I Can’t Drive 55: It's Road Construction Season

by Deidra Krys-Rusoff Senior Vice President

Summer is right around the corner:  hot weather, barbecues, road trips … and the sweet smell of hot tar and asphalt. Yes, it’s road construction time. If it seems that there are more flaggers on the road than the last few summers, it is because transportation infrastructure spending is on the rise. Federal funding is flowing to the states again, and state and local governments are working to build and repair roads that are in desperate need of improvements.

In December of 2015, President Obama signed into law a $281 billion highway budget along with another $25 billion for transit and rail programs. This budget runs through 2020 and is the first multiyear transportation package to be approved since 2005. Prior to the passage of this law, funding has been a series of one-to-two year patches. This longer-term package will allow state and local transportation departments to implement multiyear transportation strategy plans. The funds are primarily provided through a national fuel tax of 18.4 cents per gallon, an amount unchanged since it went into effect in 1997.

While the federal highway money will be of great assistance to the state and local governments responsible for keeping America’s transportation moving, it is not the primary source of funding. Federal capital spending on transportation infrastructure projects amounts to approximately 38 percent of total transportation spending. Federal funds are an even smaller 12 percent of the total operation and maintenance budgets. State and local governments are responsible for the building, maintenance and remainder of the funding of highway transportation which includes planning, blacktop, roadway lighting and signage.

Most highway funding is paid by state and local gas taxes, a funding system that is becoming less relevant during an era of more gas-efficient vehicles and increasing road maintenance costs. Larger, older and less-efficient vehicles pay a bigger amount of the fuel tax burden, but all vehicles utilize the infrastructure. A State of Oregon report notes that a vehicle that operates at 19 miles per gallon will pay an average of $1,893 versus $910 for a vehicle operating at 40 mpg. The revenue/cost mismatch is driving states to explore new and creative funding mechanisms. Oregon’s Department of Transportation is exploring a new pilot program which charges vehicle owners 1.56 cents per mile and refunds the local gas tax to drivers. Revenue from the pilot exceeded fuel tax receipts by nearly 28 percent. Other states are turning to private/public partnerships, where private firms may bear the responsibility for building and maintaining the roads for a set fee or by toll revenue. The Commonwealth of Virginia is building new express toll lanes for Interstate 66 through a partnership with a private developer. Virginia is issuing bonds for $600 million and the private developer is responsible for the design and build. Toll revenue will be shared by the developer and the state.

New road construction projects are on the rise throughout the United States. Most states’ tax revenue collections have recovered from the losses of the Great Recession and states are starting to loosen the purse strings through transportation bond issuance. Add in the longer-term federal financing and many deferred road maintenance and new “shovel ready” transportation route projects are breaking ground.

Enjoy your summer driving and spend your construction wait time thinking about how nice it will be to drive on new pavement in the fall.