Transportation Construction Expected To Rebound, Stabilize In 2008

By Pat Goss, Executive Director, Wisconsin Transportation Builders Association | September 28, 2010

After two years of unprecedented inflation and unpredictable revenue, Wisconsin's transportation construction market will begin to rebound in 2008, thanks to a strong, bi-partisan commitment to infrastructure investment at both the state and federal levels.

The much-delayed biennial state budget deliberations of the past year, which divided construction interests over the source of funding, ended with annual state highway improvement program funding increases of 14 percent (FY 2008) and 8 percent (FY 2009) when compared with the prior year's level of investment.

This reflects the state's intention to move forward with work on Interstate 94 South and the Zoo Interchange — the next two projects in the multiyear reconstruction of the southeastern Wisconsin freeway system — and efforts to begin restoring the buying power of programs that address needs elsewhere in the state.

The Wisconsin Department of Transportation (WisDOT) estimates 2008 contract lettings will be in the range of $744 million to $764 million, compared to 2007 actual lettings of $708 million.

It appears we finally may be on the way to using these funding increases to address the significant backlog of transportation needs in the state, rather than simply trying to keep pace with the skyrocketing cost of materials. The Wisconsin Construction Cost Index, which is maintained by WisDOT based on actual project costs, increased 31.1 percent from 2004–06.

Driven by worldwide demand for construction commodities, these inflationary increases far outpaced available funding during these years, causing a steep reduction in the buying power of the overall program. Hundreds of highway and bridge projects were cancelled or delayed as the price spike dramatically increased project costs.

The state's inflation index grew at a more moderate 3.7-percent pace in 2007, which will likely continue, or even improve, into 2008. Low bids on WisDOT projects so far this state fiscal year (which began July 1, 2007) have been 9.5-percent below estimates. This indicates further downward pressure on the price of material, as well as intense competition among contractors.

Looking forward, there continues to be great uncertainty about transportation funding at all levels of government.

There are many competing demands for property tax revenue at the local level and, so far at least, no consensus has emerged on providing local officials with alternatives such as a local sales tax dedicated to improved transit.

At the state level, the fuel tax (which provides two-thirds of state transportation dollars) is becoming a less reliable source of funding as the marketplace reacts to record oil prices with a new wave of gas-efficient and alternatively fueled vehicles.

The current state budget involved sharp partisan differences over a proposed gross-receipts tax, which would have attempted to shift the tax burden from consumers to oil companies.

In the end, the transportation budget increased infrastructure investment through fairly significant hikes in vehicle-registration, titling and heavy-truck fees.

This was the first state budget without the stability provided by motor fuel tax indexing (repealed effective April 2006) — and the need for a long-term, sustainable transportation funding source becomes clearer every day.

This is especially true at the federal level, where the Highway Trust Fund is forecast to be out of money by 2009, triggering a nearly 40-percent reduction in the federal highway program.

The 18.3-cent federal fuel tax has lost as much as 37 percent of its purchasing power since the last time it was increased in 1993, and there will be many ideas put on the table as Congress and a new president begin debating a new reauthorization bill in 2009.

However, in the short term, the Bush administration and Democrats who control Congress remain deeply divided over annual domestic spending bills.

As I write this, only one (defense) of the 11 annual spending bills for the federal fiscal year that began Oct. 1 has been signed into law, and it appears yet another giant omnibus spending bill will be the first order of business for the next session of Congress in January.

This uncertainty will carry over into the programming of WisDOT's 2008 program, given that federal funds comprise a large portion of road and bridge capital improvements at the local and state levels.

Transportation will likely be among the most stable of the state's construction markets in 2008; however, longer-term funding uncertainty is on the horizon.

We must continue to build bipartisan support for the products and services we provide so elected officials at all levels of government feel an urgency to find solutions to the very real funding challenges our industry is facing.