Running on empty...coffers

Carriers, contractors, and Congress members all have reason to be thankful that the highway reauthorization bill was enacted by mid-August. If Congress had taken its summer break before sending the bill to the President, or if he had vetoed it, the final product would no doubt have been less palatable to any of them. Less than three weeks after the bill-signing ceremony, Hurricane Katrina drastically

Carriers, contractors, and Congress members all have reason to be thankful that the highway reauthorization bill was enacted by mid-August. If Congress had taken its summer break before sending the bill to the President, or if he had vetoed it, the final product would no doubt have been less palatable to any of them.

Less than three weeks after the bill-signing ceremony, Hurricane Katrina drastically changed the fiscal and political landscapes along with the physical one. Congress quickly passed $63 billion of relief and repair funds. If SAFETEA-LU, the highway bill, had not already been safely enrolled in the Archives, some of that money would have come from it.

Despite that near-escape, the fiscal damage lingers from Katrina and its successors, Rita and Wilma. All three storms pushed up the cost of building a bridge or repaving a mile of highway, while reducing the stream of revenue to pay for projects.

Between them, Katrina and Rita knocked out more than 100 oil and natural gas platforms in the Gulf of Mexico, some permanently. The hurricanes also stopped output from 16 refineries at one point and numerous natural gas and petrochemical plants.

The reduced oil supply drove up the prices of diesel fuel, which affected not only carriers but also contractors' costs for delivery of construction materials and operating equipment. Prices shot up for asphalt, plastic drainage pipe, and other materials that use oil or natural gas as a feedstock. Higher energy costs also made production of energy-intensive materials like steel and concrete more expensive. All three storms interrupted cement imports But the harshest impact on the highway program may be on the revenue side. SAFETEA-LU barely managed to cover the funding for $286 billion of spending on highways, transit, and safety programs without tax increases. Once Katrina sent gasoline prices skyrocketing, motorists cut back on discretionary trips and started buying more fuel-efficient vehicles. Those decisions will trim federal and state gas tax revenues for years.

The storms also have taken a toll on the economy. Consumers nationwide are spending more to fuel their cars and heat or cool their homes. Those outlays mean less spending on other categories, leading to a slightly slower path of economic growth. That, in turn, implies fewer truck trips and thus lower diesel and truck tax collections.

In passing SAFETEA-LU, Congress recognized that it was scraping the bottom of the (oil) barrel for revenue. The act directs the Sec. of Transportation to appoint a commission to recommend additional ways to fund highways. If motorists change their fuel and vehicle buying preferences, because of either higher fuel costs or less income from a slower economy, the trust funds will run dry even sooner.

Some states will turn to higher tolls, and perhaps to selling existing or new toll roads to private operators. Indiana may raise charges on its toll road for the first time in 20 years and may also sell the highway, following the success its neighbor had in selling the Calumet Skyway in Illinois.

But tolls and asset sales will make up only a small portion of the funds states will need to match federal dollars, let alone to refurbish or expand aging, congested state and local highway networks. Instead, it seems increasingly likely that states will have to increase fuel taxes and registration fees in the next few years.

The bottom line: The hurricanes have speeded the depletion of federal and state trust funds, which were already heading toward empty. Carriers need to brace for higher taxes, registration fees, and tolls.

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