As the height of the construction season gets underway, the current market for transportation work is mixed. Market activity for airport runways, subway and light rail, railroads and bridges is off to a good start in 2015, with the value of work up more than 10 percent compared to the first quarter of 2014. Overall investment in highways, airport terminals, waterways and ports is lagging— down nearly 4 percent during the same time period. 

Despite the national trend, the market at the state and local level varies dramatically, with some areas significantly increasing the value of contract awards and transportation investment in the coming year.

Highway Construction
The real value of highway and pavement construction work is off to one of the worst starts in years, with contractors completing $6.7 billion in highway work in the first quarter of 2015. To put this in perspective, the real value of work was $9.1 billion during the same time period in 2009 and $9.8 billion in 2000, when adjusted for materials prices and project costs. 

The downturn in highway construction is a combination of several market forces, including severe weather, continued uncertainty regarding long-term federal funding, which represents 52 percent of state department of transportation (DOT) capital outlays, and still-recovering state and local budgets.

Highway construction activity is mixed at the state level, with recent contract awards up in 25 states, down in 18 states and Washington, D.C., and fairly flat within a plus or minus 5 percent range in the remaining seven states. 

Continued uncertainty regarding the status of the Highway Trust Fund, which provides funding for federal surface transportation investment, will temper the highway construction market in 2015. Highway construction is expected to increase in some of the larger state markets, including California, Florida, Georgia, Illinois, Michigan, Pennsylvania and Texas, based on recent contract award activity. Additional markets that should see significant growth include Louisiana, Maryland, Massachusetts and South Carolina. 

Outside of construction, state and local governments are expected to spend an additional $38.5 billion for maintenance work in 2015; $13.2 billion for in-house and consultant planning and design services; and $7 billion for right-of-way purchases as part of their highway and bridge programs.

Bridges and Tunnels
Several state markets and mega-projects are driving record levels of bridge and tunnel construction. Contractors performed $5.2 billion in work during the first quarter, which puts the industry on track for another year of growth.   

State DOTs and local governments have doubled bridge construction spending during the last 15 years in an effort to address significant issues. The outlook for bridge construction beyond 2015 will partially depend on the reauthorization of the federal aid program. Many bridge projects are large, multi-year capital investments, and construction work traditionally shows real growth after the passage of a new federal bill and the funding certainty this can bring to state programs. But absent an increase in overall investment, the pace of growth in bridge construction will likely slow down as state and local governments use limited resources to address pent-up demand for highway and street investment that has been deferred during the last six years.    

Eight states drive the U.S. bridge market, accounting for more than half of national activity: California, Florida, Illinois, New Jersey, New York, Pennsylvania, Texas and Washington. Overall, the bridge market is split, with 23 states and Washington, D.C., expected to increase work in the coming year, three states with flat markets, and activity is likely to decline in 24 states. 

Additional Markets
The real value of airport runway work in the first quarter of 2015 is off to a very strong start, with nearly $1 billion in work. This is compared to $660 million in market activity in the first quarter of 2014. Airport terminal work is down compared to previous years, but it is expected to grow in the future as passenger travel and enplanements increase. 

Rail investment continues to increase with the improving U.S. economy and several large ongoing transit projects across the country. Spending on Class I freight railroads, subways and light rail reached record levels in the first quarter of 2015 at $4.3 billion, laying the groundwork for another strong year.   

However, uncertainty regarding the federal aid program, which also supports federal transit investment, could have an impact on getting new subway and light rail projects in the pipeline. 

Recent work in dock and marine terminal work for ports and waterways is down in the first quarter of 2015 at $520 million, but in line with average spending prior to 2014. Several ports and facilities are making improvements to their infrastructure anticipating the completion of the Panama Canal expansion.  

Legislative and Regulatory Factors
Increases in state and local funding for highway and bridge construction and the regulatory environment are additional factors that will impact the market in 2015 and beyond. 

The American Road and Transportation Builders Association’s (ARTBA) Transportation Investment Advocacy Center (TIAC) is currently tracking 98 transportation funding-related bills that have been introduced in state legislatures. Five states have increased gas tax-related fees in 2015 (Iowa, South Dakota, Utah, Idaho and Georgia) in addition to eight states in 2014 and 2013. 

Although the increase in user fee revenues should help support increased investment, analysis by TIAC found that 10 of the 13 states said they would be unable to complete projects without the additional funding. So although these revenue increases are welcome, the impact on the actual construction market will vary widely from state to state depending on the timing of the program, the specifics of each bill and where the money will be used.    

Regulatory issues are another area that could impact contractor operations and the overall transportation construction business environment. The U.S. DOT has implemented about half of the regulatory reforms that were included in MAP-21. New issues also have arisen, including a U.S. DOT pilot program to allow local hiring preferences on federal aid projects. An ARTBA survey of contractors found that more than 76 percent of those who had experience with local hiring preferences reported the mandate had added “significant costs” to the project. To the extent some of these practices are implemented and become more widespread, higher bid prices will mean less construction work given limited resources.   

Long-Term Opportunities
In the long run, the fundamental drivers of transportation investment, including population growth, economic activity and freight and passenger travel, will continue to put demand on the U.S. infrastructure network. This will provide ongoing opportunities for the American businesses involved in the construction and materials sectors, as well as planning and design firms and other industries that depend on transportation investment. 

The outlook for 73 percent of the U.S. transportation construction market—highways, bridges and mass transit—is extremely dependent on the federal aid surface transportation program. The best indicator for market activity in these sectors is what Congress does, or fails to do, in terms of fixing the Highway Trust Fund and providing the necessary revenues to grow federal surface transportation investment. 


Alison Premo Black is chief economist for the American Road & Transportation Builders Association. For more information, email ablack@artba.org.