Notes from Jim Haughey

Jul 13 2007 12:24PM | Permalink | Email this | Comments (0) |
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By Jim Haughey

Highway construction will drop sharply unless Congress quickly finds more money for the Highway Trust Fund. The first cutbacks could happen latter this year. The highway funding model used for more than 50 years has collapsed under the weight of persistent energy inflation and endless bickering over how to distribute the money.

The Washington consensus is that the federal Highway Trust Fund will not be able to meet its highway project funding obligations to state DOT’s in FY 2008-09. In the last few years the trust fund grants to states have not kept up with project cost inflation. Potentially, the bankruptcy of the trust funds could turn a serious problem into a critical problem for highway contractors and their suppliers.

This is happening because Congress and President Bush have refused to tap general tax revenues to supplement the 18.4 cents per gallon federal tax on gasoline. Higher energy prices have boosted highway construction costs for asphalt and materials that require lots of heat for production. But the higher fuel costs have kept the growth in gasoline volume to less than 1% over the last two years.

Reed Construction Data expects Congress to patch together a temporary fix by the middle of next year. But this will not be soon enough to prevent state highway managers from delaying some work until they are sure that all of the needed funding is assured. The shortfall is not a lot on money in Washington terms — about $10-15 billion a year. But congress will have to find the money in new taxes, cuts in other programs or more borrowing during the election season when members would prefer to promise more bread and circuses.

The delay in fixing the funding problem could be substantial. Congress was more than a year late enacting the last six-year federal funding program. It takes a lot of time to divvy up a multi-billion dollar "pot" among the 535 members.