2016

Highway & Bridge Construction Market Update Alison Premo Black, PhD ARTBA Senior VP & Chief Economist ARTBA Federal Issu...

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Highway & Bridge Construction Market Update Alison Premo Black, PhD ARTBA Senior VP & Chief Economist ARTBA Federal Issues Program May 9, 2016

© 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

Real Value of U.S. Highway & Street Construction Work – Rolling 12-month Totals $70

Regaining Ground in 2016: +11% from Mar 2015, -10% from 2009 peak

$65.4 (Dec 2009) $65

Billions of 2016$

$60

$58.4

$55

Real Market Decline: -24% peak to trough

$50

$49.9 (Nov 2013)

$45

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan

$40

2007

2008

2009

2010

2011

2012

2013

Source: ARTBA analysis of Census Bureau’s U.S. Value of Construction Put in Place, adjusted for project costs. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

2014

2015

2016

Real Value of U.S. Bridge Construction Work – Rolling 12-month Totals $34

Continued Growth in 2016: +12.5% from Mar 2015

$32

$33.0

Billions of 2015$

$30

$28

$26

$24

$22

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan

$20

2007

2008

2009

2010

2011

2012

2013

Source: ARTBA analysis of Census Bureau’s U.S. Value of Construction Put in Place, adjusted for project costs. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

2014

2015

2016

Factors Driving Market Recovery • Stability of five-year FAST Act federal aid highway program funding levels • Increase in state gas tax rates and other revenue sources • Improvement in overall state and local tax revenues • Large projects in major markets, P3 Activity

© 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

Challenges to Market Recovery • Recovery state by state is varied, uneven • Congress passed the FAST Act, but did not get the job done • Rising costs faced by state and local governments for K-12 education, healthcare, pensions

© 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

Federal Funds, on average, provide 52% of annual state DOT capital outlays for highway & bridge projects Over 70% of state highway & bridge capital outlays

50 to 69% of state highway & bridge capital outlays

30 to 49% of state highway & bridge capital outlays

35% 87%*

53% *

69%* 65%

53% 68%*

52%

71%

60%*

52%

60%*

40%

39%

72%* 50%

56%*

83%*

45%

59%

61%*

69%

43%*

61%* 66%

64%*

83% 67% *

CT 70%

RI 97%*

DE 42%*

NJ 31%*

MD 45%*

DC 52%*

47%*

65%

66% * 41%

60%

VT 80% MA 41%

41%

72% 46%

55%

NH 58%*

66%*

49%

89%* 36% HI 77% Source: ARTBA analysis of FHWA Highway Statistics data, total ten year average 2004-2013 from tables SF-1 and SF-2. The percent is the ratio of federal aid reimbursements to the state DOT and total state DOT capital outlays and is indicative of the importance of the federal aid program to state capital spending for highways and bridges. Does not include local capital spending. Federal highway reimbursements from FHWA are primarily used for capital outlays, including construction, right of way and engineering, but are also used for debt service for GARVEE bonds. FHWA payments go directly to state DOTs. * States that have issued GARVEE bonds before 2013.

FAST Act Highway Investment Impact $47 $46.4

$46

Billions of dollars

$45 $44 $43 $42.0

$42

$41.3

$41 $40

$40.3

$39 $38 $37 2015

2016

Nominal Obligations

2017

2018

Adjusted for Project Costs

2019

2020

Adjusted for Inflation

Source: ARTBA analysis of FAST Act. Inflation forecast from CBO's August 2015 report "An Update to the Budget and Economic Outlook: 2015 to 2025.“© 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

Average Annual FAST Act Funding by State (in millions) Less than $400 million

$400-600 million

$600 million- $1 billion

Over $1 billion NH $175

$718 $435

$196

$263 $691

$529 $303

$797

$299 $306 $3,888

$385

$368 $566 $400

$521

$1,738 $1,420 $1,009 $1,506 $463

$1,003

$1,078

$704

$389

$672

$548 $512 $804

$3,656

$531 HI $179

$743

CT $532

RI $232

DE $179

NJ $1,058

MD $637

DC $169

$1,105

$895 $775

MA $643

$1,778

$1,115

$271

VT $215

$709 $1,368 $2,007 $

Source: ARTBA analysis of FAST Act. Original data from FHWA. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

www.transportationinvestment.org

26 States & D.C. Have Increased Motor Fuel Related Taxes 43 Times Since 1997

WA

ME MT

ND

OR

MN ID

NH

NY

WI

SD

PA

IA

NE NV

VT

MI

WY

IL

UT

IN

CO

OH CT

WV KS

CA

MO DE

OK

SC

AR

MD DC

MS

AL

GA

AK TX

NJ

NC

TN NM

RI

VA

KY AZ

MA

Increase Prior to 2013

LA

FL HI © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

Increase Approved in 2013-2015

Index of State Tax Collections 125

Motor fuel tax collections up 23% from 2012 in states that passed gas tax increases in 2013.

Index of Tax Collections

120

123

115 111 110

110 105

103 100

100

95 2012

2013

Gas Tax Revenues: MA, MD, PA, VA, VT, WY All Tax Revenues: MA, MD, PA, VA, VT WY

2014

2015

Gas Tax Revenues: All other states All Tax Revenues: All other states

Source: ARTBA analysis of Census Bureau data, State and Local Tax Revenues. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

How Real State Gas Tax Revenue Collections and Highway/Bridge Contract Awards Compare in 2015 to pre-recession 2008 Levels Gas tax revenues & awards up

Gas tax revenues down, awards up

Gas tax revenues & awards down

Gas tax revenues up, awards down

WA

NH MT

ME

ND MN

OR

VT

ID

WI

SD

NY MI

WY

PA

IA

NE NV

CT

OH

UT

CA

MA

IL

CO KS

IN

RI

WV

MO

VA

KY

DE NJ

NC AZ

OK

NM

TN AR

SC MS

AL

MD

GA

TX LA

AK

FL HI

Source: ARTBA analysis of U.S. Census Bureau data on state motor fuel tax collections, adjusted with the Consumer Price Index, and highway and b ridge contract awards from Dodge Data Analytics, adjusted for project costs with the ARTBA Price Index. Comparison is of annual 2015 data with 2008 data. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

States To Watch in 2016 and Beyond Considering Revenue Increase in 2016 Discussing Revenue Increase Beyond 2016

WA MT

NH ME

ND MN

OR

VT

ID

WI

SD

NY MI

WY

PA

IA

NE CA

CT

OH

UT

NV

MA

IL

CO KS

IN

RI

WV

MO

VA

KY

DE NJ

NC AZ

OK

NM

TN AR

SC MS

AL

GA

TX LA

AK

FL HI

© 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

MD DC

Real Value of State & Local Govt. Contract Awards Major Projects Driving Recent Gains in Highway & Bridge Awards $90 $80 $70 $60

FL, TX & IN projects account for 2/3 of 2014 to 2015 increase

TX, NY & KY projects account for 2/3 of 2012 to 2013 increase

$62.8

$65.7

$63.0 $57.8

$56.6

$63.4 $56.9

$52.9

$50 $40 $30 $20 $10 $0 2008

2009

2010

2011

2012

2013

Source: ARTBA analysis of data from Dodge Data Analytics, adjusted with the ARTBA Price Index for project costs. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

2014

2015

States That Brought P3 Projects to Financial Close in 2014-2015 Highway/Bridge

Transit/Rail

Highway, Bridge &Transit

WA

NH MT

ME

ND MN

OR

VT

ID

WI

SD

NY MI

WY

PA

IA

NE UT

NV CA

MA

IL

CO KS

CT

OH

IN

RI

WV

MO

VA

KY

DE NJ

NC AZ

OK

NM

TN AR

SC MS

AL

GA

TX LA

AK

FL HI

Source: ARTBA Research, Public Works Financing Newsletter. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

MD DC

States With Major P3 Projects In the Pipeline Highway/Bridge

Transit/Rail

Highway, Bridge and Transit

WA

NH MT

ME

ND MN

OR

VT

ID WI

SD

NY MI

WY

PA

IA

NE

CT

OH

UT

NV

MA

CA

IL

CO KS

IN

RI

WV

MO

VA

KY

DE NJ

NC AZ

OK

NM

TN AR

SC MS

AL

DC

GA

TX LA

AK

FL HI

Source: ARTBA Research, Public Works Financing Newsletter. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

MD

The Highway Trust Fund Revenue Crisis Will Return $70

Billions of dollars

$60 $50

$52.0 $53.0

$55.0 $56.0 $56.0

$63.0 $61.0 $62.0 $60.0 $58.0 $59.0 $59.0

$41.0 $41.0 $42.0 $42.0 $42.0 $42.0 $41.0 $41.0 $41.0 $40.0 $40.0 $40.0

$40 $30 $19.0 $19.0

$21.0 $22.0

$25.0

$20 $10

$2.0

$0 2015 2016 2017

2018 2019 2020 2021

Total HTF outlays

Proj. HTF revenues

2022 2023 2024 2025

Shortfall after FAST Act transfers spent

Source: Congressional Budget Office Highway Trust Fund baseline, January 2016. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

2026

Continued Challenges for State & Local Finances • State budgets are improving, but progress has been slow and uneven • State governments face significant financial challenges going forward • Spending requirements on education, healthcare and other areas continue to grow at faster rates than state revenue growth. • Long-term critical challenges include pent-up demand for spending on infrastructure and rising pension and health care costs. Source: National State Association of Budget Officers, Fall 2015 Fiscal Survey of States. © 2016 ARTBA. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ARTBA.

Alison Premo Black Senior Vice President & Chief Economist American Road & Transportation Builders Association [email protected] @APremoBlack 202-289-4434