News last month that a U.S. Senate subcommittee approved a transportation spending bill that would cover next year’s $4 billion shortfall in the Highway Trust Fund was certainly welcome. The measure would transfer $8 billion from the general fund to the highway fund. House lawmakers claim their counterpart bill won’t address the shortfall, but this being an election year, the deficit will no doubt be resolved, Brian Moore, senior consultant for FMI, said in a late June webinar.
Such action will save hundreds of jobs and prevent interruption of urgently needed infrastructure projects. Still, it does nothing to repair the systemic problems plaguing the nation’s infrastructure funding program. The primary funding vehicle – gasoline taxes – haven’t increased since 1993. If adjusted for general inflation between that year and 2008, the 18.3 cents/gallon tax would need to be 28.8 cents today, Moore says. Take into account run-away inflation in highway construction materials prices – up 43 percent since 2003 – and it’s easy to see how the loss of purchasing power has created a crisis. According to the U.S. Department of Transportation, an additional $31 billion annually is needed just to preserve the current interstate system, and an additional $61 billion is needed to make highway and bridge improvements.
After years of policymakers ignoring numbers like these, the consequences are beginning to show. Sadly, the I-35 bridge collapse in Minneapolis did more to alert the public to our infrastructure’s state of disrepair than the countless hours and dollars our industry has put into spreading that message. New York Times columnist Thomas Friedman recently wrote he felt like he’d flown from the Flintstones’ world to the Jetsons’ when he left overcrowded Kennedy Airport and arrived in Singapore’s ultramodern, high-tech facility. If all Americans could compare Berlin’s central train station with Penn Station in New York City, he wrote, they would swear we lost World War II.
Something has to change if the United States is to keep up. According to Moore, an evolution has already begun, and contractors who understand it will have a competitive advantage while those who don’t could be squeezed out. Here are some ways Moore predicts funding sources and business models will change:
- Alternatives to the traditional design-bid-build process will take precedence. Alternative project delivery methods such as public/private partnerships and developer-oriented projects now make up 15 percent of highway projects and are increasingly popular – especially in areas with rapid population growth.
- Project sizes will increase. Public agencies are being pressed to spend more on infrastructure, and one way they can appear to address high-priority needs is by increasing project scale.
- Construction companies will face new challenges and opportunities. Larger projects will have the general effect of making big companies bigger while increasing competition for small projects among small firms. But small and mid-size companies also will have the opportunity to create strategic joint ventures and mergers. More under-the-radar opportunities will emerge as well for mid-size firms.
With little hope of increased government funding, finding ways to do more with less looks to be the plan for the foreseeable future. Working with public agencies, sharpening your business and technology skills and offering turnkey solutions will help you stay in the game.
