One of the key refrains of national politics recently has been that we need to address, repair, and replace aging infrastructure. Of course, this leads to the core problem of funding as the amount of infrastructure construction and maintenance currently needed in the U.S. is staggering. The federal government recently put off dealing with this growing problem by extending funding for federal highway and public transportation programs for one year. The current infrastructure authorization bill, the Fixing America’s Surface Transportation (FAST) Act, was passed in 2015 and was set to expire on September 30, 2020. The extension provides temporary funding for infrastructure projects but makes long-term planning and budgeting difficult for states needing to repair or replace highways and contractors planning for the future due to Congress failing to pass a multi-year reauthorization.
The FAST Act was the first long-term infrastructure authorization since the early 2000s. It provided funding certainty for state and federal infrastructure development for five years and kept the Highway Trust Fund solvent — the Highway Trust Fund being the primary source of federal funding for highways and mass transit. In 2020, the FAST Act authorized $46.4 billion for highway projects and $12.6 billion for other transit. Texas was the second highest recipient behind California and was apportioned $4.03 billion. The extension of the FAST Act keeps funding at current levels and makes an additional one-time $13.6 billion transfer to the Highway Trust Fund to keep it solvent.
While helpful in the short term, the lack of a long-term funding bill means that states will likely be unable to project and plan needed infrastructure projects adequately. While many state highway projects are funded through multiple sources, federal funding almost universally plays a crucial role, especially today as states have lost revenue from gas tax and toll roads due to the COVID-19 pandemic. As a result, many smaller, locally funded projects have been either postponed indefinitely or simply cancelled. These cancellations are a harbinger of things to come for larger projects at the state level if revenue replacements are not found. In a letter to congressional leaders on September 9, 2020, requesting renewal of the FAST Act, a group of 88 industry associations, including the Associated General Contractors of America and the American Road & Transportation Builders Association, requested an additional $37 billion in emergency funding for state departments of transportation to offset these losses of state and local revenue. According to this letter, various states have already delayed or cancelled $8 billion in surface transportation projects this year with more to come. However, Congress did not include any such emergency funds in extending the FAST Act.
There is some light on the horizon, however, as both the House and Senate have passed separate infrastructure bills over the past year signaling that the issue of infrastructure funding is on the national radar. In 2019, the Senate Environment and Public Works Committee approved a five-year $287 billion bill that would increase FAST Act spending by 27%. The House passed the Moving Forward Act on July 1, 2020, that included $1.5 trillion in infrastructure spending over five years, including a 33.5% increase over the FAST Act. Unfortunately, neither of those bills progressed, and with the current budget extension Congress will have to start the process again in January.
While a new long-term highway and infrastructure authorization is likely, it is uncertain how much funding will be procured, how it will be allocated, and what types of projects will receive priority funding. Amongst all of the unknowns in our current national environment, one of them is what the spending priorities of the federal government will be for the next several years. The result is that states are now left with the problem of trying to lay out long-term capital and infrastructure improvement projects while somewhat in the dark as to what the funding mechanism and priorities will be for those projects. This may have a chilling effect on the development and implementation of necessary large-scale infrastructure improvement and replacement plans across the country. Many point to the option of public-private partnerships as alternatives for funding, and while they are useful tools, even those projects often depend on federal funding (often through the Transportation Infrastructure Finance and Innovation Act program) for at least a portion of the construction costs. If there is a significant slowdown in projects previously funded by the FAST Act and Highway Trust Fund, we are likely to see increased competition for smaller maintenance projects, a resulting reduction in margins for contractors, and an excessively competitive market where some contractors are bidding work at or below cost simply to keep their businesses going until funding and work resumes. It could also result in a spike in bid protests as competition for available work becomes even more fierce.
This will hopefully be a relatively short-term problem. There seems to be agreement on both sides of the political aisle that replacing and repairing our aging infrastructure is a high priority. In addition, due to the impact of the COVID-19 pandemic on our national economy, there is increased appetite for spending on government projects, including infrastructure. This leads to an environment where significant opportunity exists to move the ball forward on infrastructure funding. The question that remains is whether and how the call to action on infrastructure will be answered.