While the US economic stimulus wasn’t a total washout, it wasn’t everything that the construction crane industry had expected, according to Joel Dandrea, executive vice president of the Specialized Carriers & Rigging Association (SCRA), Fairfax, Virginia.
The $787bn stimulus programme did just what it was designed to do, “To be a lifeline to the construction industry amid what was otherwise an abhorrent construction economy,” says Jeff Solsby, a spokesman for the Washington-based American Road & Transportation Builders Association (ARTBA), who adds, “It was never meant to be viewed as a substitution for the highway bill.”
In fact, Tony Dorsey, spokesman for the American Association of State Highway and Transportation Officials (AASHTO), calls the economic stimulus “a godsend” for the construction industry, which has been experiencing over 20% unemployment; twice the unemployment rate of the rest of the US economy. While he admits that many people expected it to do more than it has done, he maintains, “without the stimulus the unemployment rate would a whole lot higher.”
Dorsey observes that as of the end of June, 12,408 highway and bridge projects valued at $25.3bn were out of bid with 11,792 projects worth $23.9bn under signed contracts, of which 10,999 projects totaling $23.1bn are under way and 4,571 projects totaling $3.9bn are completed. He says that throughout the life of the programme 1,264 bridges will be improved, replaced or newly constructed and 35,399 miles of pavement will be improved, resurfaced or widened.
The construction crane business, however, won’t see much of this benefit, says Al Cervero, senior vice president of the Association of Equipment Manufacturers (AEM), Milwaukee, who declares that only about $4bn of the $47.8bn is going to highway and bridge transportation projects. This funding will be used for improving and/or replacing existing cranes.
“So far I don’t see any increase in our business due to stimulus money,” says Brax Snyder, manager of worldwide sales for Link-Belt Construction Equipment Co., Kentucky. “They have taken much of the money that is to be dedicated to transportation to repave roads and to make old things pretty. They really haven’t built many new things and I don’t see much of that happening next year either,” However, it could result in more than this year, as the government hasn’t released all the ARRA money yet, but is expected to do so in the coming year.
“The economic stimulus was a bait and switch programme,” says Ron DeFeo, chairman and chief executive officer of Terex Corp., Westport, Conn., explaining that when it was first discussed, and called an infrastructure spending programme, the notion of using federal dollars to invest in infrastructure, and therefore leave something lasting, was something that everyone could sign up for.
“But it was the best laid plans of mice and men. The government couldn’t find projects that were shovel ready enough,” so more of the projects involve fixing potholes and only about 6% of the total dollar amount is being spent on “real infrastructure,” including roads, bridges and energy infrastructure.
“People thought they were investing in the infrastructure with the stimulus package, but what they got was public relations and not substance,’ says DeFeo.
“$20 million was spent on signs (stating that projects were ARRA affiliated), those in the industry are very annoyed about that. We know that economic development and infrastructure are linked together.”
So does the general public. Cervero says that according to a recent AEM survey, 88% of voters nationwide believe that having modern, safe and efficient transportation, clean water electric power and flood control systems is necessary to having a healthy, growing economy, and 66% of voters believe that given current economic conditions, it’s a good time to build and repair America’s roads and bridges. The survey also indicated that between 67% and 71% of voters believe that putting more money into infrastructure would make America a more desirable place to live and work, create a significant number of new jobs, build a stronger economy for future generations and help farmers and manufacturers get their products to customers quicker and at less cost.
Leslie Shalabi, spokeswoman for Manitowoc Cranes, says that while as of this summer more than 11,000 highway and bridge economic stimulus projects have moved to the construction phase, only a small percentage of these projects— a total of about $23bn in work—require the purchase of new cranes.
And many of those purchases have already been made, says AEM’s Cervero, who observes the government has already assigned 79% of all the contracts to highway work, of which, 84% have been started and 14% are complete. “With the majority work contracted to be started by the end of the year, there is no reason for contractors and rental companies to buy any new cranes.”
Dorsey says one of AASHTO’s concerns is that the economic stimulus funds will slowly trickle to a stop in 2011. “Projects currently being built will continue to go on for a while, but once they are completed there might not be new projects to replace them. We are concerned that if there isn’t another six-year highway bill authorized that the momentum will be lost.”
This could be exacerbated by the continued credit crunch; “Banks aren’t lending money so it is hard for people to get money for new equipment,” observes Link-Belt’s Snyder. “Financing is beginning to be more available to our AA customers, but for people of lesser credit it is harder for them to get funding.”
And this problem is getting worse, not better, he says. “A lot of our customers are stretched because they have so many cranes sitting idle. Until people get busy again we won’t see many new sales either by contractors or by rental companies. They don’t have a lot of money to buy new equipment so our business is very low now.”
ARTBA’s Solsby says that the fact that the most recent federal surface transportation bill, nicknamed SAFETEALU, while extended to the end of this year from its original September 2009 expiration date, has not been reauthorised with a new, higher funded rendition of the legislation. While SAFETEA-LU included $286bn in funding over the six year life of the bill, draft reauthorization legislation supported by House Transportation Committee Chairman James L. Oberstar (D., Minn.), calls for almost double that: about $500bn over six years.
DeFeo says that the North American construction crane business has declined by about 75% since the recession with many rental companies going bankrupt because much of their crane fleets have been sitting idle. “The reauthorisation of the highway bill would lead to a solid recovery and a normalisation of our business. There would be more demand for cranes to be used to build bridges with the certainty of a six-year highway bill. It would give the rental companies the confidence to refresh their fleets. Without it, they are very reluctant to do so.”
“There is very little appetite for Congress to spend more money,” especially that amount of money, amid current concerns about the bloated federal deficit, observes Cervero. For that reason, he says it isn’t likely that the highway bill will be reauthorised without a new funding mechanism. “That isn’t to say that it isn’t needed given the fact that the nation’s infrastructure is crumbling.” He believes that such a move will probably involve some form of tax increase, is not expected to occur until after the mid-term Congressional elections in November, and may not be realised until sometime next year or beyond.
Dorsey notes that about 38% of US bridges are 41–50 years old, “which is disturbing given that most bridges are meant to only last about 50 years.” According to the US Department of Transportation, one out of four bridges is either structurally deficient (meaning that it has a limited structural capacity that may result in weight limitations which restrict traffic or create lengthy detours) or functionally obsolete (meaning that it has outdated design features and geometrics resulting in restrictions on traffic volumes, vehicle sizes and weights). The American Society of Civil Engineers in 2009 gave US bridges a C grade and overall US infrastructure a D grade.
In fact, in a recent House Subcommittee on Highways and Transit hearing, the subcommittee’s chairman, Rep. Peter DeFazio (D-OR) said that the US transportation system has gone from being the envy of the world to one you would expect to see in a Fourth World country and one that remains “decrepit” three years after the tragic collapse of the I-35 Bridge in Minneapolis which; “gave us a concrete example of the negative consequences of our lack of infrastructure investment.”
“A number of Congressional Commissions agree that there needs to be a significant increase in aid to the highway system,” says Dorsey. He observes that the Transportation for Tomorrow report by the National Surface Transportation and Revenue Study Commission says that the United States needs to invest $225bn annually over the next 50 years “to upgrade our existing transportation network to a good state of repair and to build the more advanced facilities we will require to remain competitive.” It states that the US government is currently spending less than 40% of this “and the current fuel tax-based revenue mechanisms (referring to the Highway Trust Fund, which relies on the federal gasoline tax) probably cannot be relied upon alone to raise the needed sums.”
Dorsey says that another commission report, Paying Our Way, by the National Surface Transportation Infrastructure Financing Commission, calls for an increase in the federal gasoline tax and for the tax to be indexed for inflation, stating that this was one of the only ways for the government to get out of the hole. The commission also calls for a vehicle-mile-traveled user fee and a few other new funding mechanisms to pay for this investment.
“There is very little dispute about the size of the proposed highway bill,” says Solsby. “The only question is how to pay for it.” Cervero agrees, explaining that while the public overwhelmingly believe that there is a need to invest in infrastructure, “It is hard to get the public to stomach paying for something that they are currently getting for free.”
Dorsey says that AASHTO believes that all options for funding, including raising the gasoline tax, public-private partnerships, bonding and tolling, be put on the table and a decision made “sooner rather than later.”
DeFeo says that the Highway Trust Fund, which depends on the federal gasoline tax for its funds, is one of the federal government’s few dedicated sources of revenue. Since its formation in 1956, it has been totally dedicated to funding transportation projects. That status recently came under threat. It had been proposed by the proposed American Power Act climate change bill proposed by Sens. John Kerry (D-Mass.) and Joseph Lieberman (I-Conn.) to allow a large portion of the fund’s money—77% in the first year and as much as 91% in later years—to help fund that legislation. However, it is expected that comprehensive energy reform will languish in the US Congress this year creating concern over this moot.
Solsby says that the current federal gasoline tax will only get Congress about a half to two thirds of the way to where Congress needs to be without having the reauthorized highway bill impact the federal deficit. DeFeo observes that the federal gasoline tax is currently 18.4 cents a gallon, as it has been ever since 1993. “In fact the value has eroded over the years and it isn’t indexed to inflation and the prices of construction raw materials, including steel and concrete, have skyrocketed.”
And while construction costs soar, the money going into the Highway Trust Fund has been shrinking, especially during the “Great Recession,” a time when the strapped-for-cash public were driving less. “There has been less revenue going into the Highway Trust fund than going out,” Dorsey said. “Three times in the past two years Congress had to rescue the Highway Trust Fund with infusions of money from the general fund. The trust fund will be fine until early next year (assuming current spending levels), but sometime next year Congress will need to do something again.”
Dorsey says that several transportation industry and general industry associations are on board to raise fuel taxes, including the American Trucking Association and the US Chamber of Commerce; “If they can’t move goods, businesses can’t do business.” However, according to Solsby, Ray LaHood, the US Secretary of Transportation, has said that he would not consider raising the gasoline tax during the recession. “It might, however, be revisited later when we see further positive economic data,” he says.
While maybe not that desirable during a weak economy, Snyder says he’s not sure where else the government could get the money they need to reauthorize the highway bill other than through raising the federal gasoline tax. Dorsey says that some state and local governments have already put the issue before the voters and some have approved increases in their gasoline taxes – and in some cases to sales taxes – to support transportation, which is quite significant at a time when several states’ financial solvency is in question.
Another funding option being considered is an actual user fee – one based on miles traveled as opposed to just the gasoline being consumed to travel those miles. There is, however, a lot of reticence about this funding mechanism and a lot of questions concerning the form it would take. Cervero says that today just about all user fees (other than the gasoline tax) involve toll roads. “It is difficult to do it any other way. Not all cars are equipped with GPS devices to show how far they have traveled,” he says.
Also public/private investment partnerships could be part of the funding equation, Cervero says. This is something that has taken hold in certain areas of the country over the past 20-30 years, but, at least at this time, isn’t very widespread. “Private industry needs to look to see if it is worth the investment.”
“I’m not very optimistic that the highway bill will be reauthorised this year,” says DeFeo. “The only hope that we have this year is that in the lame duck session that saner minds will prevail, especially given that this is a general area that both parties support. Investment in infrastructure is very stimulating. It puts a lot of people to work. By just extending it at current funding levels it will take the construction crane industry, and the general economy, longer to recover.”
Cervero concurs, but he says that even without it being reauthorised transportation funding levels do remain relatively high. What is lacking, he says, is a guarantee of the continued construction projects. DeFeo agrees, stating, “If companies and municipalities know what the bill will include, then they can plan. States need to know what they are working with. Once the highway bill is reauthorised it will provide some clarity and also allow people to decide what they need to do as far as public and private investment.”
With the dwindling hopes for a comprehensive surface transportation bill, SC&RA’s Dandrea says there has been a renewed push for a public/private funded National Infrastructure Bank, which would be an independent institution that would guide infrastructure spending based on merit as opposed to politics, thus avoiding the earmarks or “pork” spending often associated with US legislation.
Senate Banking Committee Chairman Sen. Christopher Dodd (D-Conn.) said in mid-August that he would push legislation to create a National Infrastructure Bank, possibly as part of a jobs creation package currently under consideration. A group of House lawmakers led by Rep. Rosa DeLauro (D-Conn.), is drafting similar legislation. President Obama has endorsed the idea, proposing in a budget plan released last winter to provide $25bn over the next five years for an infrastructure bank.
While not a bad start, Dandrea says this National Infrastructure Bank would be just a drop in the bucket compared with a comprehensive bill and doesn’t address all of the nation’s collective needs, but is “a big step forward.”
