In the transportation sector, good news only lasts so long. Tanking state and local budgets have been buoyed by the stimulus bill, but there’s only so much funding to go around. And while heavy/highway contractors are used to being at the mercy of the government, it’s magnified this year given the state of the economy and pending reauthorization of federal transportation investment legislation
(SAFETEA-LU).
“We have to anticipate what the politicians are going to decide. We base our capital investments on that, and sometimes you’re not right,” says Paul Colarusso, vice president of construction for
A. Colarusso & Son, Hudson, N.Y. “You hear things, but in our industry, you always hear things. And then the budgets are changed and projects get pulled off.”
Lately, states have had to pull the plug on hundreds of valuable projects. The North Carolina Department of Transportation is short billions of dollars in long-term funding, and the Nevada Department of Transportation faces significant budget gaps for its 2010–2011 capital improvement program—despite a 103 percent increase in traffic between 1990 and 2005.
“We’re all in the same boat rowing uphill in a downhill stream,” says Barrett Tucker, business development manager for American Infrastructure, Fallston, Md. “We don’t see any relief this year and it will continue into 2010 before we see things really get better.”
Short-Term Stimulus Boost
With the private sector expected to remain depressed in the coming years, the public sector is one of few sources of opportunity—particularly now that the $27.8 billion in stimulus funding earmarked for highway and bridge projects is appropriated. As of mid-July, nearly 2,000 Federal Highway Administration projects worth $6.1 billion were under construction, and 5,650 transportation projects had been authorized.
American Infrastructure, which employs about 1,700 people across Pennsylvania, Maryland, Virginia and Delaware, had the honor of winning the nation’s first stimulus contract. The Maryland State Highway 650 project includes $2.1 million in safety improvements, curb and gutter replacements, median and draining upgrades, new pavement markings and resurfacing along a 1-mile stretch of New Hampshire Avenue in Montgomery County, Md. The corridor, which carries 44,000 vehicles per day, was last resurfaced in 1992.
“The good news is we’re on budget and on time,” says Mark Compton, American Infrastructure’s director of government affairs. As the company nears the project’s October deadline, it continues work on four other stimulus-funded projects, most of which involve milling and overlay of asphalt paving.
“Cost control is important to getting these projects,” Compton says, pointing to the advantage of having access to the company’s asphalt plant operated by Independence Construction Materials. “Our competition is trying to do a lot more of this type of work.”
Though contracts are tightly contended, Tucker points out, “without the stimulus, there would have been far fewer projects under the original state and county plans; it nearly tripled the amount of projects to bid on.”
A. Colarusso & Son, which employs about 150 people, has three New York Department of Transportation projects in progress right now, and is bidding on another backed by stimulus funds. “We’re seeing some money trickling in, but it hasn’t been a gusher of money,” says Colarusso, whose 97-year-old family-owned firm has doubled its volume of work in the last eight years. “I’m anticipating the flow of work will continue, but it won’t be at an overwhelming pace. Right now opportunities are out there, but the competition is so acute it’s hard to take advantage of them.”
Besides California, New York received the largest federal stimulus allocation—$2.84 billion—with all of its obligated funds (as of April 30) devoted to highway infrastructure projects. Texas’ lifeline includes $2.3 billion in transportation construction funds, $505 million of which the Texas Transportation Commission has approved for more than 250 roadway and bridge maintenance and rehabilitation projects. The Arkansas State Highway and Transportation Department banked $350 million in stimulus funds, despite having a wish list of 130 projects worth $1.1 billion.
The Alabama Department of Transportation received $417.8 million, representing about a 20 percent increase in the state’s spending program. “It’s a nice little bump, but not an influx of work,” says Craig Fleming, president of
Dunn Construction, Birmingham, Ala.
The sixth-generation family-owned firm has won three stimulus-funded asphalt resurfacing projects and anticipates more opportunities in the next few months.
“It stopped the layoffs and downsizing of our business that has been occurring during the last few months,” Fleming says. “We may even hire a few folks, but mainly it has stopped the bleeding.”
Long-Term, Long-Overdue Solution
Undoubtedly, the stimulus bill’s $48 billion for transportation projects will not even come close to alleviating the nation’s infrastructure woes. In addition to a massive freight bottleneck and traffic congestion that eats up more than $78 billion annually in economic productivity, 37 percent of National Highway System lane miles are in poor or fair condition, and one out of every four bridges is structurally deficient or functionally obsolete, according to the U.S. Department of Transportation.
Meanwhile, the Highway Trust Fund is expected to be short $5 billion to $7 billion by September, when the current funding policy—Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU)—expires. Looking ahead, the National Surface Transportation Infrastructure Financing Commission estimates the troubled Highway Trust Fund will take in about $230 billion from 2010 to 2015, while maintenance needs during the same period will total $500 billion.
Transportation Secretary Ray LaHood has cautioned against rushing to approve sweeping legislation, instead calling for an 18-month reauthorization of SAFETEA-LU that would merely extend the current program and replenish the Highway Trust Fund. The Senate Environment and Public Works Committee approved the $61.5 billion short-term extension, but House Transportation and Infrastructure Committee Chairman James Oberstar (D-Minn.) and Ranking Member John Mica (R-Fla.) remain committed to plans to transform the nation’s transportation network so it meets “today’s needs and tomorrow’s challenges.”
In a blueprint of the Surface Transportation Authorization Act of 2009, the committee proposes a performance-based framework for intermodal transportation investment totaling $450 billion over six years—a 38 percent increase above the current funding level. The bill would double the investment in highway and motor carrier safety to $12.6 billion; provide $337.4 billion for highway construction investment; and provide $99.8 billion for mass transit. Together with an additional $50 billion tagged for the development of 11 high-speed rail corridors, the bill would create or sustain approximately six million jobs, according to the Federal Highway Administration.
Neither LaHood’s nor Oberstar’s proposal specifically addresses how to fill the revenue gap (i.e., grow the Highway Trust Fund), but it likely will require something undesirable in this economy: raising taxes. The 18.3 cent-per-gallon federal gas tax has not been increased since 1993 and produces progressively less revenue as automobiles become more fuel-efficient.
“A revenue increase is needed and warranted,” Compton says. “The public has to understand that the only way they won’t be sitting in traffic is allowing the government to raise taxes.”
Other revenue-producing ideas include indexing the gas tax to inflation, expanding tolling, doubling the heavy vehicle fee, increasing the tax on barrels of oil and switching to a vehicle miles driven tax (versus the fuel tax).
“Costs have gone up significantly—well above 50 percent—for materials, labor and doing business in general. We’ve had a fixed revenue source—the gas tax—along with rising costs and inflation. It has to be addressed,” Fleming says.
“If the reauthorization comes through and funding needs are addressed, then there will be some significant growth in our industry as far as hiring,” he says, adding that most contractors are operating at 60 percent to 70 percent capacity right now. “There’s a lot more opportunity to meet the needs. It’s a great time to address those needs and stimulate the economy. We’re ready.”
As heavy/highway contractors strive to stand out among the competition, innovation is often the key to success. And these days, innovation almost always equates to sustainability.
No longer content to simply focus on pollution prevention, sustainable road builders include fuel conservation, smart irrigation systems and alternative materials in their environmental practices.
According to the
Green Highways Partnership, launched in 2005 by the Federal Highway Administration (FHA) and the U.S. Environmental Protection Agency (EPA), green highways are defined by an effort to leave the project site “better than before.” Characteristics include:
- maximizing use of existing transportation infrastructure, providing multi-modal transportation opportunities, and promoting ride-sharing and public transportation;
- using recycled materials to eliminate waste and reduce energy usage;
- using innovative, natural methods to reduce imperviousness and cleanse all runoff within the project area;
- protecting wetlands by restoring natural drainage paths;
- reducing disruptions to ecological processes by promoting wildlife corridors;
- controlling invasive species and promoting the growth of native species; and
- identifying and protecting historical and cultural landmarks.
The production process plays host to one of the hottest trends in road construction: warm-mix asphalt. First introduced to the United States from Europe in 2002, the technology allows producers of asphalt pavement to significantly lower the temperature (50 to 100 degrees below traditional hot-mix asphalt) at which the material is mixed and placed on the road. Benefits include lowering fuel consumption and the production of greenhouse gases while improving conditions for workers, according to the National Asphalt Pavement Association.
The majority of states are testing warm-mix asphalt on highways, driving many contractors to bolster their manufacturing efforts.
“The trend toward warm-mix asphalt is good for everybody involved,” says Paul Colarusso, vice president of construction for A. Colarusso & Son, Hudson, N.Y., which operates a stone quarry and an asphalt plant in addition to performing heavy/highway work. “Cost-wise it’s about the same, and it’s below a temperature that produces any fumes. So far it’s working out well, but it will take a while to measure performance.”
One green effort that already has withstood the test of time is recycling; in fact, it’s seen as imperative for contractors to keep their costs down. According to the EPA and FHA, about 90 million tons of asphalt pavement is reclaimed every year, and more than 80 percent of the reclaimed material is reused or recycled.
“Our company uses up to 30 percent recycled asphalt in mixes,” says Craig Fleming, president of Dunn Construction, Birmingham, Ala. “We save energy by doing so, and preserve resources and reduce dependence on foreign oil. The recycled products also help us in a highly competitive environment because it reduces materials costs.”
Many transit owners that specified 100 percent new materials are becoming more open to recycled materials, but widespread acceptance is not yet a reality like in the commercial and institutional sectors.
“We’ve been successful on private jobs that have been more open to utilizing recycled materials,” says Barrett Tucker, business development manager for American Infrastructure, Fallston, Md. “Now we’re working really aggressively to make sure all our customers understand the value of recycling.”