The roads, bridges and transit lines we rely on daily are such an important part of the U.S. economy, both for connecting us together as a country and for the thousands of jobs their construction and maintenance provides. Yet the Highway Trust Fund that pays a large portion of many road and transit projects nationally is on the verge of running out of money. While the Administration and Congress are discussing a short-term patch to this problem, what’s really needed is a long-term solution – and creative yet proven approaches should be a central part of that.
If there’s one issue our divided federal government should be able to come together on, I would think it would be infrastructure. Of course, I’m biased in that view, as Skanska is a major infrastructure developer and builder. But here are three points to consider on this topic:
1) It’s one thing to read in news reports that as many as 100,000 construction projects could be affected if the Trust Fund goes into the red as expected sometime in August, and with the U.S. government planning to slow highway payments to states before that. One impact of slowing payments will be on the men and women who are part of these projects. They’re working hard – even harder given the summer heat – to move these projects forward to provide important benefits to local communities. Congress owes it to these teams to work just as hard to find a funding solution.
2) With our economy still recovering, construction workers are finally getting back to work. Some great news is that last month our industry had its best monthly jobless rate in nearly six years. I’d hate for anything to interrupt this progress.
3) Should a lack of federal funding halt highway work, the public will likely pay for the associated added costs. Suppose a contractor receives a price estimate from a concrete supplier, and that quote is good for 30 days. If the 30 days comes and goes and a project team wasn’t able to sign that agreement because work was stopped and the new price is higher, that’s what our industry calls an impact or delay cost, and the contractor would ask their public client to cover that increase. Impact costs would also include charges for rental equipment that sits idle during a shutdown, and if there are added costs associated with bringing the project labor force back. So it’s definitely most economical to keep projects going once they’re started.
Here’s why the Highway Trust Fund is in such bad financial shape: it’s financed by the gas tax, which is set at 18.4 cents per gallon. That rate has not changed since 1993, and with the increasing fuel efficiency of cars and the rise of hybrids, both have eroded revenue flowing into the fund. Meanwhile, the price of a gallon of gas has increased from $1.097 to $3.692 in that time, and driving remains as popular as ever. Many people agree that a reasonable gas tax increase to stabilize the Fund would be an acceptable solution.
But whatever modest gas tax Congress might approve – and any tax increase at all would be a tough sell in today’s Congress – still likely won’t be enough to provide the additional $79 billion needed annually until 2028 to significantly improve the condition of our nation’s highways. To close the gap, an increasingly popular – and forward thinking – alternative is with public-private partnerships. With P3s, limited public money is leveraged with private investment to fast-track critical projects for which cost or time overruns are prohibited and for which the long-term costs to maintain that infrastructure falls to the private partners, not the taxpayers. These performance-based contracts have proven highly effective and valuable in dozens of countries, including Canada, Chile, France, Germany and the Nordics, and here in the U.S. 33 states have approved P3 approaches for transportation infrastructure. Congress providing administrative, regulatory and credit support to states to encourage use of P3s would unlock billions of dollars of private investment, accelerate or generate critical infrastructure projects across multiple sectors, increase employment and economic development, and deliver long-term, lifecycle efficiencies without burdening taxpayers with the full exposure and costs.
Overall, these next few months are critical for infrastructure. The country needs a meaningful plan for funding the Highway Trust Fund, one that relies upon appropriate fiscal sources that provide a long-term solution. Additionally, the infrastructure bill that allocates such funds will expire on September 30 and needs to be renewed, ideally for six years. With no question that infrastructure is needed for our country to grow and succeed, I urge you to contact your Senator and Representative and let them know that this issue is important to you, and that P3s should be part of the solution.