Highway market

Jan. 1, 2006
SPURRED by a combination of renewed economic growth, emergency repair work following Hurricane Katrina, and a new law that increases federal investment

SPURRED by a combination of renewed economic growth, emergency repair work following Hurricane Katrina, and a new law that increases federal investment in highways, the US highway construction market should grow 5.4 % in 2006, according to the chief economist for the American Road and Transportation Builders Association (ARTBA).

The real question is how much of the growth will be absorbed by rising construction costs, said William Buechner, vice-president, ARTBA economics and research.

The value of construction work performed on highway and bridge projects is projected to be a record $70.3 billion in FY 2006, up from $66.9 billion in FY 2005, according to ARTBA.

Buechner said several factors should help support market growth next year:

  • State and local budget improvements: Strong economic growth has boosted general state tax revenues and there is much less pressure to dip into highway funds to balance state government budgets.

    Continued economic growth should provide a solid base for more state and local government investment in highway construction in 2006 and beyond.

  • Safe, Accountable, Flexible, Efficient Transportation Equity Act — A Legacy for Users (SAFETEA-LU): Signed into law last August, SAFETEA-LU guarantees a record $286.5 billion transportation investment level from FY 2004-09 and provides predictability in federal funding for highway construction, according to Buechner.

    SAFETEA-LU's innovative financing provisions, such as allowing $15 billion in private activity bonds for highway improvements, should also help support future market growth, ARTBA said.

  • Hurricane Katrina: The Bush Administration has requested $2.3 billion in general fund revenue to help repair and rebuild highways and bridges damaged during the hurricane, which should provide an additional one-time market boost in 2006.

    Buechner cautioned that higher construction costs may be in store brought about by dramatic increases in steel, cement, and petroleum prices, and this could impact the overall level of construction growth in 2006.

    Materials used in highway and bridge construction will cost about 13 % more in 2005 than 2004 while total costs including labor and overhead will be up about 7.5 %.

    Even if prices stabilize at their current levels, the cost of highway construction in 2006 would be about 4.5 % higher than in 2005. This could absorb much of the projected 5.4 % funding, leaving little to finance additional projects, Buechner says.

    If prices continue to rise, higher costs would consume all of the projected increase in the value of highway construction next year and could force states to postpone some planned projects.

  • Outlook for Airports & Public Transit: The value of construction work performed on airport runways, taxiways, and related projects will total about $6.1 billion in 2005 — a 20 % increase over 2004. Strong growth should continue into 2006, due to the resurgence of air travel, a $50 million boost in federal investment through the Airport Improvement Program, and the recent increase in passenger facility charges that many larger airports use to finance construction projects.

Transit and light rail construction has eased recently as a number of construction projects funded under TEA-21 have been coming to completion, Buechner says. As the 38 new transit projects designated for funding under SAFETEA-LU get underway, the value of construction work performed on subways and light rail projects should begin to accelerate in 2006.