Highway and street put-in-place construction will increase 6 percent to more than $79.7 billion in 2007. It will increase another 7 percent in 2008 to over $85.3 billion and is predicted to reach more than $98.7 billion in 2011. Congested highways and corroding bridges are clearly a problem for our nation. However, funding to correct these problems is an issue. Escalating highway and street construction costs are only adding pressure and there are new doubts as to whether public-private partnerships (PPP) are the answer to our problems.

The highway and street segment consists of many types of construction. Pavement is the largest sub-segment at just over $48.4 billion, and accounts for more than 64 percent of total highway and street construction. Bridges represent the next largest segment at $20.9 billion and account for almost 28 percent of put-in-place construction. Retaining walls and rest facilities account for about 2 percent, followed by the lighting and toll and weigh stations and other sub-segments, which account for approximately 1 percent each. Maintenance buildings and tunnels are the smallest sub-segments; they each account for less than 1 percent of total highway and street put-in-place construction.

In Need of Repair
Several industry organizations recognize that our nation’s highways and bridges are in dire need of repair. The tragic bridge collapse in Minneapolis this summer is a prime example. The American Society of Civil Engineers 2005 Report Card for America’s Infrastructure gave poor grades for highway and street-related infrastructure. Bridges, ironically, received the best grade with a “C,” while roads received a “D.”

Of the nation’s 596,842 bridges, more than 12 percent, or 73,764 bridges, are structurally deficient and more than 13 percent, or 80,226 bridges, are functionally obsolete. Combined, almost 26 percent – 153,990 of the nation’s bridges – are in need of an urgent fix.

The American Association of State Highway and Transportation Officials (AASHTO) says it believes that federal road funding must increase by more than 80 percent by 2015 just to keep up with inflation. It estimates that the total cost to improve highway conditions and performance will reach $189 billion in 2015. Of the total, $83 billion needs to come from federal funds.

The American Road and Transportation Builders Association (ARTBA) released The Nation’s Highway and Transit Investment Needs Through 2015 report earlier this year in preparation for the reauthorization of the Safe, Accountable, Flexible and Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). The report presents all investment amounts in 2004 dollars. It assumes that the goal for the next surface transportation bill should be at least enough to stabilize highway congestion and prevent it from worsening. This goal requires an annual investment of $89.7 billion, which is $11 billion more than needed to maintain conditions. The additional investment would be used mostly for new capacity.

An additional financial investment would be needed to improve conditions. ARTBA calculates surface transportation funding will need to be more than $54.5 billion in 2010 and $61.5 billion by 2015 just to maintain the roads, not improve them.

A Rough Road
Funding for our highways and bridges is a hot topic. The Office of Management and Budget (OMB) continues to increase its estimate of the deficit for the Highway Trust Fund. During its mid-session budget review in July 2007, the OMB said that the trust fund’s highway account would have a deficit of $3.8 billion by 2009, up from its estimate of $200 million just six months earlier. Congress will likely raise its highway appropriation to $40.2 billion, which is $631 million higher than the $39.1 billion proposed by the president. It is evident that the funding for highways and streets must come from some source. It is unclear whether the revenue will come from raising taxes, toll roads or public-private partnerships.

The Bush Administration released its $2.9 trillion budget for 2008 earlier this year. It includes almost $67 billion for programs administered by the U.S. Department of Transportation. These programs include the federal highway, public transportation, federal aviation and safety programs. For most of the transportation investment programs, the budget calls for a slight increase for 2008 funding over 2007 levels. However, it fails to honor the surface transportation funding guaranteed by SAFETEA-LU.

The budget proposes almost $39.6 billion for the core highway program. It is the base amount guaranteed in SAFETEA-LU for 2008 and is a $500 million increase over 2007. However, it proposes to cut the Revenue Aligned Budget Authority $631 million adjustment due to concerns about the Highway Trust Fund’s solvency.

A bill from Congress will likely be forthcoming to address the needs of our bridges. It remains to be seen whether or not any additional funding for bridges will be authorized prior to the next election.

‘Dollar Buys Less’
Another issue around highway funding is the escalation of costs. AASHTO claims that costs jumped nearly 30 percent from 2004 to 2006. Each year, the cost of building highways and bridges goes up. This is due to rising materials costs, higher wages and higher costs for services such as electricity, phones and insurance. This means that each highway construction dollar buys less.

There is not an official measure for highway and bridge construction costs. The Producer Price Index (PPI) for highway and street construction measures the price of construction materials, but does not include labor or overhead costs. Moreover, there is no official forecast, so this is not a good indicator to use. ARTBA uses the Consumer Price Index (CPI). The CPI and the PPI for highways and streets are tracked together over time. This implies that official forecasts for CPI can serve as a good indicator for increases in highway and street construction costs. While the CPI is typically a good indicator, it was not so good for 2005 and 2006, which saw large increases in costs for materials and gas. ARTBA estimates that highway construction costs rose 7.7 percent in 2005 and 6.5 percent in 2006, which is about twice the rise in CPI.

Due to the funding gap, many states are looking at toll roads to finance construction. Some states own and operate their own toll roads, and others are forming public-private partnerships.  According to a survey conducted by the U.S. General Accountability Office, 23 states have plans to build toll facilities. Of these states, 17 already have tolling operations while six are planning their first toll roads.

To quicken delivery of construction, some are looking to public-private partnerships. These partnerships are contractual agreements formed between a public agency and private sector entity that allow for greater private sector participation in the delivery of transportation projects. Less than half of the states in the nation authorize the use of these partnerships for highway projects. Twenty-one states and one territory have passed legislation providing the legal authority for private-sector participation in transportation projects, while 38 states have laws allowing the use of design/build.

Although such partnerships are a popular topic, not all states are clamoring to continue using them. In Texas, constituents have created a backlash against others owning their roads and legislators are taking a step back to consider if they want to sign away any more of 50 years of future revenue. Texas now has a two-year moratorium on public-private partnership projects.

Heather Jones is a construction economist in the research services group at Raleigh, N.C.-based FMI Corp. She can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it