DOTD's funding forecast

Contractors 'wait to exhale' as reauthorization edges closer to approval

By Angelle Bergeron

The construction industry is waiting to exhale.

Recent overwhelming approval by the U. S. House of Representatives of the Transportation Equity Act: A Legacy for Users (TEA-LU) offers a glimmer of hope that a long-term commitment to the nation's highways is right around the bend.

The bill, approved by a vote of 417 to 9, authorizes $283.9 billion for federal surface transportation programs for fiscal years 2004 to 2009. TEA-21, the highway authorization law enacted in 1998, authorized a total of $218 billion for highway and transit programs.

Since the expiration of TEA-21 in October 2003, the federal highway program has been operating under a series of short-term extensions as the Bush Administration and Congress wrestle over an acceptable reauthorization plan.

"The engineering part is easy, but the financial part is mystifying sometimes," said Ken Perret, assistant secretary of the Louisiana Department of Transportation and Development's Office of Planning and Programming. Money in the highway trust fund, which is fed by a nationwide 18.4 cent-per-gallon road user fee tax, funds all surface transportation programs.

Every six years Congress is supposed to enact an authorization bill based on the revenues that will be available. But as the President and members of Congress grapple over what would be an acceptable formula, funding has been trickling down through a series of extensions.

advertisement

"So there has been money still coming in based on TEA-21 levels, but it's been piecemeal," Perret said. "Across the country, that has caused a lot of delays and bookkeeping problems. The whole purpose of having a six-year bill is so we (states) can do a better job of planning projects and letting."

Furthermore, these delays merely add to the cost of each project as material prices escalate, Perret added.

Everyone in the industry is hoping that the Senate will approve TEA-LU in its current form, said Michael Bridges, undersecretary for the DOTD's office of management & finance.

"There is an effort on the Senate side to increase the amount of the bill, which then may be subject to a veto by the president," Bridges said. "I think we would always like to have more, but not if it means we've got to wait longer to get things done."

Once the Senate passes its version, it will move on to a conference committee, which could take another four to six weeks, Perret said.

"In that case, they will be hard-pressed to meet the May deadline when this extension runs out," he added.

In Louisiana that would mean delays for several projects, including completion of the Interstate 10 widening and upgrading in Jefferson Parish, Perret said.

"That project was delayed from last fall because it's a $60 million project and we didn't have enough interim financing to handle it," he said. "It was scheduled to be let this spring but we would have to do some creative financing because we only had 2005 funding approved through the end of May. We've got to watch our cash flow."

Perret said that contractors employed by the state bill each month for work completed. In turn, the state bills the federal highway administration for its part.

"That's assuming that the federal monies are available," Perret said. "If not, we cover it with state money until it is available." Since most of DOTD's projects are financed 80 percent with federal funds and 20 percent with state, Louisiana simply hasn't had enough money to float the rest.

"The federal government can operate on a deficit, but the state can't," Perret said.

Not only is the DOTD unable to plan ahead and prepare projects for letting, contractors are unable to purchase equipment and materials for big jobs when they are uncertain if funding will come through.

"After the last bill (TEA-21), we bought a lot of equipment, finished up a lot of jobs, but since then a lot of asphalt plants have left the state, downsized, laid people off and sold some of their plants," said Don Weathers, executive director of the Louisiana Asphalt Paving Association.

It is imperative that this bill meets Senate approval, or Louisiana will be hit hard, Weathers said.

"There are people trying to get more money but what we need is stability," he said. "A transportation bill will put people to work and will generate additional revenue throughout the country. To us in the industry, the transportation bill is a jobs bill."

Since waiting for a new bill, Louisiana has experienced an "exodus of asphalt plants," Weathers said. "Barriere has downsized from four or five plants to two. Iafrate has sold both of its asphalt plants and Gilchrist has sold its plants."

Louisiana is unique in that the construction industry is comprised of small business owners, mom and pops, second- and third-generation family businesses, Weathers explained. "We have to look at continuity." It's not like large corporations where one division can shut down and move people to another in another part of the country. "Most of our members don't work outside of a four or five parish area, so it's regional as well," Weathers added. "It's conceivable when things are slowing down that a region may not get a project for a few months, so we need continuity to keep things flowing."

Louisiana will still have some budget problems even if TEA-LU passes before time runs out on the most recent extension.

"If we get this additional federal money, currently the state doesn't have matching funds," said Ken Naquin, the Baton Rouge area manager for Associated General Contractors. "That is a situation the legislature is going to have to address."

Furthermore, the federal funds can't be used to address the maintenance needs of more than 6,000 miles of the state maintained system.

"The highway department scraped together about $32 million in the current state fiscal year and that was used for about 100 mi. of overlay," Naquin said.

If the current trend continues, Weathers said, the 6,000-plus mi. in the state system will gradually worsen.

"It's the never-ending spiral, like credit cards," he said. "Before long, you find out all the money is going toward interest and nothing toward principal."

Three years ago, LAPA, AGC and the Concrete Association formed a coalition to try to develop additional state funding, particularly by addressing the amount of return Louisiana receives from the federal government.

"Currently, Louisiana gets 89 cents back from every dollar we send to the federal government, but we would like to get it all back," Naquin said. "Numerous states get more back than they send to Washington."

The donor states (those receiving less than 100 percent return) are requesting a 95 percent return.

"We're asking the congressional delegation to put it in the reauthorization bill," Naquin said. If TEA-LU passes in its current form, Louisiana will receive a 90.5-cent return, which would mean $100 to $125 million more added to the state coffers each year.

"Of course, if it's 95 cents, that would mean much more," Naquin said.

Useful Source:

For an outline of DOTD's goals and objectives for the current fiscal year, go to:
http://www.dotd.state.la.us/press/Secretarys_Goals.pdf