What's Coming Down the Road in 2015?

Pete Ruane, ARTBA
Pete Ruane, ARTBA

Once again, the asphalt road building industry is collectively holding its breath anticipating a federal highway bill. Despite all efforts, this past year saw no resolution to a long-term funding solution with Congress kicking the can down the road to next May.

With the mid-term elections now out of the way, and the Republicans scoring a resounding victory, what does that mean for highway funding? Ironically, it may mean that legislation takes longer to pass. Will Republicans, who will now control both the House and Senate, want to craft their own bill from scratch? Will different methods of funding the bill, such as public-private partnerships (3Ps), be emphasized? We'll have to wait and see.

We’ve asked industry leaders what they see coming down the road in 2015. Will there be a long-term highway bill a year from now? What might it look like?

Beyond the funding issue, we also wanted to know what trends might affect asphalt contractors and the way they do business in the coming year. What’s new with equipment and technology? What’s the 2015 forecast for contractors?

Take out your crystal ball and let’s take a look at what 2015 might have in store for you.

HIGHWAY FUNDING

With yet another patch on highway funding until May 2015, what do you see as the next step for the highway bill? Will it be another patch or will a long-term solution be achieved?

Mike Acott, president, National Asphalt Pavement Association (NAPA): NAPA is working on a long-term solution in coalition with other construction associations, highway users, and the Chamber of Commerce. All of us recognize the importance of stable funding and policies to our national infrastructure and the economic stability it provides. Congressional leaders have talked of the highway bill possibly being addressed during a post-election lame-duck session, but all stakeholders need to make their members of Congress know how dire the situation is.

Pete Ruane, president and CEO, American Road & Transportation Builders Association (ARTBA): For seven years, Congress has kept the trust fund operating through a series of temporary solutions.  This is has created major uncertainty in the marketplace.  Two things are clear, however.  This situation is not going away, and until Congress develops a long-term fix, it is going to have to find $16 billion every year just to prevent cuts in highway and transit investment!  

House Speaker John Boehner (R-Ohio) recently said that there are two areas where Congress and the President could get something done next year. Those two things were tax reform and “a big highway bill.” ARTBA shares that sentiment and we remain hopeful that Congress will find a long-term solution.

The last Highway Trust fund crisis came during the 2014 construction season, and the next one is set-up for the beginning of the 2015 season.  We fully expect that if something is not done relatively early next year, the market disruptions we saw last July will be easily eclipsed when states try to plan their entire construction season with a big question mark hanging over 52 percent of all U.S. highway and bridge capital improvements.  Unlike many issues before Congress today, this is one with real-world consequences if they do not act.

Ryan Essex, P.Eng., MBA, vice president, Asphalt Recycling & Reclaiming Association (ARRA), and vice president with The Miller Group: We remain hopeful that a long-term solution to sustainable transportation funding can be found.  It should be a real focus of any solution as it allows industry to plan for the future, to invest for the future and allow employees within the industry to have a more secure future. More funding emphasis needs to be placed on maintenance type projects to take care of the existing infrastructure system.

Scott Bergkamp, director, International Slurry Surfacing Association (ISSA), and president/CEO of Bergkamp Inc.: The indications are another patch for the highway bill. Unfortunately, there just does not seem to be any momentum behind passing a comprehensive long-term bill.

Mark McCollough, president, Asphalt Emulsions Manufacturers Association (AEMA), and director of business development, Asphalt Materials, Asphalt Materials Inc.: I'm somewhat encouraged by the Republican gains from the mid-term elections. I'm hoping this will allow us to move forward toward a comprehensive long-term highway bill. I believe there will be a couple of patches, however, before a comprehensive bill is achieved. It's difficult for long-term planning without a comprehensive bill - it's hard to put together a 8- to 10-year transportation plan with only a few months of funding available.

Anirban Basu, Chief Economist, Associated Builders & Contractors (ABC): The $10.8 billion measure that will fund highway and bridge-related construction until May 2015 — the 12th short term measure passed since 2009 — only delays the inevitable. The measure will expire right as the construction season begins, putting legislators in the same bind that they have just faced.

There is some level of cautious optimism regarding a solution. If a solution is to be reached, it will occur during the lame duck session between the November mid-term elections and the swearing in of new Congress members in January.  If a long-term measure isn’t passed by January, it seems highly unlikely that the new members of Congress will risk the anger of their constituents by voting for a long term fix, which could involve revenue enhancements.

What do you hope the next highway bill will contain? Will it have more/less/the same funding as MAP-21?

Acott, NAPA: We are asking Congress for a robustly funded bill that lasts for at least six years. We have been working with short-term extensions since the expiration of SAFETEA-LU in 2009. As a two-year bill, MAP-21 was an improvement over the previous short-term extensions, but it was still a bridging mechanism and not a true highway authorization bill. The states, and our nation, need a legitimate long-term bill that addresses the structural funding problems we have been dealing with for the past decade.  In addition, the revenue solution enacted by Congress must actually grow highway spending if we are to make headway in improving pavement conditions and performance on the National Highway system. 

Ruane, ARTBA: I don’t think the question is, what do I hope is in the next bill – the question for policymakers is – what does the country need to ensure people and products can move safely and reliably across our nation?  The U.S. Department of Transportation routinely documents the fact that all levels of government are underinvesting in highway, bridge and public transportation improvements.  The minimum goal for any federal transportation investment bill should be to not allow traffic congestion and physical conditions to get worse.  Achieving that minimal metric would require an annual increase in federal highway investment of $9 billion, and that isn’t going to happen until Congress fixes the Highway Trust Fund.

In addition to increased investment, ARTBA continues to push for development of a dedicated freight program to help promote economic growth.  Goods movement by its nature is a federal government responsibility and we need a national network that can accommodate the needs of a growing economy and dramatic growth in freight travel projected over the next 20 years.  ARTBA has also championed reforms to help ensure transparency and accountability in how federal highway and public transportation funds are utilized.  Showing how each state benefits from federal transportation investment will help convince the American people of the value they receive from their contributions to the Highway Trust Fund and the importance of a continuing a robust federal surface transportation program.

Essex, ARRA: First and foremost, the hope is that the next highway bill contains increased annual funding and is committed over a much longer period of time. Within the bill, provisions to maintain the existing transportation network needs to be at the top of the list. This network is essentially bought and paid for and with maintenance costs far less expensive than reconstruction, these assets must be maintained at the right time to preserve their value and use. It is the proper and prudent approach and when balanced with network growth it is the best use to stretch precious transportation dollars.  It is very important that the new bill contains language that addresses and ensures the maintenance of the transportation network. Another topic worth tackling with the new transportation bill would be looking for ways to stretch the allotted dollars. This may be accomplished with less federal oversight and environmental regulation as it is currently estimated that the costs of federal funded projects are 40% higher due to regulations imposed.

Bergkamp, ISSA: The last highway bill was quite good, and the critical path includes fully implementing it, including the performance measures. It’s important these performance measures are set up correctly. The next highway bill needs to contain long-term funding, which will allow long-term planning.

McCollough, AEMA: A six-year bill that focuses on a long-term approach to maintaining assets would be ideal. The last bill had a focus on preservation in it, and we need to continue to emphasize the lifecycle cost of pavement.

Basu, ABC: I personally hope for much more funding. Various reports have detailed just how dysfunctional America’s infrastructure has become, including in the form of many obsolete bridges.  There are both Republicans and Democrats who understand the role of infrastructure in job creation and competitiveness. Hopefully, they will rule the day.

The Highway Trust Fund (HTF) has been having funding issues itself the last few years. What should be done with the HTF?

Acott, NAPA: It should be fixed. The funding principle behind the HTF —a user fee designed so that those who use roads more pay more — is a good one, the problem is that the existing tax on fuels was set at a rate of 18.4 cents per gallon (24.4 cents per gallon for diesel) in 1993 and the it has not changed to keep pace with rising labor and material costs. We don’t have a preferred funding mechanism (other than it should be user-based), but believe Congress must consider the alternatives and pass a bill that provides a long-term, guaranteed funding stream for the maintenance and upgrading of our nation’s infrastructure.

Ruane, ARTBA: There are all kinds of smoke screens about the revenue shortfalls the Highway Trust Fund has experienced since 2008.  These difficulties are not the result of high gasoline prices, improved fuel efficiency, or a change in U.S. driving patterns.  The simple fact is that federal highway and transit investment has increased substantially since the last time the federal motor fuels tax was increased — 21 years ago — and the trust fund’s revenue stream can no longer support existing levels of investment.

With that base of understanding, the path forward should be clear: increase Highway Trust Fund revenues. To achieve this goal, all viable revenue options should be on the table — including a motor fuels tax increase or some other fuel-based excise.

To prevent the current trust fund dysfunction from repeating itself at some point in the future, however, the optimal solution will be a mechanism the produces recurring revenues generated from system use. The “user pays” approach has proven to be cost effective, transparent and an equitable means of supporting federal surface transportation investment for nearly 60 years.  That is a high bar for any other alternative to meet.

Basu, ABC: Some senators and congressman have proposed shifting highway funding control to the states.  Under this model, states would receive block grants from the federal government during a five-year transitional period.  The plan would reduce funding for the Federal Highway program by 80% in 2019.

This is not an efficient way to finance infrastructure.  Highways simply do not end at state borders.  The federal government’s role is important both as funder and as coordinator of projects.

What do you see as the future of highway funding? What will the role of public-private partnerships (PPPs or 3Ps) be? Where do solutions like tolling fit in? In your opinion, what other solutions are viable to fund highway projects?

Acott, NAPA: PPPs are part of the solution. They give states flexibility in how they finance infrastructure projects, but they are not the sole solution. Similarly, tolling may make sense on some roadways, but not others. However, the focus on PPPs and tolls can be a distraction because they will not solve the revenue problem with the Highway Trust Fund. Congress should look at a range of options and devise a funding mechanism that ensure for the long term funding needed to ensure our infrastructure provides the travelling public the high level of performance and drivability they want and need.

Ruane, ARTBA: The sheer magnitude and complexity of the nation’s transportation challenges necessitates the use of a diverse array of solutions. Certain transportation needs, such as the massive amount of annual maintenance needed on U.S. roads and bridges, are best managed through a systemic process, while other needs are well suited to project-specific strategies. P3s and tolling are important tools that can help advance large and complex individual projects, but they work best when adding capacity in areas where there is high traffic volume and/or opportunities for return on investment.  We don’t have a “one-size-fits all” transportation network, so we should not presume a “one-size fits-all” solution exists.  The answer we are looking for is “all of the above.”

Essex, ARRA: The future of highway funding requires a long term commitment by the federal government to sustainable transportation funding. Patch work bills do not allow for long term planning by agencies, industry participants or employees within the industry.  A federal user-pay model could be supported to ensure that users are contributing to the networks they use to a scale relative to the required maintenance and operating costs of the network.  There is a role for P3s as it has been proven to be a very successful model in parts of the world and can be utilized to fund and build projects ahead of conventional schedules. Tolling is part of the user pay model that with the right “scale” applied can be a sustainable resource for additional funds. Alternative sources could be pension funds and wealth management groups that are looking for stable long term returns on their investment that could align with long term government commitment and funding.   

Bergkamp, ISSA: I believe we are seeing the beginning of the future in highway funding – states and agencies taking it upon themselves to take care of their own highways because the federal government has not been passing long-term bills. Public private partnerships will gain in popularity, simply due to need. While change is typically difficult, the need is so great that change must happen. 

McCollough, AEMA: The federal gas tax is rapidly becoming obsolete, so we'll need a combination of funding options, such as toll roads and other user fees, to make up for the shortfall. What we really need are politicians with courage and imagination to come up with new ways for us to fund our infrastructure in order for us to remain economically competitive with other countries. Today, we're beginning to see states experiment with various types of funding measures. The federal government will have to find what works best and apply it to the rest of the nation.

Basu, ABC: There will be more tolls.  Those tolls will generate the revenues that allow for PPP projects to transpire. There will also be more paid HOV and HOT lanes such as those found in the Miami and Washington areas, respectively.

TRENDS

The use of recycled products (RAS & RAP) in asphalt mixes continue to increase in many states. What do you see coming down the road for recycled mixes and other products like warm mix asphalt? Will their use continue to increase? Are there any other products or techniques that are gaining momentum?

Acott, NAPA: The current focus continues to be increasing the recycled content of mixes, while maintaining quality and performance, and combining recycled materials with warm mix and to maintain quality and long-term durability. There are constructability benefits as well as sustainability benefits to the use of both.

Thinlay asphalts are another area for development and expansion and are an essential pavement preservation tool. These thin asphalt overlays are a reliable way to restore smoothness and drivability to an aging pavement, while correcting distresses and even adding structural value in some instances. We have an ongoing project that is looking at Thinlay mixes with varying level of recycled material content, which combines the environmental benefits of reusing materials with the economic benefits of pavement preservation.

Another technique gaining momentum is long-life asphalt Perpetual Pavements where the road is designed to not have to be rebuilt and instead is simply maintained at a high level of drivability.  We are also seeing the concept of turning existing roads into Perpetual Pavements through maintenance gaining interest, especially for low-volume roadways.

In addition to warm mix and recycled materials, we are seeing increasing interest in open-graded asphalt mixtures, both as a friction course that improves safety as well as reduces pavement noise and as full-depth porous asphalt pavements for parking lots and some roadways.

What trends are affecting pavement preservation contractors?

Essex, ARRA: There are both positive and negative trends affecting ARRA contractors.  On a positive note there remains growth in innovative thinking among owner agencies that see the incredible benefit of using an asset that they have already bought and paid for: their road. This simple approach is not as common as we would like after the years and years and miles and miles of successfully built roads using recycled processes but it is still trending to the positive. The room for growth in use of cold and hot-in-place recycling, full-depth reclamation (FDR) and recycled asphalt from cold planning is almost exponential and each and every process will help stretch transportation budgets across the nation. The negative trend that is affecting our entire industry is still contending with the lack of a long-term transportation plan, funding and commitment.

Bergkamp, ISSA: The ADA accessibility rules will certainly have an impact on pavement preservation contractors. The challenge for ISSA contractors is to help agencies understand that the ADA rules should not cause them to give up on preservation. The practices that are classified as maintenance are good practices used at the right time on the right pavement. When a pavement’s condition calls for a treatment that is classified as an alteration, the long-term gain of the correct preservation treatment plus the long term gain of the ADA modifications needs to be considered against the cost, rather than a quick conclusion that the cost is too high.

As is usually the case, education is the solution to this challenge. It will take conversation between industry and agencies to understand exactly how a treatment works, what the benefits are, and what the negative impacts of not preserving a pavement are. Fortunately, the amount of and opportunity for education is growing, from multiple associations and educational institutions.

McCollough, AEMA: The concept of pavement preservation has been growing dramatically in the last 10 years driven by budget concerns. Recycling is rapidly becoming a larger part of the market. Full-depth reclamation (FDR) and cold in-place recycling (CIR) are growing segments driven by the economics of road rebuilding. Engineered emulsions - driven by both economical and environmental influences - are growing as demands to engineer new solutions for road designs grow.

As others have mentioned, education is the key - especially education of the general public. An educated public will put pressure on the politicians for more funding. We need to promote "asset thinking" to maintain the whole pavement lifecycle instead of just maintaining one part of that cycle.

2015 OUTLOOK

Generally speaking, what will 2015 look like for asphalt highway contractors and producers? 

Acott, NAPA: Much depends upon what happens in Washington after the elections. If we get a new infrastructure bill with a robust funding mechanism during the lame-duck session, then we can expect states to move forward with a variety of highway projects, which would be good for the industry. If Congress waits until May to move forward on a bill, we’ll probably see states being very reluctant to move too quickly with new projects. If we only get a short-term extension, then the 2015 construction season could be very slim. We are counting on Congress to do the right thing and to pass a bill sooner rather than later.

In addition, we are very aware of developments in the energy and asphalt markets. The U.S. has become the world’s largest oil and gas producer. Currently, there is excess supply of crude, which has reduced energy prices. This could have a major impact in 2015 for heating and drying costs, conversions to natural gas, and asphalt cement supply. This is an important area of discussion for the asphalt industry.

Dr. Alison Premo Black, chief economist, ARTBA: The overall market trends impacting the asphalt road paving industry will continue to be the federal funding situation, the overall economy and state and local finances. These factors are the main market drivers.  

Since federal aid is an average of 52% of state capital outlays, the status of the Highway Trust Fund and the federal aid reauthorization are going to be critical. To date, the real value of state and local government highway and bridge contract awards is down about 15% in 2014 compared to last year. Awards are down in 29 states, which indicates a fairly widespread pullback in projects. Although there are a variety of reasons for such a market decline, the uncertainty over the federal aid program is certainly a major factor. 

Essex, ARRA: We will be continuing to carry our message forward that ARRA processes take steps beyond compliance to continually improve the economic, environmental and social performance of the roads we work on and the communities we work in. ARRA contractors and the proven construction processes they employ achieve sustainable development on every project through reduced energy consumption, creating a smaller carbon footprint, decreased use of virgin material that conserves natural resources. ARRA sees this as a very important role in the construction industry as ARRA disciplines generally take 95% of an old road and can make it into a new material.

Bergkamp, ISSA: As MAP-21 mandates that pavement conditions must improve, this will provide an opportunity for ISSA members to show that improvements in overall pavement condition can most economically be achieved through preservation.

McCollough, AEMA: Most states, cities and counties are staying with the same budgets as last year and preservation and recycling are growing, so I predict mild growth for 2015. There's definitely more maintaining and less new construction of roads happening now.

Basu, ABC: The 2015 outlook is not terrible. One should expect slow and steady recovery in much of the nation. There are times when road projects simply cannot wait, including after difficult winters. Highway and street spending is now roughly at pre-recession levels and grinding recovery should continue.

What do see you as the biggest hurdles impacting the road building industry as we move into 2015?

Acott, NAPA: As I said before, the biggest hurdle is funding and a long-term mechanism for ensuring funding. It's extremely challenging for the states and U.S. infrastructure businesses to do long-term planning, including hiring and capital investing, when there is no sustainable funding mechanism in place.

Essex, ARRA: It’s a theme in this overall discussion for sure, but the single biggest challenge facing our industry in the upcoming year is the lack of certainty in funding. At all levels of government it is unclear what their transportation budgets will be for 2015 and this makes it very difficult to plan and forecast what we can expect in 2015 – except to say we are certain that 2015 will be uncertain. Dedicated funds are needed that all levels of government can depend on, can plan on having, every year. This certainty allows for improved planning and overall better maintenance and preservation of the transportation network.

Bergkamp, ISSA: Funding, will of course be a hurdle, as will the cost of raw materials. It’s an exciting time for the road building/pavement preservation industry. The challenges are large, which drives creativity in solving problems. I believe we will be seeing creative ways to build, fund and preserve our road network, due to the importance of the road network to our economy, security and lifestyle.

Basu, ABC:  The biggest issue is the lack of transparency regarding the future of public funding for road building.  Because funding is guaranteed on such a short-term basis by the federal government, it’s difficult for the nation to plan for large-scale infrastructure projects.  The implication is that much of the emphasis is on repair and maintenance of existing infrastructure, which of course creates opportunities for contractors, but not the level of dynamism that accompanies capacity expansion.

 

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