Purchasing power of current highway funding will be subsequently reduced

In a report released September 26, the U.S. DOT''s Office of Inspector General (OIG) concluded that the recent growth of highway construction and maintenance costs "reflect structural, not transitory, economic changes," thereby significantly reducing the purchasing power of current highway funding well into the foreseeable future.

The report''s findings point out that highway construction and maintenance costs nationwide grew approximately three times faster from 2003 to 2006 than the fastest rate during any 3-year period between 1990 and 2003.

The increases, according to the report, come largely from the escalation in the costs of materials used in highway projects, such as cement, steel and asphalt. In addition, the costs are expected to stay high, and may possibly continue to rise, due to either lasting changes in the demand for these commodities, or long-term reductions in their supply. For example:

Steel scrap supply is falling, while international demand for scrap is growing;
Higher prices for fuel are creating a more efficient refining process, resulting in less fuel by-products, such as asphalt;
Cement prices track the increase in oil prices, since cement production is a highly fuel-intensive process; and
Aggregate supplies are falling, as a result of spreading urban and suburban development, which limits extraction opportunities.

To compile this report, the Office of Inspector General examined both national and state data on highway construction and maintenance costs; supporting information, such as bidders per project, industry profit margins and wages; and information from industry experts. AGC''s Highway and Transportation Division staff and Chief economist met with the OIG study group.