What's Coming Down the Road in 2013?

After several years and 10 extensions, the Moving Ahead for Progress in the 21st Century Act (MAP-21) was signed into law on July 6, 2012. Funding surface transportation programs at over $105 billion for fiscal years 2013 and 2014, MAP-21 was the first “long-term” highway authorization enacted since 2005.

While that’s tremendous news for the highway construction market and the asphalt industry, what does it mean for the upcoming year? Equipment Today asked leading industry experts to weigh in on what they see coming down the road for 2013.

Pros and Cons of MAP-21

ET: How will MAP-21 impact the highway construction industry?

Mike Acott, president, National Asphalt Pavement Association (NAPA): It was a shot in the arm for the industry to have Congress pass a multi-year highway bill for the first time since 2005. The enactment of MAP-21 showed that grassroots can make a difference, and if the members of Congress are willing to bridge the partisan divide, legislation that is positive for America can be enacted into law.

Alison Premo Black, PhD, vice president and chief economist, American Road & Transportation Builders Association (ARTBA): The passage of MAP-21 does provide some stability to the funding levels in the federal aid program, which drives close to half of the U.S. highway and bridge construction market. The bill increases federal obligation levels to keep pace with inflation. Although this is a welcome development, it means that real federal aid spending will be flat.

There is also the issue that project costs, which include increases in material costs and wages, generally outpace the general inflation rate. This will further impact the purchasing power of the federal aid program.

Patrick Faster, president, Asphalt Recycling & Reclaiming Association (ARRA): The impact of MAP-21 for highway contractors is minimal. This bill offers some relief; however, it is with little or no funding increase. Various agency levels have been starved for funding, and it looks like that will stay the course for a bit longer.

 

ET: What are the highlights of the bill for the road building community?

NAPA: MAP-21 includes excellent policy initiatives that should not be understated. For example, the environmental streamlining provisions will help speed project delivery and thereby spend dollars more efficiently. The expansion of the Transportation Infrastructure Finance and Innovation Act (TIFIA) with additional funding will leverage public dollars to attract private investment to pay for larger highway projects.

The other piece of good news is that the legislation does not impose any mandates for pavement design or pavement type selection, as was originally proposed by key senators drafting the legislation. Those decisions should be made by engineers in the state DOTs and public works departments.

ARTBA: MAP-21 includes several significant changes to the review and approval process for transportation projects that could have a positive impact on the industry, including a number of ARTBA’s long-held priorities. These include greater “lead agency authority” for the U.S. Department of Transportation, and the integration of the planning and the National Environmental Policy Act (NEPA) processes.

Perhaps most importantly, MAP-21 allows for the expanded use of the categorical exclusion (CE) process, the least rigorous form of environmental review, in a number of additional areas. CEs may now be used for projects within an existing right-of-way, certain components of multi-modal projects and repair and reconstruction of existing roads, highways and bridges.

It also expands SAFETEA-LU’s efforts to delegate responsibilities to states by allowing all states to assume control of either CEs or the entire environmental review process. Finally, MAP-21 narrows the time limit to file lawsuits on a project decision and establishes time limits on permitting decisions.

Doug Ford, president, International Slurry Surfacing Association (ISSA): Getting pavement preservation into MAP-21 was a very positive movement for both the states and industry. The mere inclusion in the bill will stimulate education on pavement preservation processes and thus education on money saving systems. The right preservation treatment at the right time saves dollars and stretches budgets.

ET: What are the disadvantages of MAP-21?

NAPA: The obvious negatives of MAP-21 are the bill’s length (just two years), the funding level (essentially flat) and the fact that it does not meet the challenge of how we will find long-term funding. A two-year bill is simply not long enough for state transportation departments to plan and budget for larger, multi-year highway and bridge projects. It’s also too short to encourage contractors to make long-term capital investment decisions.

ARRA: This bill is not put together for contractors — that is not its purpose. It is about taking $105 billion out of an otherwise poorly managed budget to try and duct tape and glue a failing infrastructure in this country. [This bill] is underwhelming to say the least and certainly not a ray of sunshine for the road building community, but again this bill is not for contractors.

The funding that is needed for our country’s infrastructure is not in the billions anymore. The cost of holding this together escalates every year at a staggering pace.

The Future of Highway Funding

ET: What does the future hold for the Highway Trust Fund (HTF)?

NAPA: Estimates show the HTF will be in the red in 2015. MAP-21 provides an $18.8 billion transfer from the general fund to the highway trust fund. Future bailouts are highly uncertain and raising the gas tax user fee is politically difficult. The federal-aid highway program needs a long-term funding source, and that is an area which MAP-21 did not address.

ARTBA: The HTF is still facing structural issues. The amount of revenue collected into the fund is not keeping pace with obligations. MAP-21 provided some short-term relief from the series of extensions since SAFTEA-LU expired, but Congress is going to have to deal with the same situation when MAP-21 expires.

 

ET: The question of raising gas taxes and increasing funding for our roads seems to be off the table for now. Where do we get the financing for constructing and preserving our highways? What options are available?

NAPA: There are plenty of options. Raising the gas tax is the easiest, most obvious solution, but there is little political will to support it. Next would be a tax on vehicle miles traveled. The technology is available, but the privacy issues will be a high hurdle to overcome in trying to enact the legislation. Another option would be to use royalties from oil and natural gas production to pay for highway investments.

We have options, but any option put on the table will have its detractors. That is why political leadership will be needed in the next Congress to solve this issue.

ARTBA: The National Surface Transportation Infrastructure Financing Commission outlined 30 potential revenue options for supporting federal investment in highway, bridge and transit construction in its 2009 report. Although the U.S. could adopt any number of different revenue sources, the implementation of a new system would take time. In the short run, the gas tax is still the best option for funding the federal aid program.

ARRA: Financing for the existing bill doesn’t appear to be an immediate problem. The HTF and some change between the cushions on some Washington sofas will get this through. The Afghanistan conflict coming to an end may free up some funds, as well.

Longer term, the idea of increasing the gas tax makes perfect sense. What do the oil companies do when they need money? I’m not joking — that is exactly what happens, and it seems the most likely and timely solution.

 

ET: With fewer funds available for new highway construction, how do you see the role of preserving our roads changing?

NAPA: The lower the funding level, the more dollars will be directed toward maintaining the existing highway and road system, and the less likely it is that we will build additional capacity.

Congress was clear in MAP-21: the goal of the legislation is to bring the existing national highway system up to a state of good repair. Unfortunately, MAP-21 doesn’t even provide enough funding for that. At best, the rate of decline in the condition of our nation’s roads, highways and bridges will slow.

ARTBA: States are making their own choices about where they spend their transportation dollars. New highway and bridge construction is traditionally about 12% to 15% of total capital outlays. Most of the work done today is major reconstruction or rehabilitation work on existing roadways. We do hear anecdotally that some states are shifting toward a preservation approach.

ISSA: When increasing revenues is off the table, asset management becomes vital. Our roads and highways are an asset that must be preserved, and pavement preservation is the key to managing such an important asset.

ARRA: In good economic times, you should have done pavement preservation and/or recycling, because it is the right way to extend the life of your pavements.

Now, with even less funding, those efforts need to be escalated to the second and third powers... Recycling and /or pavement preservation techniques applied early and throughout a road’s life cycle can both extend the expected design life as well as reduce life-cycle costs.

I feel quite strongly that it is absolutely an agency road manager’s responsibility to utilize some or all of the techniques of recycling and pavement preservation. The teacher’s strike in Chicago [last year] had language about the teacher’s advancement tied to the success of the student. How about the agency engineer tied to the life cycle of the roads? Crazy, maybe, but certainly an attention getter.

Sustainable Initiatives

ET: Road building contractors are continuing to look for more sustainable solutions in the products they produce and use (e.g, warm mix asphalt, recycled asphalt shingles, etc.). Will this trend continue to gain momentum? How much impact will it have?

NAPA: Whatever the funding level, both contractors and agencies are going to keep looking for more sustainable solutions, in terms of both economics and the environment. We will always have a need to reuse and recycle at the highest level, whether we’re talking about asphalt pavement or materials from other industries such as ground tire rubber and asphalt shingles.

Warm mix asphalt conserves energy, reduces emissions and saves money. Perpetual asphalt pavements are the ultimate in economic and environmental sustainability. There is every reason to adopt these sustainable solutions, and the barriers to using them are being blown away as we conduct research and improve the technologies.

Sustainable technologies are win-win-win propositions. In terms of momentum, it’s like a snowball rolling down a hill — it just gets bigger and moves faster all the time.

ISSA: Absolutely this trend will continue to gain momentum. LEED, Invest Tool by FHWA, recycling mandates put on agencies, political requirements/laws to reduce waste and emissions, such as California Assembly Bill 32, and most agencies adapting some type of sustainability project requirements all point to the direction the industry is heading.

This trend will have a large impact on the construction industry. There will be more requirements on contractors. But it also allows some contracting industries to expand, such as the road recycling, reclaiming and pavement preservation markets. Other traditional industries such as HMA and concrete are or will be further forced to find more environmentally attractive means of manufacturing.

That being said, it probably will not expand the marketplace. Budgets are tight and continue to shrink. It will shift the dynamics of where the opportunities lay.

ARRA: Road building contractors are often looking for a better mouse trap to make themselves more competitive in an incredibly margin-sensitive marketplace. Necessity is the mother of invention. The end result is often better, more efficient products, such as warm mix, shingles, recycling and pavement preservation, etc., for the marketplace.

Will the trend continue? The development process described above has been around for a long time. With deteriorating roads, inadequate budgets and hungry contractors, I believe the trend will continue to move forward.

What Lies Ahead

ET: Generally speaking, what will 2013 look like for asphalt highway contractors?

NAPA: NAPA believes 2013 will be slightly better than 2012. Spending in the federal-aid highway program will be flat, but we expect the residential and commercial sectors to pick up. In addition, where states, counties and cities find themselves with increased revenues, the construction industry will see more work than in prior years.

ARTBA: Our preliminary forecast is that real pavement work will be flat in 2013.

Although MAP-21 provides stability in the federal aid program, state and local governments continue to deal with significant fiscal challenges. This will continue to suppress real growth over the next two years. ET

 

 

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