With Less Driving, Where Will Funds For Road Construction Come From?
The COVID-19-caused falloff in driving, with a resulting drop in fuel-tax receipts, is starting to pose big challenges for state transportation departments as they try to gauge the long-term impact on their budgets and projects.
The North Carolina Dept. of Transportation, facing a projected loss of more than $300 million, has shelved dozens of new projects. Florida is considering alternative delivery tools, and Nevada is closely monitoring traffic counts.
And everyone is looking to Washington, D.C., for federal help. The American Association of State Highway and Transportation Officials (AASHTO) proposed a $49.95-billion “immediate revenue backstop” in a request sent to Congress April 6. Of that, $16.7 billion would be for fiscal year 2020 and the rest for FY21.
On May 12, House Democrats included $15 billion for state and tribal DOTs as part of a proposed $3-trillion coronavirus relief and recovery package. While the overall plan is unlikely to move forward, state DOTs hope the GOP will embrace money for highways.
Meanwhile, for state fuel-tax revenue, “The picture is looking pretty dire. And this problem is going to continue to get worse,” says Cory Gattie, director of the Associated General Contractors of America’s highway and transportation division.
Jeff Davis, senior fellow at the Eno Center for Transportation, says that total federal gas tax receipts showed a 16% decrease last month compared to April 2019. There is a lag time of about three to five weeks from consumer gas consumption to federal revenue, he notes.
Davis says there has been a 40% decrease in fuel production at refineries due to the outbreak. But, he adds, “There is enough [federal revenue] balance built up that this won’t affect federal check-writing until next spring.”
AASHTO foresees an average 30% reduction in transportation revenue over the next 18 months. In the early days of the pandemic, DOTs were able to use relatively empty highways to accelerate projects’ completion. “Now,” Tymon adds, “states are hesitant to move forward with putting new contracts out to bid, because they’re not certain that the revenue is going to be there.”
The American Road & Transportation Builders Association counts ten states that have delayed or canceled projects as of May 12. “This is a situation of not if it’s going to have an impact on every state, but when it’s going to have an impact on every state,” says Dave Bauer, ARTBA chief executive officer.
Some DOTs are using in-house staff for work they would have normally bid to the private sector, says Steve Hall, American Council of Engineering Companies senior vice president. The trend isn’t yet widespread, but Hall adds, “I have to assume this may grow as the uncertainty about DOT budgets linger.”
States of Uncertainty
The consensus among DOT officials interviewed by ENR is that it’s too soon to know what the long-term impacts will be on budgets and capital programs, but they know they will happen.
“We certainly anticipate that there will be an impact,” says Matt Bruning, Ohio DOT spokesperson. “We are looking at all of our projects to determine what our critical needs are and what can safely be delayed, if needed.”
In a May 5 letter to U.S. Rep. Daniel Webster (R-Fla.) requesting the federal funding assistance promoted by AASHTO, Florida DOT Secretary Kevin Thibault noted that the infusion would enable FDOT to “avoid cancellations and delays of projects.” Last month, the agency expedited some $2.1 billion worth of projects. Beth Frady, FDOT spokesperson, adds that “the department continues to look for opportunities to accelerate projects during this low traffic period.”
A federal funding backstop would “really stabilize the program for the near term,” says Ananth Prasad, executive director of the Florida Transportation Builders Association and a former FDOT secretary. Alternative-delivery tools, such as design-build and design-build-finance could help the state ride out the funding shortfall, Prasad adds. He says the agency could use such tools to extend payment schedules for upcoming projects by a year.
In North Carolina, the COVID-19 revenue crisis is the latest challenge for the state’s DOT, which spent more than $300 million to recover from Hurricane Florence and other 2018 weather events. The agency also paid millions of dollars to settle lawsuits from a 30-year-old land ownership law. A state audit found that poor budgeting and project oversight during FY2019 cost NCDOT approximately $742 million.
NCDOT received a $200-million infusion of funding from the state’s legislature in November. That allowed the agency to begin the process of restarting hundreds of stalled projects before the outbreak.
Now NCDOT projects a loss of more than $300 million in revenue from state fuel taxes, highway use fees and motor vehicle fees for the current fiscal year. A shortfall of more than $370 million is predicted for FY21. The losses have sent NCDOT’s cash reserves below a statutorily mandated minimum of $292.7 million, barring the agency from entering new infrastructure contracts.
NCDOT has laid off nearly half of its temporary employees and embedded consultants. The agency is also developing a furlough plan that would affect many of its 9,300 employees. NCDOT spokesperson Steve Abbott says it will continue to pay invoices for work completed or underway, but adds that some projects could be halted if the financial outlook worsens.
Alexis Campbell, spokeswoman for Pennsylvania DOT, says PennDOT receives funds from state gas and diesel taxes, as well as some licensing and registration fees. Last year, gas tax revenue was about $4 billion. This year, “early estimates indicate that we could see losses of between $800 million and $900 million.”
In Utah, legislators are anticipating up to $2 billion in cuts to the state’s overall $20-billion budget for 2021. That could mean at least a 10% reduction for all departments, including transportation. But the state treasurer’s office says it plans to sell nearly half a billion dollars in bonds by May 19 to help fund projects. The legislature will meet in a special session next month to re-evaluate the budget before the new fiscal year begins on July 1. The agency’s FY2020 budget is $1.47 billion.
Utah DOT spokesman John Gleason says the agency is taking a fiscally conservative approach: for example, not opening several of the state’s seasonal roads until the snow and ice have melted naturally.
“If the decision is made to modify our budget, we will make the necessary adjustments to ensure that going forward. We are working within that budget,” says Gleason.
Kansas DOT reports that while April revenue losses were relatively modest, the full effect will be felt in the coming months. The agency also receives revenue from vehicle registrations and a portion of proceeds from sales taxes.
In March, the Kansas legislature approved a $9.7-billion, 10-year transportation program that will fund road, bridge, rail and airport projects. Kansas DOT Secretary Julie Lorenz says the agency plans to put $1.5 billion worth of projects into the development pipeline when the program takes effect in July.
She noted that initiating the projects could also benefit KDOT’s eligibility for funding under a potential federal infrastructure stimulus measure. “We’re not sure what form it may take, but we want to be ready for it,” she says.
If Congress agrees to additional funding along the lines of AASHTO’s request, the money almost certainly wouldn’t come from the Highway Trust Fund, which is running low, but the general fund. Regarding the plan’s reception, Tymon says that initially “we had a pretty steep hill to climb.” But now he says, “I think we’re getting really good feedback from folks on Capitol Hill.
“States have really stepped up and worked with their congressional delegations to show how this pandemic is affecting projects that they had planned to do this year.”
By Tom Ichniowski, Jim Parsons and Aileen Cho, with ENR staff
Story corrected on 5/19/20: AASHTO plan was sent to Congress on April 6. It was the subject of a press release the following day.