, the bill provides another $700 million for exempt programs including emergency relief, minimum guarantee and others, bringing the total highway funding package to $34.3 billion for 2004, a record level according to the American Association of State Highway and Transportation Officials.

The bill had been held up by Democrats in the Senate to protest the way it had been handled. The bill has been called a giant barrel of pork for favored Big Business causes, such as increasing limits on ownership of television stations for media conglomerates and exempting millions of workers from overtime pay.

The Senate Democrats finally conceded that they could not sustain a filibuster. “Nobody here wants to be accused of shutting the government down,” Tom Daschle, the Democratic leader from South Dakota, said. But he and other Democrats vowed to continue to fight on these and other issues.

Costs grow

Health-care insurance costs are expected to grow right along with the economy as a whole this year, and architecture and engineering firms are expected to pass the extra costs to their employees, according to ZweigWhite, a management consulting firm based in Natick, Mass.

“Additional data collected for other ZweigWhite management surveys show A/E and environmental firms are paying more in group insurance costs than ever reported before,” said Laura Rothman, an associate with ZweigWhite. “On a per-person basis, group insurance costs hit a four-year high in 2003, at a median of $3,525 per employee. With insurance expenses this high, many firms have no choice but to pass some of the cost to employees.”

The number of companies passing the cost on reached an all-time high. Sixty-one percent of companies required employees to contribute to both employee-only and employee-family health insurance premiums, while 57% required employees to contribute to both types of dental insurance premiums.

The economy grows, too

McGraw-Hill Construction Dodge was modestly optimistic about the new year in its report of new construction starts through November 2003. Construction starts for the whole industry were up 1% from October and up 3% compared with the first 11 months of 2002.

“For most of 2003, single-family housing has been the industry mainstay, and there are now signs of improvement being shown by other sectors after a weak start to the year,” said Robert A. Murray, vice president of economic affairs for Dodge. “Moving into 2004, the continued improvement by such sectors as commercial building and transportation public works would help offset the modest retreat expected for single-family housing.” Highways and bridges provided much of the upward impetus in the 11% growth in nonbuilding construction in November. Highway and bridge construction rose 25% in November, but the improvement came after four straight months of sluggish contracting, so the segment still trailed its 2002 performance by 4%.

“The 2003 decline for highway and bridge construction marks a change from the steady growth of the past four years,” said Murray. “The prospects for 2004 are still uncertain—it appears that fiscal 2004 appropriations for the federal-aid highway program will receive a moderate increase, but tight state budgets will continue to have a restraining impact on new construction.”

Ken Simonson, chief economist at the Associated General Contractors of America (AGC), reported Census figures that showed the value of construction put in place reached a seasonally adjusted annual rate in November of $934.5 billion, 1.2% above October and 7.4% greater than November 2002. Public construction (up 3% year-to-date) and private residential construction (up 10%) accounted for the increase in construction value overall, while private nonresidential construction was off 6%.

More soothsaying

The Association of Equipment Manufacturers predicts healthy 5.5% growth in the construction equipment market in the U.S. this year, according to the association’s annual survey of construction equipment manufacturers.

A year ago, the same survey predicted 2% growth for 2003. This year’s survey found an actual decline of 0.4% in U.S. equipment sales, on top of the 5.6% decline in 2002 and the 12.8% drop in 2001.

The following are results of the survey in various categories:

• Earthmoving equipment—an 8.7% decline in 2002, a 4.9% gain in 2003 and a predicted 7.2% climb in 2004.
• Lifting equipment such as cranes and aerials—a 14.9% drop in 2002, a 7% drop in 2003 and a predicted 2.4% gain in 2004.
• Bituminous machinery such as cold planers, asphalt plants, pavers and rollers—a 0.5% increase in 2002, a 1.5% slip in 2003 and a projected 7.1% jump in 2004.
• Concrete and aggregate equipment including concrete pavers, batch plants, pumps, crushers and screens—a 1% loss in 2002, a 7% drop in 2003 and a predicted 3% reversal to the positive in 2004.
• Light equipment such as breakers, saws and generators—a 3.6% increase in 2002, a 1.1% gain in 2003 and a predicted 5.1% jump in 2004.
• Attachments and components such as buckets and blades—a 1.4% increase in 2002, a 0.6% increase in 2003 and a predicted 6.4% leap in 2004.

About The Author: Allen Zeyher is associate editor of Roads & Bridges.

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