The lag in contracts awarded is puzzling the industry, and state DOT and contractor groups are quietly putting their heads together to find out why this is happening, even as the FY 2001 season heralds even higher funding levels than FY 2000.  Money available for federal and state highway construction in 2001 will be even higher than in 2000, economists noted at a construction industry forecast symposium late last year.

The highway industry is frustrated by the fact that projected highway spending in 2000 never measured up to the forecasts, and certainly not the enormous volume of money available for obligation, said Bill Buechner, vice president for economics and research, American Road and Transportation Builders Association (ARTBA), at the CMD Group's North American Construction Forecast held in October at the National Press Club in Washington, D.C.

In FY 2000, federal funding would have supported an approximately 7 percent increase in highway construction. But for the first eight months of 2000, work put in-place in 2000 was $600 million less than 1999 for the first eight months.

U.S. Census Bureau figures from July 2000 showed highway construction running over 10 percent below 1999 levels. Its August figures showed highway construction had risen for the third consecutive month, but still below year-ago levels.

In affirmation, the Federal Highway Administration (FHWA) announced that highway construction costs decreased 11.9 percent in the third quarter of 2000 compared to the second quarter of 2000. Decreases in the unit prices for bituminous concrete, reinforcing steel, common excavation, structural steel, portland cement concrete and structural concrete lowered the index in the third quarter.

"The value of highway construction put in place in 2000 is trailing the level of 1999," Buechner said, as states failed to obligate the funds accessible to them.

And if DOTs can't utilize all the funds that are available to them under the Transportation Equity Act for the 21st Century (TEA-21), opponents of highways will have a powerful argument to use against higher funding levels in the next highway reauthorization when TEA-21 expires in 2003.

Why is this happening? There are a number of possible reasons.

o After years of staff cuts, state DOTs may lack the staff to take projects "off the shelf" and put 'em on the table as quickly as they originally planned. Agencies were analyzing how to speed project delivery.

o In some states, outsourcing of engineering is not allowed by law. "Most state transportation departments have found they need help from private sector engineering firms to move highway improvement projects off the drawing board in a timely manner," Buechner said.

o The complicated environmental process through which projects must travel -- combined with anti-sprawl lobbying by local opponents -- also put a drag on the time it takes to get projects out to bid.

o Some states may be unable to raise matching funds to meet the significantly higher amounts of federal funding.

o But highway contractors aren't overloaded with work, they say, stating they can handle more.
 

Still good year forecast

Nonetheless, "Next year will be a good year for the industry," Buechner said, and that TEA-21 was performing as hoped when it was passed. "The firewalls protecting funds for highway spending and mass transit spending are holding strong," he said.

He also reported that there will be lots of additional money for highway spending for the states under the Revenue-Aligned Budget Authority (RABA) provisions of the bill. RABA funds are authorized by TEA-21, and make available billions in additional highway user taxes collected each fiscal year, above the annual obligation ceilings written into TEA-21 when it was first devised.

In October, the House and Senate approved a bill that would provide record funding for the highway program, at $33.42 billion, up $4.62 billion (16 percent) over FY 2000. Included in this figure is an additional $3 billion in RABA funds.

Buechner said federal highway spending is expected to grow by 11 percent in 2001 over 2000, another 13 percent in 2002, and yet another 6 percent in 2003.

Looking ahead, if state-level funding is included, the growth figures are less, about 7 percent for 2001 and 2002, dropping to 5 percent in 2003. In that year, the amount of total state and federal monies to be spent are projected at around $67 billion, up from about $60 billion in FY 2001. The decline in spending growth from federal to federal-state projections is attributed to the siphoning off of funds from local programs to match large federal projects.
 

Project delivery an issue

The No. 1 focus for now is on speedy project delivery.

Project delivery was a focus of the American Association of State Highway and Transportation Officials' (AASHTO) annual meeting Dec. 8-12 in Indianapolis. "We will ... explore changes in the way we do business, from speeding delivery of quality infrastructure and improvements, to making our planning and building approaches more open and more environmentally sensitive," said AASHTO president and Utah DOT executive director Tom Warne.

One observation is that after years of staff reductions, state DOTs are unable to "process" projects fast enough to get them to bid. A study released by ARTBA late last year bears this out.

The October study showed Caltrans was one of seven state transportation departments nationally that did not contract out at least some of its preliminary engineering work on federally-funded highway projects during 1999.

"Most state transportation departments have found they need help from private-sector engineering firms to move highway improvement projects off the drawing board in a timely manner," Buechner said.

His research proved Caltrans performed $283 million of federally funded preliminary engineering work in-house in 1999, by far the highest total in the nation. The other states that did all of this work in-house included: Alabama ($34 million), Connecticut ($14.1 million), Mississippi ($14.9 million), North Carolina ($81.4 million), Texas ($19.0 million) and Virginia ($87.3 million). The ARTBA analysis was based on a review of over 80,000 FHWA project records.

But relief was on the way in California. In the Nov. 7 election, a statewide ballot initiative, Prop 35, the Fair Competition & Taxpayer Savings Act, was passed by the voting public 55 to 45 percent. This proposition gives  Caltrans and local governments in the state the flexibility to outsource road-project engineering activities to private-sector firms, thereby speeding up project delivery.
 

Litigating environmental streamlining

Another method of speeding project delivery is through "environmental streamlining". Environmental streamlining -- referring to ways of accelerating federally funded projects through the labyrinthine environmental approval process -- already is part of AASHTO's platform.

TEA-21 calls for addressing "the delays, unnecessary duplication of effort, and added costs often associated with the current process for reviewing and approving surface transportation projects." A resolution approved by AASHTO's board in April said "significant progress still needs to be made rapidly at the national level" and that "some progress [had] been made in individual states and regions" but much remained to be done.

In November, groups that seek to delay or stop approved road construction projects were dealt a major legal blow in the U.S. District Court for the Eastern District of California.

A federal judge ruled that such groups can't simply assert that implementation of an approved state or local transportation plan might lead to a future federal air quality standard violation, permitting a "citizen's suit" challenge under the federal Clean Air Act (CAA) against road projects.

The judge firmly rejected "citizen suit" jurisdiction, ruling that state and local transportation plan conformity with the CAA is not an "emission standard or limitation" as defined in the environmental statute.

The CAA "citizen's suit" provision allows for the awarding of attorney's fees to plaintiffs from the government. Anti-growth groups then use these taxpayer-financed awards to fund additional environmental litigation against government agencies. The "citizen's suit" provision has been routinely invoked by road project foes in courtrooms across the nation.

Quarterbacking these legal fights in California was the Advocates for Safe and Efficient Transportation (ASET), a construction industry environmental litigation alliance organized in 1999 by ARTBA. ASET intervened in a case brought by the Sierra Club in January 2000 against government transportation agencies to stop up to $400 million in approved road and bridge projects in the Sacramento area.

Joining ARTBA in the Sacramento case ASET umbrella were the American Concrete Pavement Association, Construction Industry Manufacturers Association, the Laborers-Employers Cooperation & Education Trust, the National Asphalt Pavement Association, National Association of Home Builders and the National Aggregates Association/National Stone Association (NSA/NAA).

But challenges remain on environmental streamlining. In September, the transportation industry blasted proposed U.S. Department of Transportation regulations issued in response to TEA-21's mandate to streamline the environmental review process.

The proposed new regs would instead increase project delivery time and waste tax dollars by driving up project costs, ARTBA said in comments. ARTBA charged that U.S. DOT's proposal fails to meet statutory mandates to require final decision deadlines -- and concurrent environmental reviews -- by all interested government agencies for federally-aided transportation projects.

ARTBA also told FHWA the statewide transportation planning process embodied in the proposed regulation is far too broad to be implemented, and is not supported by either public law or executive order.

The proposed regulations blur the distinctions among Title VI of the Civil Rights Act, the Older Americans Act, and the American With Disabilities Act and the ensuing ambiguity would open the door to unnecessary confusion, conflicts and litigation. "The proposal ignores the congressional mandate to eliminate the Major Investment Study (MIS) requirement for large transportation projects," ARTBA said.
 

Increase in preliminary engineering

There are other bright spots on the horizon, and in some ways, the problem already is being addressed. For example, another October study by ARTBA showed a 27 percent increase in 1998-99 state DOT expenditures for preliminary engineering services on federal-aid projects. This bodes well for potential growth in lettings as these projects are designed and come off the shelf for bid.

ARTBA studied FHWA data, which showed such preliminary contracts increased from $1.528 billion in 1998 to $1.946 billion in 1999. The study, also authored by ARTBA's Buechner, revealed that nearly all of these awards for preliminary engineering were for improvement of existing bridge and highway structures.

States with the largest dollar volume of PE contracts and awards to private firms were (in order): Pennsylvania, Florida, New Jersey, Massachusetts, New York, Idaho, Illinois, Indiana, West Virginia and Rhode Island. Some states contracted virtually all PE work during the year, including Louisiana, Indiana, Illinois, Rhode Island and Iowa.
 

Dip seen in general construction

Overall, adjusted for inflation, total construction activity was expected to decline 1.9 percent in 2001, said Bill Toal, chief economist for the Portland Cement Association, from its record high in 2000 and 1999. Such a dip could be considered a relief by an industry plagued with labor shortages, because a torrid pace of construction will continue despite the dip.

After the 1.9 percent decline in 2001, Toal expected total construction to resume its upward movement track, rising by 1.3 percent in 2002.

Toal warned economic forecasts are not perfect, and that unstable stock markets, higher prices for petroleum and energy, interest rates creeping up, an unpredictable stock market, and political shenanigans can impact the construction economy. But overall, he told the NACF, construction looks stable and robust.

Indeed, stock markets have fallen as the presidential election remained in dispute. Nonetheless, the fundamental indicators have not changed, despite the election fracas and nervous markets. "We are not significantly overbuilt in most areas of construction, and that is important as we look down the road," Toal said.