SPURRED by continued increases in federal funding and renewed economic growth, the highway construction market should grow 4.5 percent in 2005, according to the chief economist for the American Road & Transportation Builders Association (ARTBA).
The real question is how much of the growth will be absorbed by rising construction costs, said William Buechner ARTBA economics and research vice-president.
The value of construction work performed on highway and bridge projects should be a record $69 billion in 2005, up from $66 billion in 2004, according to ARTBA.
State and local budgets are improving and general state tax revenues are rebounding. Economic growth is the best indicator of state and local funding for highway and bridge construction, Buechner said.
The Bush Administration's August budget update predicted the economy will grow about 5.5 percent annually in current dollars between now and 2009. That should provide a solid base for more state and local government investment in highway construction in 2005 and beyond.
State and local Departments of Transportation will have more federal highway aid available in 2005 than 2004. Congress has signaled its intention to appropriate a record $34.6 billion for federal highway investment in 2005.
On September 30, Congress also voted to shift $1.9 billion of 2004 highway funding into 2005. The result was to reduce 2004 funding of $33.6 billion to $31.7 billion and increase 2005 to $36.5 billion. The effective year-to-year increase would thus be $4.8 billion, ARTBA says.
TEA-21, the highway bill that funds highway and transit programs, was extended eight months through May 31, 2005, and should give state and local Departments of Transportation more predictability and firmer footing for highway design and letting programs in 2005, according to Buechner.
A new law reforming the tax treatment for the sale of ethanol motor fuels also should yield an additional $4 billion in Highway Trust Fund revenues annually.
Buechner said higher construction costs caused by dramatic increases in steel, cement, and petroleum prices could impact the overall level of growth in 2005. The factors that generated strong cost increases this year, such as the weakening dollar and growing demand for construction materials in China, were unanticipated and are likely here to stay.
If steel, cement, and other materials stabilize at their current levels, the cost of highway construction in 2005 would be about two percent higher than in 2004, which Buechner says would absorb about half of the investment increase. If prices continue to rise at their current rate, they will likely consume most of the projected increase in the value of highway construction market next year.
Airports & public transit
The value of construction work performed on airport runways, taxiways, and related projects should end the year up 7 percent. A $100 million boost in federal investment through the Airport Improvement Program should help spur continued growth in the airport construction market in 2005.
Transit and light rail construction has peaked, Buechner says, and will likely experience little new growth for the next several years. The value of construction work performed on subways and light rail projects in 2004 is down one percent over 2003 levels.