Cry of alarm

The American Association of State Highway and Transportation Officials (AASHTO) came out swinging for higher fuel taxes and more use of tolls in a report released on March 7.

The American Association of State Highway and Transportation Officials (AASHTO) came out swinging for higher fuel taxes and more use of tolls in a report released on March 7. The report pulls no punches.

The association, which comprises the top highway officials in each state, directed its report to the National Surface Transportation Policy and Revenue Study Commission, chaired by Sec. of Transportation Mary Peters.

“Federal highway assistance, which provides nearly half of capital spending, could be in crisis as early as 2008. Unless a solution is found, the program may have to be cut as much as $11 billion in FY2009,” the report warns. “It will take the equivalent of a 3-cent federal fuel tax increase to sustain the Federal program at the levels approved by SAFETEA-LU.”

“Meanwhile, because of rapidly escalating construction costs, the purchasing power of the Federal program will have been cut by over one half since the fuel tax rate was last adjusted in 1993,” AASHTO adds. “Restoring the purchasing power of this important program will also require a fuel tax increase or its equivalent.” Specifically, the report recommends an additional 7-cent increase in federal fuel taxes between 2010 and 2015.

Wait, there's more. “AASHTO supports giving all states all the options possible to use tolling, public-private partnerships, and innovative financing tools,” the organization says. “It is the hope that the Commission will be supportive of tolls and public-private ventures as a way to supplement traditional sources of transportation revenues.

“In 2005, $7.7-billion was generated through tolls, which represented 5% of highway revenues nationally. Over the next 10 years supportive Federal and state policies could make it possible to increase that percentage to 9% of the total.” An increase of that magnitude implies that toll collections would more than double, through some combination of new toll facilities, adding tolls to existing free roads (such as opening high-occupancy vehicle lanes to single-occupant vehicles willing to pay tolls), and boosting charges on current toll roads.

As drastic as these amounts may sound, AASHTO may have understated the money needed. In my role as chief economist for the Associated General Contractors of America, I track measures of highway and other construction costs, including the producer price index (PPI) for materials and components used in highway and street construction. That index rose only 10% from December 1996 to December 2003, slightly less than the 13% increase in the consumer price index (CPI). But over the next three years, the highway materials PPI soared 34%, while the CPI climbed just 9%.

All of the major inputs to highway and bridge construction have soared in price. First came steel, which jumped 50% or more in the first half of 2004, settled down briefly, but rose again in 2006 and early 2007.

The multi-year run-up in diesel fuel prices also hit construction hard. Contractors use huge quantities of diesel for earthmoving equipment, concrete mixers and pumpers, and pay fuel surcharges on deliveries and hauling away of dirt, debris and equipment. Asphalt and concrete prices also had double-digit increases in 2004-2006.

The bottom line: AASHTO is right to ring the alarm bell. Current funding sources are proving more inadequate every day to meeting highway construction needs in even the medium term. Trucking executives should decide whether they'd rather pay the bill that is surely coming through higher taxes, tolls or the hidden “tax” of congestion, potholes and weight-restricted bridges.

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