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Jan 1, 2009 12:00 PM

After Three years of steady nominal growth, the US highway and bridge construction market is expected to flatten in 2009 as recent increases in federal highway investment will likely be offset by weakened state and local highway budgets, according to a forecast from the American Road and Transportation Builders Association (ARTBA).

“High gas prices this past summer, combined with a slowing economy, have resulted in a 3.3% decline in highway miles driven so far this year — thus reducing state gas tax revenue collections,” William Buechner, ARTBA vice-president of economics and research, stated in the report that was issued in November 2008.

However, one factor that could considerably brighten the forecast is for Congress and the president to enact an economic stimulus bill in early 2009 that includes transportation investment, Buechner said. Every $1 billion invested in quick-start highway and bridge projects would add about one percentage point to the 2009 forecast.

The federal highway program should provide a cushion for highway construction next year even without a stimulus bill. The $41.2 billion of highway investment enacted by Congress for 2008, a 5.5% increase over FY 2007, will have its biggest impact during the 2009 construction season as projects started in 2008 ramp up. Another $41.2 billion in the federal highway budget for FY 2009 helps maintain market stability.

Buechner projected the value of construction work put in place on highways and bridges will be $80.2 billion in 2009, a 1.5% increase over last year's $79 billion. If construction material costs level off this year, as seems likely following the recent collapse of oil prices and the nation's economic slowdown, the real volume of construction work should stabilize, and may even improve, after declining about six% in 2008.

“The most critical problem for the highway construction market in 2009 is that state and local governments are facing serious fiscal problems, and some may tap transportation funds or defer transportation investments to meet budgets,” Buechner said. He added that depressed new car and truck sales have also reduced vehicle registration fee revenues. Both will impact highway investment.

At the same time, foreclosures and a decline in home values in many areas of the country are cutting into the property tax revenues that many local governments apply to their highway construction activities.

The recent turmoil in financial markets may also affect the ability of some state and local governments to use bond-financing for transportation projects, which typically provides about 5%-10% of project funding each year. Bond markets were inoperative in September and interest rates on tax-exempt bonds soared. Since then, rates have eased, but are still above last year's level, which may temporarily affect plans to issue transportation-related bonds. Nonetheless, in late 2008 voters in Alaska, California, and Rhode Island approved new bond issues for transportation improvements, as did voters in various counties in Colorado, North Carolina, Oregon, Texas, and Virginia.

According to the ARTBA forecast, some states have already announced cutbacks in highway and bridge projects in response to budget shortfalls. Maryland will delay at least $1.1 billion of scheduled highway construction projects during the next six years. North Carolina anticipates having to cut $200 million from its highway program June 2009. New York State plans to eliminate 10% of its projects because of budget difficulties. Other state and local governments are making similar adjustments to the revenue shortfall.