Economic Risks Pose New Challenges to States Planning Their Transportation Projects

AASHTO Journal, 17 October 2014

States could face new challenges meeting their transportation budget needs in coming months if bumps for the economy in early autumn give way to a longer slowdown that threatens their revenue streams.

The past week’s turmoil in global stock markets was partly attributed by market analysts to investor concerns about global growth, especially a stall in Europe, along with worries about how the spread of the Ebola virus can affect some airline sector investments here and abroad. (For more on the week’s Ebola-related developments, see Transportation TV’s report.)

That market upheaval also came amid reports that U.S. retail sales fell more in September than expected, on declines for auto sales and motor fuels. However, the U.S. labor market showed continued signs of strength with lower claims for jobless benefits in the latest week, while a report on September industrial production showed strength in the nation’s factory, mining and utility areas.

To the extent that a fuel sales drop is linked to falling costs as oil producers wage what Reuters called a global price war, it could set the stage for a growth-spurring cut in average household fuel costs just ahead of big yearend holiday consumer purchases.

Crude oil prices in the past week were roughly $20 lower than a year ago, and both average retail gasoline and diesel prices have been steadily falling. AAA said the average national retail price for gasoline during the Columbus Day holiday was the lowest since 2010.

But if fuel sales are also lower due to weakening demand for transportation, that would be another sign of economic fragility along with falling sales of other goods outside the up-and-down energy sector.

And since states and the federal Highway Trust Fund get most of their surface transportation revenue from per-gallon gasoline and diesel taxes, any cooling of fuel sale volumes could quickly hit transportation budgets.

Bud Wright, executive director of the American Association of State Highway and Transportation Officials, said state officials and others in transportation policy are closely watching the volatile swings in economic indicators.

“These events come when state departments of transportation are drawing up their bid lists for 2015 projects, and pose more uncertainties for them,” Wright said.

“However, we all know economic conditions can shift, so all of this helps highlight a major policy issue in Washington. We need a long-term surface transportation program from Congress that gives states some certainty about project funding even when the economy may be shifting in the short term. With a sustainable, long-term funding source in place, state DOTs could plan their infrastructure investments with more confidence, and that work would in turn reinforce the broader economy.”

Global organizations added their own warnings this month, with the International Monetary Fund urging the United States and other advanced economies to take advantage of low interest rates and inflation to launch major investment programs in transportation systems and other infrastructure, as a way to spur growth.

Meanwhile the World Bank, which targets its advice and aid at emerging economies, launched a public-private partnership funding account to invest in infrastructure in those nations.

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