Over the past several months, three factors have significantly brightened the outlook for highway and bridge construction. The most obvious of these factors is the passage of the Obama Administration’s economic stimulus package, which will provide $27.5 billion in funding for highways and bridges over the next few years. The second factor is the prospect of higher transportation funding thanks to proposed increases in fiscal year 2010’s federal highway appropriations. Finally, the upcoming writing of the next surface transportation bill (the successor to the SAFETEA-LU legislation) is likely to provide new life for surface transportation efforts for the next five years.

This threefold approach to funding for highways and bridges will encourage a 39% increase in construction over the period from 2009-2013 when compared to the previous five-year period. In 2009 alone, construction starts are predicted to rise 15%—with most of this increase due to the Obama Administration’s economic stimulus package.

Impact of the Economic Stimulus

The American Recovery and Reinvestment Act of 2009 incorporates the Obama Administration’s strong commitment to higher capital spending on infrastructure as well as the Congress’ attention to ensuring that new funds are quickly committed and spent. The $27.5 billion for highways and bridges will be allocated to the states using the federal highway formulas provided under SAFETEA-LU. There are, however, important differences between SAFETEA-LU and the ARRA. In particular, the stimulus money does not require the states to provide matching funds, whereas federal-aid highway grants typically mandate that states contribute 20% of the total.

If all of the stimulus funds could be awarded during calendar 2009, it would raise construction starts by 40-50%. Even under the best circumstances, however, it takes time to turn appropriations into contract awards. In its final form, the ARRA included a “hard” provision for highways and bridges that requires one-half of the funding to be obligated within 120 days of being allocated to the states, so states must obligate their funds or stand to lose them.

In 2009, MHC estimates that $13.5 billion will be obligated for highway and bridge construction and that projects worth nearly this amount will be put out to bid by mid-year. Assuming a major percentage of these projects are awarded within two months, and that they break ground expeditiously, the ARRA will add between $11 billion and $12 billion to highway and bridge construction starts during 2009. This amount is in addition to the funding provided under the SAFETEA-LU legislation.

Near-Term Highway Appropriations

The annual fiscal year 2009 appropriations made under the current surface transportation law (SAFETEA-LU) continued spending at the previous year’s levels and added another $850 million for damage caused by Hurricanes Gustav and Ike. More recently, the Obama Administration introduced its budget proposal for fiscal 2010, which included a $72.5 billion in federal-aid highway funding, up $2 billion compared the previous year. Much of that increase, however, will go to programs funding grants to help the states implement high-speed passenger rail service and to modernize the air traffic control system.

Highways and Bridges in Subsequent Years

The key to highway and bridge construction after 2010 lies with the next surface transportation act and the amount it authorizes for federal aid to highways and bridges. SAFETEA-LU lapses on September 30, 2009. While a temporary extension of the existing legislation is possible, the new Congress and President will soon begin the difficult work of rewriting the surface transportation bill.

There is a lot at stake. President Obama almost certainly prefers increased spending on transit systems and high-speed rail, both as a way to decrease U.S. dependence on foreign sources of petroleum and as part of the effort to limit greenhouse gas emissions. But he also has other concerns, including finding a sustainable way of paying for the surface transportation programs. In comment from the Administration’s initial budget message the President makes the point that, “too many of our Nation’s railways, highways, bridges, airports, and neighborhood streets are not keeping up with the needs of the nation due to lack of investment and strategic long-term planning.”

But how to structure the programs and ensure their funding are contentious questions. Last July, the Bush Administration released a reform plan which included: 1) cutting back the U.S. DOT’s responsibility for highways; 2) allowing states to toll major highways; and 3) consolidating current highway and transit programs into a small number of multi-modal ones. While the Bush Administration’s views were not universally admired, changes are clearly needed. Sharp increases in the price of petroleum reduced driving and cut federal revenues from the gasoline tax this year. New solutions need to be identified for funding federal aid to highways and new goals need to be set for federal highway funding.