January 2006

Bumpy Roads Ahead for Highway Funding
The surface transportation bill may have been reauthorized, but a study shows earmarked money still isn’t enough to maintain the nation’s roads.

by , Senior Editor

Despite the reauthorization of SAFETEA-LU, funding falls far short of what’s necessary to simply maintain the nation’s bridges and pavement, according to a study commissioned by the U.S. Chamber of Commerce’s National Chamber Foundation.

The “Future Highway and Public Transportation Financing: Phase II” study reports that the federal government needs to invest $235 billion in 2006, $304 billion in 2015, and $472 billion in 2030 to maintain the nation’s infrastructure conditions. At the current level of revenue stream, there is a cumulative shortfall of $0.5 trillion through 2015, according to the report.

To improve the transportation system, all levels of government must invest $288 billion in 2006, $368 billion in 2015, and $56 billion in 2030. Current revenue streams also fall short with a cumulative shortfall of $1.1 trillion through 2015.

The major reason for the shortfall in federal revenues is cited as the lack of motor fuel tax rates not being indexed to inflation. As a result, one-third of its purchasing power has been lost since the last adjustment in 1993.

“Current revenues provided by all levels of government…are neither sufficient to maintain the condition and performance of the nation’s highway and transit systems nor to improve the conditions and performance of these systems to levels that best serve the nation’s economy,” according to the study findings.

Between 2006 and 2015, annual Highway Trust Fund revenues will fall $23 billion short of maintaining highway and transit systems and $48 billion short of the federal share needed to improve the systems, the study points out.

Pete Ruane, president and CEO of the American Road & Transportation Builders Association, says that the report reaffirms the importance of the federal government’s role in transportation financing and development, noting “It helps jump-start a broad discussion about the long-term financing of the nation’s federal surface transportation programs.”

National Stone, Sand & Gravel Association President and CEO Joy Wilson says the study, which was funded in part by the association, is a good vehicle to open debate about how the nation is able address future funding.

“For years, the federal government has been unable to find fair, equitable, and realistic means to fund the gap that exists between what we need to do to maintain and improve our surface transportation system and what we actually can do,” Wilson says in a written statement. “Congress, this and future administrations, and the state legislatures have four years until the current legislation authorizing the nation’s surface transportation system expires to devise a financing mechanism that will carry the country’s transportation network forward. This study underscores the fact that we haven’t a minute to lose.”

To view an executive summary of the study, visit www.uschamber.com/ncf/publications/default.

Implementation of new DPM rule delayed until May

The Mine Safety and Health Administration has delayed the applicability date for the Diesel Particulate Matter rule. Implementation of the final rule has been delayed from Jan. 19 until May 20 in order to consider a broad range of issues, including feasibility. However, the rule still contains a five-year, phase-in period to meet the final limit. “We are extending the period for comments on the proposed rule published on Sept. 7, 2005, (70 FR 53280) and rescheduling the public hearings on the proposed rule from Sept. 26, 28, and 30, 2005, to Jan. 5, 9, 11, and 13, 2006,” MSHA says in its notice of delay. “The comment period on that rulemaking will close on Jan. 27, 2006. We find these actions necessary to provide sufficient time and an orderly process for affected parties to comment on that proposed rule.” To review the full notice, go to http://www.msha.gov/REGS/FEDREG/PROPOSED/ 2005PROP /05-18737.asp. 

Mergers & Acquisitions

Transaction activity in the construction materials industry was brisk in the past month, with four large transactions announced. On Nov. 4, Lafarge North America announced the long-anticipated acquisition of Wichita, Kansas-based Ritchie Corp. The acquired company, which supplies nearly 2 million tons of aggregate annually, also operates seven ready-mixed concrete plants. It will be consolidated into Lafarge North America’s existing Aggregates, Concrete & Asphalt business segment.

On Nov. 2, CRH plc announced two transactions that significantly expanded its construction materials operations in the United States. CRH acquired the aggregates, asphalt, paving, and construction assets of the Mountain Companies, a vertically integrated business operating in the Appalachian regions of eastern Kentucky, southwest Virginia, and along the Kentucky/West Virginia state line. CRH also acquired 50 percent of Bizzack, Inc., the heavy construction affiliate of Mountain Companies. The acquired business operates eight quarries and one sand and gravel pit with total permitted reserves in excess of 400 million tons. Mountain Companies annually produces nearly 5 million tons of aggregates.

CRH plc also purchased the assets of Southern Minnesota Construction, the leading aggregates and asphalt supplier in the south-central region of Minnesota. The acquired company has more than 80 million tons of reserves and annual volumes of about 3 million tons of aggregates and 0.5 million tons of asphalt. The combined companies generated approximately $294 million and $52 million, of revenue and EBITDA, respectively, in 2004. The total combined consideration for the acquisitions approximated $413 million, including $361 million in cash and assumed debt, and $52 million (present value) in deferred consideration.

Evidencing further vertical integration and consolidation in the ready-mixed concrete market, on Oct. 5, 2005, Compañia de Cemento Argos S.A. announced the acquisition of two separate U.S. ready-mixed concrete producers — Southern Star Concrete, Inc. for $245 million sale and Concrete Express for $12.5 million.

Other recent ready-mixed concrete acquisitions consummated by larger consolidators include the Rinker Materials recent joint venture with Charter Materials in Arizona, including the purchase of a plant and a 49-percent interest in its sand operation and U.S. Concrete’s acquisition for about $14.3 million of Tennessee-based City Concrete, a business with five plants in the greater Memphis, Tennessee, and northern Mississippi area and annual revenue of $23.5 million.

 — by Bill Watkins, director of Brown Gibbons Lang & Co. Watkins is a contributing editor and can be reached at 216-241-2800.

Reprinted from Aggregates Manager Magazine
January 2006