Congress Passes 9th Transportation Extension; State Governments Remain Concerned About Continued Uncertainty
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To the surprise of nearly no one, Congress on Thursday put a week of false starts, political brinksmanship and posturing behind them and approved a new 90-day extension of federal highway authority, the ninth such extension since the federal authorization legislation known as SAFETEA-LU officially “expired” in 2009. With the most recent six-month extension set to expire Saturday and facing a potential halt to highway spending and fuel tax collection as well as the loss of thousands of construction-related jobs, lawmakers reluctantly agreed to extend federal surface transportation programs through June 30th to give them more time to come to agreement on a longer-term measure. But while passage of the extension allows state transportation officials to exhale for the moment, there is plenty of evidence that another temporary extension simply serves to prolong the uncertainty for states and is already prompting many to rethink their transportation investments (and the associated jobs they bring) just as the all-important highway construction season gets underway.
"Congress is to be commended today for reaching agreement on an extension of surface transportation legislation that will keep the nation's highway and transit programs running for another 90 days," said John Horsley, executive director of the American Association of State Highway and Transportation Officials, in a statement Thursday. "The clock has been reset and we are optimistic that the House and Senate will use the time available to settle on a new, long-term reauthorization. Passing such a bill will remove the uncertainty that is already causing a number of state departments of transportation to delay billions of dollars worth of highway projects that would otherwise create hundreds of thousands of American jobs."
The Senate Environment and Public Works Committee—which introduced the two-year, $109 billion, bipartisan transportation plan passed by the Senate earlier this month—issued a list this week of impacts on states (as reported by state transportation officials) from the passage of another temporary extension rather than the committee’s two-year bill. Among them:
- Maryland Assistant Secretary for Transportation Policy Caitlin Rayman said the continued uncertainty has eliminated her department’s ability to plan for future transportation needs. Such a short term increment will accentuate already difficult conditions under which they are managing projects, Rayman said. In addition, the state can’t commit to longer term projects and will be required to artificially restrict the flow of funding. Four thousand jobs are at risk related to projects being delayed.
- Michigan Department of Transportation Director Kirk Steudle told the committee his state has slowed project lettings and project start dates, shortening the state’s already brief construction season. Only 35 percent of projects have been let—approximately $180 million short of the normal letting schedule. Several large construction projects have been delayed to the latter part of the year. The uncertainty will make contractors reluctant to hire new employees or buy additional equipment. Thirty-five hundred jobs are at risk due to projects being delayed.
- Nevada Department of Transportation Deputy Director and Chief Engineer Scott Rawlins reported that his state will withhold advertising for federally funded projects until there is a reauthorization bill committing federal funds. The state will be required to slow down the development of future projects. Four thousand jobs are at risk related to the delayed projects.
- New Hampshire Department of Transportation Deputy Commissioner said $60 million in projects in his state that were recently bid but have not yet been contracted will not be authorized to proceed. That means 1,800 job years lost or delayed. Also, the planned $115 million GARVEE bond issuance for the construction of two highway exits will be delayed.
- North Carolina Transportation Secretary Gene Conti told the committee his department has delayed remaining 2012 project awards totaling $1.2 billion in projects that would employ 41,000 people.
- Rhode Island Department of Transportation Director Mike Lewis said his state has delayed the advertising and awarding of the entire 2012 formula-funded construction program, which may cause the state to miss an entire construction season. Rhode Island has delayed $80 million worth of projects, which equates to the loss of 1,000 job-years, Lewis said. The uncertainty has delayed planning for needed safety and structural improvements to an interchange that is in deplorable condition and put in jeopardy the state’s plans to design and construct the replacement of a vitally important viaduct over the next few years. Moreover, it has made long range planning and the development of a State Transportation Improvement Program nearly impossible.
- West Virginia Transportation Secretary Paul Maddox reported that a short-term extension will force his state to scale back its construction program, threatening jobs directly and indirectly. He estimated a 10 percent reduction in programs, and thus a reduction of 1,200 jobs. It will force WVDOT to omit capital improvement and bridge projects to focus limited resources on maintenance of the existing network and will make long-term planning challenging. The department may have to shut projects down or delay payments to contractors to manage a strained cash flow, Maddox said. The temporary extension has impacts for both the WVDOT workforce and the construction industry as well. The lack of long-term funding puts a strain on the department’s workforce to develop contingency plans around multiple scenarios (i.e., What kinds of funds for projects will be available to them if an authorization bill is passed at a reduced funding level? What if lawmakers can’t come to agreement on a bill or another extension before June 30?), instead of focusing on administering the planned construction program. For the construction industry, the uncertainty has a chilling effect because companies can’t adequately plan for bids on construction jobs and their own personnel needs, potentially resulting in layoffs.
More State Officials Weigh in on Senate Bill’s Anti-Privatization Measures
A couple of weeks ago I blogged about some changes that were added to the Senate bill at the last minute that some state officials believe could severely hamstring their use of public-private partnerships to finance infrastructure. Under the bill as approved, states that choose to privatize road assets would face reductions in the amount of Federal highway money they receive annually and private companies that operate highways for states would see their tax breaks limited.
Well this week the secretaries or directors of nine state departments of transportation (AZ, FL, IN, KS, NC, OH, PA, TX, and VA) sent a letter to House Speaker John Boehner urging the House to stand firm against these Senate provisions as the House debates its own authorization measure and goes to conference with the Senate on final legislation.
“Diminishing state and federal revenues combined with increased cost of construction materials, demands for new capacity and existing infrastructure in need of rehabilitation are forcing states to search for new and innovative ways to generate additional revenue,” they write. “One such innovation involves responsibly leveraging our publicly owned assets in partnership with our private partners. Public-Private Partnership, or P3, agreements allow cash-strapped states the ability to provide needed infrastructure without the need for large scale public investment.”
The transportation officials contend that the measures in the Senate bill will hinder and constrain what is (at least for the United States) a relatively new method of infrastructure finance and project delivery just as it is trying to take root.
“If these provisions are enacted into law, states that choose to utilize a private operator for a publically owned asset would be penalized by receiving less federal funding,” the letter reads. “Instead of utilizing the increased revenue and efficiency engendered by involving a private partner, the state will be forced to use those increased revenues for general maintenance; general maintenance that would otherwise be taken care of through the federal assistance that will now be lost due to these measures.”
Fundamentally, the DOT officials conclude, P3s have the potential to generate significant new sources of revenue to help fund infrastructure projects that are essential to creating and maintaining jobs. They believe the federal government should be about rewarding that kind of state innovation and not penalizing it.
“At the state level, we have heard from Washington that states must be innovative and creative in finding new revenue sources. We believe it is right to question the focus on penalizing states for being innovative instead of encouraging new ways to do business. DOTs should be rewarded for going above and beyond while finding solutions to the challenges and not punished for them.”
Many of the state DOTs that are signatories to the letter will be represented this June at the InfraAmericas U.S. P3 Infrastructure Forum that I mentioned a couple of weeks ago. CSG is a supporting organization for the event again this year. It takes place June 19-20 at the Metropolitan Club in New York City. It’s a well-attended, well-run conference that provides an excellent opportunity for state officials to network and learn about the latest trends in P3 infrastructure investment from their state government colleagues from around the country and from those representing the private sector investment community. You can read my coverage from last year’s conference here and here. And you can learn more about this year’s conference here.