Modest growth is expected in the U.S. transportation construction market, but uncertainty from the ‘fiscal cliff’ and the 33-month delay in passing MAP-21 will be felt in 2013. A special report based on the American Road and Transportation Builder’s economic forecast.

by Tina Grady Barbaccia, News and Digital Editor

The U.S. transportation construction infrastructure market is expected to show modest growth in 2013, increasing 3 percent from $126.5 billion to $130.3 billion, according to the American Road and Transportation Builders Association’s (ARTBA) annual forecast. The association’s chief economist, Dr. Alison Premo Black, released her findings during a Nov. 30 webinar for Wall Street analysts and construction industry executives.

Growth is expected in highway and street pavements, private work for driveways and parking lots, airport terminal and runway work, railroads, and port and waterway construction. According to the forecast, ARTBA also predicts the bridge market — which the association says has shown substantial growth throughout the last 10 years — to remain flat next year.

The federal surface transportation program, combined with state and local government transportation investments, are the most significant drivers of the national transportation infrastructure construction market. The new surface transportation law, “Moving Ahead for Progress in the 21st Century (MAP-21),” passed in July 2012, was a “solution — a two-year patch,” says Black, for the 1,000+ days of short-term extensions from the previous transportation law — Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) — which expired Sept. 30, 2009. The dilemma was that Highway Trust Fund (HTF) revenues were inadequate to “preserve the current investment,” Black says.

Not just another extension

However, it’s important to note that MAP-21 is not “just another extension,” Black points out. The $106 billion, two-year bill has been scoffed at by transportation industry pundits, especially because the legislation was not a multi-year bill at preferred funding levels. The American Association of Safety and Highway Traffic Officials (AASHTO) was calling for a $500 billion funding level.

“MAP-21 stabilizes the Highway Trust Fund,” Black says, adding that the legislation also had key policy/regulatory reforms. It also garnered broad bipartisan support for transportation.

With no new real federal money in the surface transportation law, still-recovering state and local tax collections, and modest new housing starts, the pavement market will be uneven across the nation, Black says. She says pavement work is anticipated to be down in 25 states, and growth above a 5-percent range is expected in 19 states.

However, there are at least two developments related to MAP-21 that could lead to additional market activity in the short term and strengthen the market in 2013 and 2014, Black says.

First, the law’s restructuring of the federal highway program offers state transportation departments more flexibility in their use of federal funds. “This could lead to slightly increased investment in highway, bridge, and pavement work above the forecast in some states,” Black notes. Additionally, MAP-21’s expanded federal Transportation Infrastructure Finance & Innovation Act (TIFIA) loan program should also increase construction activity in some states, she adds.

A “restructured and reformed program”

Dave Bauer, senior vice president of government relations for ARTBA, says MAP-21 institutes numerous major policy reforms that address past concerns about the focus and effectiveness of the highway and transit programs. Resulting is a “restructured and reformed program with a renewed federal role that targets limited resources towards national priorities and maximizes the potential of those investments to deliver transportation improvements.”

Bauer notes that MAP-21 is a “compromise” between a Democratic-controlled Senate and a Republican-controlled House to improve the structure and outcome of federal surface transportation investments. However, the job is not done. This transportation bill is only what ARTBA is calling “a partial victory” because MAP-21 expires on Sept. 30, 2014, and the revenue stream into the HTF “will be inadequate to even maintain existing highway and transit investment levels.” The next step, notes ARTBA, is for Congress to approve a long-term HTF revenue solution to complement MAP-21’s policy reforms before the law expires. “This long-overdue combination would maximize the ability of federal resources to build and maintain a national surface transportation network that boosts economic competitiveness and job creation,” ARTBA explains.

The choices in the HTF insolvency crisis that looms for 2014-2015, Black says, are drastic investment cuts — which would threaten hundreds of thousands of jobs — or more general fund infusions and new revenues. These new revenues are still to be determined. There are currently three sources of funding for highway construction: federal highway program and state and local governments.

In the past 30 years, all HTF revenue enhancements have been part of a broad tax/budget deal, Black explains. The sources of highway capital spending are 44 percent federal; 32 percent state; and 24 percent local, according to the Federal Highway Administration Highway statistics.

Black says that state and local government finance challenges continue, but there are several positive signs, including recovery in overall tax revenues and state and local governments beginning to have dialogues about transportation funding. There have been moves to increase user-fee revenues. In the Nov. 6 election, voters also approved 68 percent of transportation-funding ballot measures. A few states are also trying to cap gasoline sales taxes, Black points out.