2011 State of the Industry Forecast

by Rod Dickens

With 2010 fading quickly, asphalt contractors and producers have to wonder what's in store for 2011. The ARRA stimulus package was a step in the right direction this year, but did its impact meet expectations? And will the projects it "stimulated" set the tone for next year, or will a stalled highway bill and questions about the future of the Highway Trust Fund dictate near-term industry prospects? These are among the questions Asphalt Contractor posed to industry experts. Here's what they had to say about 2010 and where the industry is heading next year:

ARRA Stimulus Impact

AC: What impact did the American Recovery & Reinvestment Act (AARA) have on highway contractors and asphalt producers in 2010? Did it meet, exceed or disappoint your expectations?

Jeffrey Solsby, director of public affairs for the American Road & Transportation Builders Association (ARTBA): "Put simply, ARRA was a lifeline for firms throughout the industry. For some manufacturers, especially those on the asphalt side, the blow from recession was softened by the prevalence of asphalt work funded by ARRA. But that doesn't compensate for the complete obliteration of the private market, which is a large portion of many contractors work - typically they do a combination of public and privately-supported jobs."

Ken Simonson, chief economist for The Associated General Contractors of America (AGC): "ARRA kept highway construction from falling into a steep decline. Many contractors were able to avoid layoffs or to hire workers. ARRA provided funds quickly to every state and the money was largely spent on high-priority projects. States got a great bargain and were in many cases able to fund more projects than expected because of lower materials costs and fierce bidding by contractors. "However, total highway construction spending in the first eight months of 2010 was 1.5% less than in the same period of 2009, so clearly not all highway contractors came out ahead. There is enough spare capacity in the highway construction industry to support an even higher level of funding."

Jack Basso, director of program Finance & Management for the American Association of State Highway and Transportation Officials (AASHTO): "The ARRA helped stabilize construction employment. Before the stimulus package, construction employment was heading toward 28% and now it is closer to 20%. We're pretty happy, as well, with the amount of resurfacing and repair work and material used as a result of the program.

"When this money disappears, so will about 300,000 jobs. The industry will need alternative funding."

Highway Bill

AC: The much anticipated highway bill remains stalled. Do you see Congress passing the bill soon after the November elections? If so, what impact will it have on the highway industry?

Solsby, ARTBA: "Along with other groups/coalition partners, we are working to pass the next bill ASAP. It could be in the lame duck session, and it could be early next year. The greatest impact will be to provide certainty. That certainty governs decisions by contractors, suppliers, materials, and equipment firms to hire, invest, and expand.

"You don't make a major investment or expansion decision - or plan to buy a $10 million piece of equipment - based on one year's worth of work. You make it based on five to six years of work in the pipeline. That federal certainty will also help the states plan their own work. Right now, we're seeing nearly half of all states - even with ARRA - cut their transportation budgets."

Simonson, AGC: "It is vital to enact a long-term highway bill as soon as possible. Many states have warned that they will reduce spending as much as 30-50% from 2010 to 2011 in the absence of a long-term bill or another ARRA-type appropriation. Unfortunately, it appears unlikely that Congress will do more than to keep funding at the same level as in the expired highway bill (SAFETEA-LU) until sometime in 2011 at the earliest."

Basso, AASHTO: "It's unlikely that a new highway bill will pass soon after the November elections. Because of the makeup of the new Congress, the odds of passage are better in 2011. But then the question is, how do you pay for it?"

Highway Trust Fund

AC: The Highway Trust Fund has several obstacles to overcome, not the least of which is the Obama administration's reluctance to raise the gas tax in light of 10% unemployment.

What does the future hold for the Highway Trust Fund (HTF)? Where will additional funds come from knowing that alternative-fueled vehicles are gaining in popularity and the gas tax remains unchanged?

Solsby, ARTBA: "The HTF remains the most effective and viable transportation financing program in place. But its effectiveness is undercut because it is not indexed to inflation and because its level has not been augmented to reflect current economic values.

"The Fund has lost some 30% of its purchasing power in recent years. Imagine if you had no pay raise since 1992! We support raising the gas tax and indexing the tax to inflation going forward, as do many in Congress. To fund the next bill at a level commensurate with goals outlined by key Congressional leaders, we will have to look at putting all revenue options on the table - including raising the gas tax."

Simonson, AGC: "AGC supports a gradual switch to vehicle miles of travel as a basis for taxing all vehicles equitably. In the meantime, the gas tax should be increased."

Basso, AASHTO: "The 18.4 cents federal gas tax was enacted in 1993, and current estimates suggest that the HTF will get us to 2012. In the short run, raising the gas tax and collecting more DMV fees is the course to follow. Long term, a 7 to 8 cent-per-gallon federal gas tax will only allow the industry to tread water whereas a 13- to 15-cent increase would be more appropriate."

2011 Outlook

AC: Generally speaking, what will 2011 look like for asphalt highway contractors and producers? Solsby, ARTBA: "There will be challenges, there's no doubt about it. ARRA funding tapers off, states have cut spending on infrastructure, and we still don't have a highway bill. We see this as reason number one to push for the next highway bill."

Simonson, AGC: "At best, new contract awards are likely to remain at pre-ARRA levels in early 2011. ARRA funds will be quickly depleted, and large cutbacks in activity and employment are likely by late 2011 unless there is a new surface transportation act by then."

Basso, AASHTO: "We need long-term, well-funded legislation. Until we get it, numbers will continue to head south. AAA now supports a gas tax to help fund a bill. So does the U.S. Chamber of Commerce, as do we and a number of other organizations."

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